The international trade in launch services : the effects of U.S. laws, policies and practices on its development Fenema, H.P. van Citation Fenema, H. P. van. (1999, September 30). The international trade in launch services : the effects of U.S. laws, policies and practices on its development. H.P. van Fenema, Leiden. Retrieved from https://hdl.handle.net/1887/44957 Version: Not Applicable (or Unknown) Licence agreement concerning inclusion of doctoral thesis in the License: Institutional Repository of the University of Leiden Downloaded from: https://hdl.handle.net/1887/44957 Note: To cite this publication please use the final published version (if applicable). Cover Page The handle http://hdl.handle.net/1887/44957 holds various files of this Leiden University dissertation. Author: Fenema, H.P. van Title: The international trade in launch services : the effects of U.S. laws, policies and practices on its development Issue Date: 1999-09-30 CHAPTER 3 The U. S. bilateral launch trade relations and agreements 3.1 China 3.1.1 The Long March: China's entry into the launch market- prologue to the U. S. - China launch trade agreement With the space shuttle not available for private commercial launches and a severe shortage ofU.S. launchers as a result of both the late entry of the U.S. private launch industry into the launch market and a spate of U.S. private launch failures, Asia Satellite Telecommunications Co. Ltd (AsiaSat), in 1988, concluded a contract with China Great Wall Industry Corporation (CGWIC) for the launch of its U.S.-built communications satellite on a Long March launcher. 1 CGWIC quoted especially friendly introductory prices for its launch service in order to break into the lucrative international commercial launch market. This attractive pricing also induced the Australian Aussat Company to procure Long March launchers for its two Aussat B communications satellites, also made in the U.S. 2 Asiasat, in testimony to Congress, gave yet 1. In 1986, the four major U.S. launch vehicles (the Space Shuttle, Titan, Delta and Atlas) were grounded because of launch failures (the Atlas was grounded because of similarities with the Delta). Delta and Atlas resumed operations by the end of 1986 and a variant of the Titan was back in service by Februari 1987. Also in 1986, the Ariane failed, and did not resume service until September 1987. All these failures created a significant backlog in satellites awaiting launch, see Marcia S. Smith, Space Commercialization in China and Japan, CRS Report for Congress, July 28, 1988, reprinted in Space Committee Hearing 1988, infra note 6, at 414 (footnote 28). Asiasat Ltd. is a private consortium owned equally by Cable & Wireless PLC of the U.K., the Beijing based, state-run China International Trust and Investment Corp. and Hong Kong's Hutchison Whampoa Group. 2. An Aussat official, in a 1991 article, mentioned some -additional- factors influencing the Australian choice of the Long March launcher: the first contacts with the Chinese were already established in 1986, when, after both an Ariane launch failure and the Challenger accident, Aussat, looking for reliable and timely alternatives for the launch of the Aussat A- 3 satellite, only found the Long March 3 fit, willing and able to do the job. The A-3 would nevertheless be flown on an Ariane launcher, but this first technical and commercial contact was further pursued in 1987 when, again, the search for a suitable launcher brought the 183 Chapter 3 another reason to accept the Chinese launch offer, and not Arianespace's, namely the inability of the latter to pin down the schedule and the fact that with a shared (dual) launch - which is the preferred Arianespace practice as it keeps the price per satellite/customer down - Asiasat would be at the mercy of the schedule of the companion payload. 3 Since these satellites, included as defense articles in the United States Munitions List (USML), could not be exported (to China) without specific authorization from the State Department's Office of Munitions Control (later renamed Office of Defense Trade Controls), both companies asked for the required export licenses with that Office. 4 Hughes Aircraft Corporation, the manufacturer of the satellites, actively supported the application through an intense lobbying campaign, but the U .S. launch companies, particularly Martin Marietta and General Dynamics, opposed the granting of licenses since this would permit China, a country with a non-market economy, to become a full­ fledged low-priced competitor in the international commercial launch market. 5 The export license application, lodged by Hughes in July 1988 (but informally already broached in late 1987, 6 prompted a governmental review of prevailing U.S. space policy, which included such issues as the (necessity and effectiveness ot) technology transfer controls, the- increasing -trade relations with China, the relations with Australia, the importance of the satellite industry for the U.S. economy as compared to that of the launch industry and the possibility of offering the license as a non-proliferation quid pro quo in the form of a Chinese commitment to refrain from selling Silkworm missiles to - at that time - Iran. The trade relations in general and the satellite industry in particular won: on September 12, 1988, President Reagan notified Congress of his approval of the export licenses for the three satellites. 7 As a result, Hughes felt sufficiently Australians in touch with a China that "had the ability to become a very competitive supplier of launch services." The contract for the two Aussat B satellites was awarded to Hughes Aircraft Company in June 1988. A thorough (on-site) review of the Chinese launch vehicle programme, including its manufacturing facilities, design capability and launch site support services further reinforced the favourable impressions gained earlier: it was this Chinese technical credibility coupled with the attractive introductory pricing which, later in 1988, made Aussat confirm its choice of the Long March 2E (LM-2E), see Gordon Pike, Chinese launch services, a user's guide, hereinafter referred to as Gordon Pike 1991, 7 (2) Space Policy l03-ll5 (1991) at 103, 104. 3. See testimony, 1988 China hearings, as quoted by Stephane Chenard, The long march to launch regulation, hereinafter referred to as Chenard launch regulation, 4 Space Markets 193-201 (1990) at 199. 4. On the U.S. export control regulations, see supra Chapter 2.3. 5. McDonnell Douglas was less prominent in its opposition, beause of its involvement in China as an aircraft manufacturer. See, for more background information, Chenard launch regulation, supra note 3, at 197-199. 6. See Gordon Pike 1991, supra note 2, at ll4. 7. Section 36 (c) of the Arms Export Control Act requires the Administration to notify Congress before issuing a license for an item on the U.S. Munitions List that is sold under 184 The U.S. bilateral launch trade relations and agreements confident to conclude a formal launch services agreement with CGWIC, on condition that Aussat would stick to its selection of the LM-2E and that CoCom would endorse the export license issued by the U. S. Government. 8 But a price had to be paid to also satisfy the concerns of the U.S. launch industry. So the U.S. Trade Representative was asked to negotiate an agreement with the People's Republic on the conditions to be applied to the latter's first steps into the international commercial launch market and the way in which the Chinese were to behave whilst selling their launch services to international customers. Also, technology transfer and liability concerns created by the Chinese launching U.S. satellites from their nationallaunchpads had to be addressed. 9 In the mean time Congress, by virtue of the Arms Export Control Act, had 30 calendar days (ending October 12) during which time it could object to the intended licensing via joint resolution prohibiting the export. For that purpose House of Representatives hearings were held on September 23 and 27 (Committee on Science, Space and Technology) and on September 28 (Committee on Foreign Affairs). 10 The Committee on Science, Space, and Technology examined the issue in two days of extensive hearings, involving government witnesses, the principal private parties directly involved in the decision, outside experts on China, and representatives of the American launch and satellite industries. The Committee on Foreign Affairs had a one day meeting to review the issue, and consulted largely the same parties and experts. A wealth of background material was made available to both Committees, and both oral and written statements and contract for $50 million or more. The Aussat contract was valued at $260 million; the export value of the Asiasat was about $40 million, but "[i]n an effort to keep Congress fully informed of related developments, the Administration also informed Congress of its intent to approve the Asiasat license ... ", see statement of Eugene McAllister, Assistant Secretary for Economic and business Affairs, Department of State, in The Administration's decision to license the Chinese Long March launch vehicle, Hearings before the Committee on Science, Space, and Technology, U.S. House of Representatives, lOOth Cong., 2nd Sess. (Sep 23 and 27, 1988), hereinafter referred to as Space Committee Hearing 1988, at 24. 8. See Gordon Pike 1991, supra note 2, at 114. 9. For the text of the Dept of State statement of Sep 9, 1988, announcing the Administration's intended decision to issue the export licenses subject to the conclusion of agreements with the PRC on the above subjects, and subject to Congressional and CoCom approval, see Dept of State Bull. (Nov 1988) at 27-28; also in Space Committee Hearing 1988, supra note 7, at 174.