In February 2014, the U.S. Department of Commerce’s Bureau of Industry and Security (“BIS”) published a report (“Report”) detailing the impact of export controls on the U.S. space industry.  Titled the “U.S. Space Industry ‘Deep Dive’ Assessment,” the Report addresses how U.S. export controls affect the space industrial supply chain.

Background.  BIS administers the Export Administration Regulations (the “EAR”), which govern the export of commercial or so-called “dual use” items.  The review BIS undertook encompassed the implications to the U.S. space industry of current controls under the EAR and, especially, the International Traffic in Arms Regulations (the “ITAR”).  The ITAR are the regulations that govern exports of defense articles and technical data, and are administered by the U.S. State Department.  The ITAR are particularly relevant to the U.S. space industry – as described further below – because the ITAR control exports of items specifically designed, modified, configured or adapted for space applications, as well as related technical data and services.

To conduct its assessment, BIS blasted well-designed and thorough surveys to commercial companies, universities, non-profit organizations, and governmental agencies that have a stake in the space industrial base.  The stated goal was to map the space industrial supply chain in “unprecedented detail.”  And, at least in that regard, it seems to have been a success: BIS received 3,780 completed surveys.

Findings.  While the gravity of this Report remains to be seen, we believe the BIS review led to some important findings, including the following:

  • The Regulatory Atmosphere.  Twenty-six percent of respondents export their space-related products and services, including over 500 small businesses.  Most of these respondents were commercial businesses that reported exporting to over 75 countries.  The top countries listed were Canada, Japan, France, the United Kingdom, and Germany.
  • The ITAR: A Black Hole?  Many respondents indicated that the ITAR negatively impact the economic health of their business in two ways.  First, many companies simply avoid exporting products and services that are subject to the ITAR because of the perceived complexity of the regulations, fear of misinterpreting regulations, and expectations that license applications may be denied or incur lengthy delays.  One small business conveyed the sentiment of many companies: “the complexity of understanding ITAR regulations exceeds the potential value of the opportunities.”  Second, respondents complained that non-U.S. companies tend to offer “ITAR-free” products and services, giving them a competitive advantage over U.S. companies.  In this vein, respondents estimated lost sales opportunities between approximately $1 and $2 billion from 2009 to 2012.
  • ECR: The Final Frontier.  The U.S. government’s current Export Control Reform (“ECR”) Initiative may provide significant opportunities for U.S. companies to export space-related products and services to allied countries and ease many licensing burdens.  (We have discussed ECR rules that affect satellites and other space-related products in detail here.)  Based on the data collected, BIS found that at least 155 products and services provided by companies surveyed could be impacted by ECR.  More generally, almost half of the respondent companies would be positively affected by ECR.  For U.S. exporters in the space sector, the Strategic Trade Authorization (“STA”) license exemption will be particularly useful given that the eligible countries include 13 of the top 20 destinations for space-related products.  Applying for licenses to export commodities transferred from the ITAR to the Export Administration Regulations will be cost-free, will not require purchase orders, and licenses will be valid up to four years.
  • (Out)reach for the Stars.  The Report concluded that outreach to companies and organizations is critical for enhancing understanding about export controls and ECR related to the space industry, particularly for smaller business.  Many organizations do not know of the opportunities and programs available to support their space-related products and services.

Many in the satellite and space industries will not be surprised by the findings.  There have long been complaints about “ITAR-free” products that, manufactured outside the United States, are co-opting U.S. manufacturers’ market share.  The Report is certainly not going to reverse that situation overnight.

We nonetheless think it positive that BIS actually conducted this review, and that it was so comprehensive in nature.  As noted above, BIS received close to 4,000 survey responses – if nothing else, the volume of responses must have demonstrated to BIS how much U.S. companies care about these issues.  Moreover, close to 1,000 respondents indicated that they export products related to the satellite and space industries.  To the extent the government did not already realize the importance of getting the export regime right, hopefully it will be quite clear now.