In a major step toward export control reform, the U.S. Congress passed legislation on 21 December 2012 giving the President authority to ease export controls applicable to commercial communications satellites (COMSATs) and related items. The National Defense Authorization Act for Fiscal Year 2013 (NDAA), which was signed into law by President Obama on 3 January 2013, restores the President’s authority to transfer COMSATs from the International Traffic in Arms Regulations (ITAR) to the less restrictive “dual-use” controls under the Export Administration Regulations (EAR).
As outlined in the following, the Administration still must take a number of procedural steps before COMSATs can be removed from ITAR jurisdiction and the changes are not expected to take effect until late 2013, at the earliest. Although these future changes will ease export licensing requirements for many COMSAT-related activities, companies will need to assess carefully the practical effects of the transfer of jurisdiction on their day-to-day operations, as export compliance measures will continue to be very important and many COMSAT-related transfers will remain subject to specific export licensing requirements. It is also important to note that the changes generally will not ease satellite-related export controls applicable to China and other countries subject to U.S. trade and arms embargoes.
Since 1999, U.S. law has required that virtually all U.S.-origin satellites, including COMSATs, be controlled as defense articles under the ITAR. As a result, COMSATs have been among the only dual-use items subject to same strict export controls as major U.S. weapons systems and have been the only items on the U.S. Munitions List for which the President had no discretion to ease controls to meet changing market conditions. The U.S. satellite industry has long argued that the strict regulation of satellites under the ITAR has hurt U.S. manufacturers relative to their European and other foreign competitors, whose products are not subject to the same stringent export controls.
In April 2012, the Departments of State and Defense issued a joint report to Congress (Section 1248 Report) finding that the control of COMSATs and related items under the ITAR was harming the U.S. industrial base and that the easing of those controls would support the national security interests of the United States. Specifically, the report recommended that the following categories of items be transferred from the ITAR to the EAR:
- COMSATs that do not contain classified components;
- remote sensing satellites with performance parameters below certain thresholds; and
- systems, subsystems, parts, and components associated with these satellites (including ground-based telemetry, tracking and control systems) and with performance parameters below thresholds specified for items remaining under ITAR jurisdiction.
Additional details regarding the specific categories of items that the Obama Administration would propose for transfer from the ITAR to the EAR were provided in appendices to the report, in the form of revised control list entries under both sets of regulations. (See Appendices 1 and 2 of the Section 1248 Report.)
Summary of NDAA provisions related to satellite export controls
The NDAA passed by Congress and signed into law on 3 January 2013 authorizes the President to proceed with the easing of satellite export controls applicable for most countries, while maintaining current restrictions for China and certain other countries. Specifically, the NDAA:
- repeals Section 1513 of the Strom Thurmond National Defense Authorization Act for Fiscal Year 1999, which required control of U.S.-origin satellites and related items under the ITAR;
- requires the President, before removing satellites or related items from ITAR jurisdiction, to certify that the proposed changes are in the national security interests of the United States and to complete an interagency review process;
- prohibits exports or reexports of U.S.-origin satellites or related items to China, North Korea, or any country designated by the U.S. State Department as a state sponsor of terrorism;
- establishes a presumption of denial of licenses for exports of satellites or related items to any country with respect to which the United States maintains a comprehensive arms embargo;
- requires the President to establish a mechanism for monitoring the end-use of satellites and related items removed from ITAR jurisdiction and exported under the EAR; and
- requires the President to submit certain notifications and reports to Congress regarding any revisions to the export controls applicable to satellites and the effectiveness of remaining export controls.
Timing and next steps
The Obama Administration has indicated that it fully intends to move forward with the reform of satellite export control as soon as possible. In fact, Administration officials have stated that they have already drafted proposed rules for the transfer of COMSATs and related items to the EAR, in line with the recommendations set forth in the Section 1248 Report. However, the revision of the satellite export controls will need to be implemented as part of the President’s broader export control reform and there are a number of steps that must be taken before the changes can take effect:
- The Administration first will need to publish Federal Register notices with the proposed revisions to the ITAR and EAR to implement the changes to the satellite controls. These notices are expected to be published shortly after the NDAA is signed into law.
- The proposed rules will be subject to public comment period (typically 60 days), after which the Administration will need to revise the proposed rules based on the comments received and then complete an interagency review process among the Departments of Defense, State and Commerce, the Director of National Intelligence, and other appropriate agencies.
- Before publication, the final rules will then need to be notified to Congress in accordance with Section 38(f) of the Arms Export Control Act. Due to the informal “pre-notification” period, this process is expected to take at least 60 days (but could take longer, particularly if the Administration’s proposed changes meet resistance among key members of Congress).
- Even after publication, the final rules are not expected to take effect for several months. (Administration officials have indicated that they are currently considering an effective date of 180 days after publication of final rules related to control list revisions as part of export control reform.)
- In the interim, the Administration also will need to finalize a number of related changes to the ITAR and EAR as part of the President’s broader export control reform effort, including key definitions (such as the term “specially designed” for product classification purposes), the transition procedures, and the scope of applicable license exceptions (such as “License Exception STA” for key U.S. allies).
- Under the current transition proposals, U.S. exporters are expected to have up to two years after the effective date of the final rules to replace existing ITAR licenses with authorizations under the EAR.
Given these required steps, we expect that the removal of COMSATs and related items from ITAR jurisdiction will not take effect until late 2013, at the earliest.
Implications for satellite industry
Ultimately, the proposed revisions to the U.S. exports controls applicable to COMSATs are expected to reduce significantly the administrative and licensing burdens associated with the current control regime under ITAR. Most importantly, it is anticipated that the current requirements to obtain Technical Assistance Agreements (TAAs) and other specific licenses under the ITAR will be largely eliminated for COMSAT programs and that license exceptions under the EAR will cover a significant proportion of activities involving exports to U.S. allies.
In the short term, however, both U.S. and non-U.S. companies engaged in ITAR-controlled activities related to satellites will have a significant amount of work to do to prepare for and complete the transition to the EAR.
- Companies will need to assess the implications of the proposed changes and the extent to which they have remaining activities subject to the ITAR.
- Even after the changes become effective, many companies in the satellite industry still will need to deal with ITAR restrictions and licensing requirements. For example, launch-related technologies and services likely will remain subject to the ITAR.
- Both U.S. and non-U.S. entities will need to make sure they have a current list of existing ITAR authorizations and will need to assess the extent to which those authorizations need to be replaced with EAR authorizations.
Given the scope of the proposed changes to satellite export controls, companies involved in satellite-related activities should follow developments closely and would be well advised to begin planning for the transition.
For more information about the proposed export control reforms applicable to satellites, please contact those listed or the Hogan Lovells lawyer with whom you work.