Space Space

National security, export controls, and the space economy

With entrepreneurial eyes focused skyward and beyond, balancing commercial opportunity with national security is very much on the US government’s agenda. Donald Vieira, Nicholas Klein and Jennifer Ho review the regulations and the challenges they face.

shering in a new era of satellites. As commercialisation of the Hughes and Loral obtained export commercial space activity, last satellite industry increases, so too will licences to launch the satellites as U month, SpaceX launched into the importance of the US export required at the time, they did not space the most powerful rocket in the controls regime as it seeks to strike the obtain licences for their assistance to world, with the ability to lift into orbit delicate balance between advancing Chinese authorities during the a mass greater than a fully loaded 737 economic growth and protecting US investigation of the accidents. 6 The US jetliner. 1 The company, headed by national security. government’s subsequent investigation business magnate Elon Musk, already This article provides a brief history of the companies’ assistance to the has launched two test satellites for of US export controls and a more Chinese concluded that they released what is intended to be a massive detailed description of current ‘potentially sensitive technological constellation of nearly 12,000 satellites regulations pertaining to satellites and information regarding rocketry to that will provide wireless internet spacecraft, including rules for China’s government in the process.’ 7 In coverage worldwide. 2 SpaceX is not hardware, technical data and services. response to the national security alone in its endeavours; US-based It also addresses the tension between concerns surrounding these incidents, companies Rocket Lab and Virgin the economic and national security Congress passed the Strom Thurmond Orbit also are testing rockets designed implications of export controls on the National Defense Authorization Act in to send small satellites into orbit and US commercial space industry. 1998, which transferred export control preparing for commercial space travel. 3 responsibility for all commercial and The recent, astounding growth in Satellite export control reform non-commercial satellites from the the space economy also is evident in For more than 20 years, the regulation EAR to the more restrictive ITAR. 8 the sheer size of the industry. In 2016, of spacecraft and satellites has In 2013, the National Defense the global space economy was nearly fluctuated between the ITAR and the Authorization Act (‘NDAA’) returned $350 billion and the satellite industry EAR based on industry demand and authority to the US president to accounted for more than 75% of that national security concerns. In the determine whether satellites and total, with global revenues of early-to-mid 1990s, two satellites built related items should be controlled by $260.5 billion, more than double what by US manufacturers, Hughes Space the ITAR or the EAR. New regulations it was 10 years earlier. 4 As of 31 and Communications International, promulgated under the NDAA in 2014 December 2016, there were Inc. (‘Hughes’) and Space transferred a wide range of items from approximately 1,500 operational Systems/Loral (‘Loral’), exploded the United States Munitions List satellites providing services ranging shortly after they were launched ('USML') under the ITAR to the from national security, global aboard Chinese rockets. 5 Although Commerce Control List ('CCL') under positioning and earth observation to supporting the agriculture, science and telecommunic ations industries. These developments highlight both our increasing dependence on space-based services and the challenges that government regulators face to maintain adequate oversight over what is often sensitive technology. While a number of US agencies have a hand in regulating space activity, the Department of Commerce’s Bureau of Industry and Security (‘BIS’) and the Department of State’s Directorate of Defense Trade Controls (‘DDTC’) share responsibility in administering and enforcing export controls as they pertain to spacecraft and, in particular,

1 This article is reprinted from the April 2018 issue of World ECR , the journal of export controls and sanctions www.worldecr.com Space Space

the EAR, including certain commercial communications satellites and remote US export controls and Space-related products and sensing satellites, probes and rovers for services: the background planetary and interplanetary science and exploration. 9 Only items with US export controls are designed to prevent the spread of sensitive technologies to foreign actors that could threaten US interests and, at the same time, allow US companies to various space-related military engage in legitimate commercial activity. The primary regulations of the US export control functions, sophisticated sensors, system are the Export Administration Regulations (‘EAR’), administered by BIS, and the certain satellite integration and launch International Traffic in Arms Regulations (‘ITAR’), administered by DDTC. Both the EAR services, and manned spacecraft and the ITAR regulate the export, re-export and transfer of products, software and remained subject to the ITAR. A key technology/technical data. An ‘export’ is (1) an actual shipment or transmission out of change in the 2014 satellite export the United States; (2) releasing technical data to a foreign person; (3) transferring control reform was the elimination of registration, control or ownership of any aircraft, vessel or satellite to a foreign person; or the ITAR ‘see-through rule’ for (4) performing a defence service on behalf of, or for the benefit of, a foreign person. 16 A satellites. 10 Before this change, the re-export is the shipment or transmission of exported items from one foreign country to ‘see-through rule’ provided that if any another, and a ‘transfer’ is the movement of exported items within a foreign country. BIS regulates the export, re-export and transfer of dual-use goods, software and part or component of a satellite was technology (collectively, items) subject to the EAR. Generally, items subject to the EAR controlled under the ITAR, the entire include all US-origin items, any item located in the United States and foreign-made items 11 satellite was as well. that incorporate above de minimis levels of controlled US-origin content. The EAR impose In 2017, BIS and DDTC published licensing requirements based on the destination, end-user, intended end use and concurrent revisions to the EAR and classification of the item on the Commerce Control List (‘CCL’). The CCL groups items into ITAR to clarify ambiguities and nine broad categories and five product groups and identifies the licensing requirements address industry concerns regarding for each. An item that falls into a specific category and product group is given an export the technical scope of the regulations. control classification number (‘ECCN’). Items subject to the EAR that are not listed on the The changes included: CCL or the USML are designated ‘EAR99’ and generally can be exported without a licence. As discussed in more detail below, satellites, related parts and components, and technical data primarily are regulated in CCL Category 9 ‘Aerospace and Propulsion’. 1. increasing the aperture thresholds The ITAR impose controls on defence articles, including technical data, and the for control of remote sensing provision of defence services. The US Munitions List (‘USML’) identifies defence articles satellites and components; and defence services that are subject to the ITAR. The USML is divided into 21 2. eliminating controls based on categories, though in general terms, any items specifically designed for military use will whether a spacecraft supports fall under ITAR jurisdiction. Certain satellite hardware, technical data and related support human habitation; equipment are subject to the ITAR under USML categories XV ‘Spacecraft and Related 3. redefining several controls based on Articles’ and XII ‘Fire Control, Laser, Imaging, and Guidance Equipment.’ US persons that technical capabilities rather than manufacture or export defence articles or provide defence services to foreign persons the end use of the spacecraft; are required to register with DDTC on an annual basis. Both US and foreign persons 4. removing certain criteria concern - providing brokering services to support the export of defense articles or defense services also must register with DDTC. In addition, the ITAR impose licensing requirements for the ing propulsion and altitude control; export, re-export, release or transfer of defence articles or defence services. and 5. adding thresholds for the controls on electric propulsion systems. 12 currently drafted, the ECRA would for US export controls. Not only is This recent initiative was intended redefine a ‘US person’ to include satellite hardware and technology to ‘boost both national security and the ‘corporations organized under the laws subject to export controls as it moves competitiveness of the US industry by of the United States if natural US on Earth, it also is subject to export streamlining complicated export persons own more than 50% of the controls as it conducts its mission in requirements and removing redundant outstanding capital stock of the entity.’ space. Although BIS and DDTC have rules.’ 13 This shift could restrict access to made the alterations to the export Pending legislation in Congress may certain satellite technologies by US control regulations described below to have an additional impact on export subsidiaries of foreign companies and address many potential export controls on satellites and spacecraft. In subject them to additional licensing situations, increasing dependence on February 2018, Congress introduced requirements. The ECRA also would satellites for communication and data the Export Control Reform Act broaden the scope of the EAR to cover transfer may necessitate additional (‘ECRA’), a bipartisan effort to replace developmental activities not previously updates. the Export Administration Act and regulated and institute a formal modernise US export control interagency process to regularly review Hardware regulations under the EAR. 14 Although and identify key emerging Currently, under both the EAR and the the proposed legislation generally technologies. These changes may lead ITAR, launching a spacecraft, launch would codify the existing US export to the continued evolution of the vehicle or payload into space is not control regime, it also would establish satellite export control regime, considered an export of that item. 15 new mechanisms designed to preserve affecting not just the types of hardware However, the movement of these items US technological advantage in and technical data covered, but also the that are subject to US export control emerging technologies, science, licences required. jurisdiction on Earth remains engineering, manufacturing and other regulated by either the EAR or the industries critical to US national Current satellite export controls ITAR, depending on the technical security and foreign policy. As Satellites present a unique challenge specifications of the item.

2 This article is reprinted from the April 2018 issue of World ECR , the journal of export controls and sanctions www.worldecr.com Space Space

Category XV(a) of the USML equipment that is designed for military that are subject to the EAR remains controls satellites and spacecraft that applications; encryption or decryption; subject to the ITAR if the technical data have certain technical capabilities use with USML-covered antenna; or is classified. regardless of their intended use or use with rockets, missiles, satellite Under the EAR, technology related function. Thus, even purely launch vehicles, drones or unmanned to satellites is classified under Product commercial satellites and spacecraft air vehicle systems capable of Group E within Category 9 of the CCL. with the following technical capabilities delivering at least a 500 kg payload to This section of the CCL controls the are subject to the ITAR: a range of at least 300 km are subject technology required for the to the ITAR. 19 However, the vast development, production, operation, l Are specially designed to mitigate majority of civil and commercial GPS installation, repair, overhaul or the effects of or for detection of a and GNSS equipment does not meet refurbishing of spacecraft and nuclear detonation; the Category XII(d) criteria and is satellites, and related commodities. 21 l Autonomously detect and track therefore subject to CCL Category 7 of Neither the ITAR nor the EAR moving ground, airborne, missile or control the data transmitted to or from space objects other than celestial Satellites and spacecraft a satellite or spacecraft ‘when limited bodies, in real time using imaging, to information about the health, infrared, radar or laser; subject to US operational status, or measurements or l Conduct signals intelligence or jurisdiction that are not function of, or raw sensor output from, measurement and signatures the spacecraft, spacecraft payload(s), intelligence; subject to the ITAR are or its associated subsystems or l Are anti-satellite or anti-spacecraft; controlled under CCL components.’ 22 Examples of such l Have space-to-ground weapons ‘housekeeping data’ include system systems; Category 9 of the EAR. configuration; operation status l Have certain electro-optical remote information; payload raw mission or sensing capabilities or the EAR and not the ITAR. 20 science output, such as images and characteristics; Satellites and spacecraft subject to particle measurements; command l Have radar remote sensing US jurisdiction that are not subject to responses; and timing information. capabilities or characteristics; the ITAR are controlled under CCL Moreover, the act of processing such l Provide positioning navigation and Category 9 of the EAR. CCL Category 9 telemetry data or encrypting it does not timing (‘PNT’) signals; includes unclassified commercial cause the telemetry data to be subject l Autonomously perform collision communications satellites, remote to export control laws. 23 avoidance; sensing satellites, and their parts and l Are suborbital, incorporate ITAR- components with performance Defence services controlled propulsion systems, and parameters below the ITAR threshold. USML Category XV(f) controls defence are specially designed for The CCL imposes licensing services pertaining directly to ITAR- atmospheric entry or re-entry; requirements and restrictions controlled satellites, ground control l Are specially designed to provide depending on the specific ECCN for the and training systems simulators, and inspection or surveillance of satellite hardware and technology. specified parts and components. another spacecraft, or service Defence services that use classified another spacecraft via grappling or Technical data technical data also are subject to the docking; USML Category XV(f) controls ITAR. Defence services related to l Are classified, contain classified technical data pertaining directly to satellites and spacecraft that are software data or were developed ITAR-controlled satellites, ground subject to the ITAR include the using classified information; or control and training systems furnishing of assistance or training on l Are specially designed to be used in simulators, and specified parts and the (1) integration of a satellite or a constellation that when operated components. Technical data related to spacecraft to a launch vehicle or (2) together form a virtual satellite with satellites and parts and components launch failure analysis of a satellite or the functions above. spacecraft, regardless of the jurisdiction, ownership, or origin of the Category XV extends to ground satellite or spacecraft, or whether systems and training simulators that technical data is used. 24 are specially designed for telemetry, tracking and control of satellites and Challenges going forward spacecraft, and certain enumerated spacecraft parts and components. 17 Economic recovery of the US satellite Classified parts, components, industry attachments and systems that are The US satellite industry suffered associated with satellites or spacecraft greatly after the passage of the Strom also are subject to the ITAR. 18 Thurmond National Defense Certain global positioning systems Authorization Act in 1998. After the (‘GPS’) and global navigation satellite legislation was enacted, the United systems (‘GNSS’) receiving equipment States became the only space-faring are controlled under Category XII(d) of country that ‘control[led] all the USML. Specifically, receiving commercial satellites and related items,

3 This article is reprinted from the April 2018 issue of World ECR , the journal of export controls and sanctions www.worldecr.com Space Space

technology remain subject to the ITAR, Links and notes to include classified technology and 1 Falcon Heavy Test Launch , SpaceX (Feb. 7, 2018), Controls (Jan. 10, 2017), technical data, and technical data that http://www.spacex.com/news/2018/02/07/falcon- http://www.space.commerce.gov/new-rules-refine- could be used to increase the military heavy-test-launch. satellite-export-controls/. 2 Loren Grush, SpaceX just launched two of its space 13 Daniel Wilson, Feds Revise Export Controls on capabilities of foreign countries. internet satellites – the first of nearly 12,000 , The Verge Spacecraft , Law360 (Jan. 9, 2017, 6:26 PM), Moreover, the current National (Feb. 22, 2018, 11:00 AM), https://www.law360.com/articles/878835/feds-revise- Security Strategy of the United States https://www.theverge.com/2018/2/15/17016208/spa export-controls-on-spacecraft. cex-falcon-9-launch-starlink-microsat-2a-2b-paz-watch- 14 Press Release, Foreign Aff. Committee, Royce emphasises that economic security and live. Introduces Bipartisan Export Control Reform Bill (Feb. US leadership in space are key 3 Loren Grush, The biggest rocket launches and space 15, 2018), available at 29 missions we’re looking forward to in 2018 , The Verge https://foreignaffairs.house.gov/press-release/royce- components of US national security. (Dec. 29, 2017, 9:00 AM), introduces-bipartisan-export-control-reform-bill/. ‘As space evolves into a more globally https://www.theverge.com/2017/12/29/16821862/2 15 22 C.F.R. § 120.17;15 C.F.R. § 734.18(a)(1). competitive industry, the economic 018-space-missions-rocket-launches-nasa-space-x-elon- 16 22 C.F.R. § 120.17; 15 C.F.R. § 734.13 musk. 17 USML, 22 C.F.R. 121.1(XV)(e). vitality of the US space sector will 4 Bryce Space and Technology, 2017 State of the Satellite 18 USML, 22 C.F.R. 121.1(XV)(e)(21). support key national security goals to Industry Report, Satellite Indus. Ass’n (Oct. 2017), 19 USML, 22 C.F.R. 121.1(XII)(d)(2). ‘promote American prosperity’ and https://www.sia.org/wp-content/uploads/2017/10/SIA- 20 Office of Space Com., ITAR Controls on GPS/GNSS 30 SSIR-2017-full-2017-10-05-update.pdf. Receivers Updated (Oct. 12, 2016), ‘advance American influence.’ 5 Eric Schmitt, A Secret U.S. Device Missing After ’96 http://www.space.commerce.gov/itar-controls-on-gps- Indeed, the current US National China Rocket Crash , The New York Times (June 24, gnss-receivers-updated/. 1998), http://www.nytimes.com/1998/06/24/us/a- 21 Com. Control List, Aerospace & Propulsion, 15 C.F.R. Security Strategy specifically identifies secret-us-device-missing-after-96-china-rocket-crash.ht App. Supp. No. 1 to Part 774 (Dec. 27, 2017). advancing space as a priority domain, ml. 22 USML, 22 C.F.R. 121.1(XV)(f), n. 3; CCL, 15 C.F.R. pt. promoting space commerce and 6 Kurtis J. Zinger, An Overreaction That Destroyed an 774, supp. no. 1, product group E note 2; see also EAR, Industry: The Past, Present, and Future and U.S. 15 C.F.R. § 734(b)(3). maintaining the American lead in Satellite Export Controls , 86 U. Colo. L. Rev. 351, 353-4 23 USML, 22 C.F.R. 121.1(XV)(f), n. 3. space exploration as top priorities. 31 (2015). 24 USML, 22 C.F.R. 121.1(XV)(f). However, a key challenge for US export 7 Id. 25 Zinger, supra note 7 at 378. 8 Id . at 354. 26 Id . at 359. control regulators is striking the 9 Jeffrey Gerrish, US Government Announces Reforms to 27 Id . appropriate balance between Space and Satellite Systems Export Controls , Skadden 28 Bryce Space and Technology, supra note 4; Zinger, (May 13, 2014), supra note 7 at 375. liberalising regulations to support https://www.skadden.com/insights/publications/2014/ 29 White House, Nat’l Security Strategy of the U.S. 31 (Dec. industry expansion and preventing bad 05/us-government-announces-reforms-to-space-and- 2017), https://www.whitehouse.gov/wp- actors from acquiring sensitive US satel. content/uploads/2017/12/NSS-Final-12-18-2017-090 10 Dep’t of Com. & Fed. Aviation Admin., U.S. Export 5.pdf. satellite and space technology. Controls for the Commercial Space Industry 4 (Nov. 30 Sean Kelly, The new national security strategy prioritizes 2017), http://www.space.commerce.gov/wp- space , The Hill (Jan. 3, 2018, 2:40 PM), Conclusion content/uploads/2017-export-controls-guidebook.pdf. http://thehill.com/opinion/national-security/367240- 11 Id . the-new-national-security-strategy-prioritizes-space. Recent technological developments 12 Office of Space Com., New Rules Refine Satellite Export 31 White House, supra note 29. once again have captured the popular imagination and placed the space industry at the forefront of American including technology, as munitions allies, for China and other embargoed discourse. Satellites have become items.’ 25 As a result of the significant nations, nothing has changed. As a ubiquitous as industries ranging from regulatory burden associated with ITAR result, products made by the US science and agriculture to telecomm - compliance, the US satellite industry satellite industry continue to present a unications are increasingly reliant on lost approximately $2.35 billion in sales liability to customers and end-users in the services they provide. Nevertheless, to foreign companies. 26 Seizing upon certain parts of the world, impeding the the booming commercialisation of the the licensing difficulties faced by their growth of the US satellite industry. space industry must be tempered by US counterparts, foreign companies considerations of US national security began advertising ‘ITAR-free’ satellite National security concerns and the protection of key technologies. components and hardware to attract Inextricably linked to concerns over the The US export controls regime customers interested in avoiding the US economic viability of the US satellite mediates the gap between these two regulatory burden. 27 industry is the need to protect US often conflicting ambitions through Since the 2014 satellite export national security. Not only do satellites continued advancements in satellite control reform effort, the US space provide the US government with vital export control reform and reflects the industry, and satellite companies in geospatial, signals, measurements and importance of satellites and spacecraft particular, have recovered much of signature intelligence, but they often in advancing US interests around the their lost market share. Today, the US incorporate incredibly sensitive dual- world. satellite industry accounts for use technologies, the protection of approximately 42% of global satellite which is necessary to maintaining industry revenues, a significant American military and industrial Donald Vieira is a partner in the increase from its 27% market share in leadership. As export controls are Washington, DC office of 2000. 28 Nevertheless, the effects of the loosened to allow for greater trade Skadden Arps, where both ITAR satellite export regime remain. efficiencies, it may seem that national Nicholas Klein and Jennifer Ho European companies continue to security protections are proportionally are associates. market hardware as ‘ITAR-free,’ weakened. However, this is not [email protected] partially to entice Chinese buyers that necessarily the case. Satellites continue are prohibited from purchasing ITAR to be covered by US export regulations [email protected] items. Although export controls have and licensing requirements. [email protected] been loosened for a limited set of US Particularly sensitive hardware and

4 This article is reprinted from the April 2018 issue of World ECR , the journal of export controls and sanctions www.worldecr.com