Index

Testimony of William A. Reinsch
    Under Secretary for Export Administration
Department of Commerce

    Before
The Senate Committee on Foreign Relations
Subcommittee on
International Economic Policy,
Export and Trade Promotion

U.S. Export Control Policies on Satellites and
U.S. Domestic Launch Capabilities

June 24, 1999

Thank you for this opportunity to testify on satellite-related exports. My testimony will respond to the broad questions posed by the Committee by briefly describing the Commerce licensing system for such products, the implications for our industries and our own national security of satellite related exports, and some of the problems we have seen in the last few months. In particular, one fundamental issue we need to consider is whether treating all space related exports as arms sales may do more damage than good for national security.

Regulation of Exports

Commerce and State control exports under different legal and regulatory frameworks. State's rules, designed for arms exports, require a license for munitions exports to all destinations. Commerce's regulations, which cover dual-use goods, allow items to go to safe destinations without a license - many items controlled by Commerce, for example, do not require a license when exported to close allies in NATO or Japan. In particular, low-level items not controlled by any of the non-proliferation regimes can usually be exported to safe end-users in most countries except the seven terrorist states without a license. If the same item is a munition, it would require a license. By safe end users, I mean those not involved in the development of weapons of mass destruction. If the recipient is involved in proliferation related activities, our catch all regulations, known as the Enhanced Proliferation Control Initiative, give us considerable authority to stop exports.

The list of items allowed to be exported without a license is developed in conjunction with State and Defense and usually reflects decisions in the various multilateral regimes, such as the Missile Technology Control Regime or Wassenaar, as to what does or does not require control. This multilateral aspect has grown more important over the last decade as technology has spread around the world. There remain very few dual-use items where the U.S. is the only supplier, and if we control something which our partners do not, our controls may be rendered ineffective.

There are also differences in how the two agencies process license applications. Licensing at the Department of Commerce changed dramatically in December of 1995, when the President issued Executive Order 12981. The Executive Order made three fundamental changes in how Commerce issues licenses. First, it gave other agencies, principally State, Defense and Energy, the right to review any Commerce license application they wished to see. In addition, Section 1514 of the FY 1999 National Defense Authorization Act requires Commerce to provide to the Director of Central Intelligence copies of all export license applications submitted for approval in connection with launches of satellites in foreign countries, to verify the legitimacy of the stated end-user or end-users. Finally, the Executive Order laid out an escalation process to move licenses in dispute from the working level to more senior levels for review and decision. The intent of the timelines and escalation process was to avoid having license applications disappear into the 'black hole" of interagency review by junior licensing officials, where, prior to the Executive Order, exporters' requests would sometimes languish for months. These procedures have worked well for Commerce, but they do not apply to munitions licenses because the questions posed by an arms sale often involve complex foreign policy issues.

Another issue is the process for deciding whether an export falls under Commerce or State's licensing system. This is known as the Commodity Jurisdiction process and is led by the Department of State. State consults with Defense and Commerce on their views as to where jurisdiction of an item should lie and then makes its decision subject to procedures for the escalation of disputes in this process which the Administration established in 1996. This appeal process has not worked well, and the Administration has said it will review it.
Exports of Space Qualified Items

Last March, Commerce and State published their regulations transferring the licensing of civil communications satellites and related equipment back to the Department of State pursuant to Section 1513(a) of the National Defense Authorization Act for Fiscal Year 1999. While the term "related equipment" was defined in our regulations as items used in the launch of satellites such as fuels or explosive bolts, other "space qualified" items, i.e., dual use items that have been certified for use in space applications, were not specifically addressed.

This has left some exporters uncertain of the jurisdiction for their products, and some have told us that they have been informed that their products, previously licensed by Commerce, now may require a license from the Department of State. Whatever the facts may be with respect to guidance given to any members of the exporting community, no decision has yet been made with respect to retransferring "space qualified" items to the State Department and to the ITAR.

Many of these seem to be items with wide commercial, non-space applications and are not controlled by the Missile Technology Control Regime. Because of their noncritical uses, many of these items have been exportable without a requirement for an export license from the Commerce Department.

We will be working closely with the Departments of State and Defense in reviewing which if any of these items should be retransferred to State in line with the recent retransfer of commercial communication satellites. During this review, one of my concerns will be that we do not give producers in other countries, who face no licensing restrictions, a competitive advantage for these generally low level technologies not controlled by the proliferation regimes. I know my colleagues in State and Defense share this concern and do not wish to force our exporters to get a license while their competitors in Europe and Asia face no prohibitions. Working together, I am confident that we will resolve this issue quickly and in a way that supports both our security and economic interests.

Defense Industrial and National Security Implications

We need to ensure that the transfer of space qualified items from Commerce controls to the Munitions List will not cause significant adverse effects on the U.S. defense industrial base. Historically, military purchases have accounted for the majority of demand for many of these products. DOD was also a major source of R&D funding. Decreased defense budgets in the past decade have resulted in a large drop worldwide sales, R&D spending, and employment in some sectors (such as the microwave power tube industry). As a result, DOD has expressed concern over the continued viability of some of these products and monitors them to ensure that critical industrial capabilities in this area are preserved.

The key to their continued health and competitiveness is commercial opportunities throughout the world to compensate for decreased military demand. While terrestrial products have to meet less demanding operational performance requirements, they are otherwise similar to those for use in space and are produced by the same companies on the same production lines. U.S. firms are actively pursuing these commercial and terrestrial markets, but face tough international competition in virtually all of these products, particularly from suppliers in Japan and Europe.

The ability of U.S. manufacturers to penetrate foreign commercial markets is dependent on their ability to secure export licenses for proposed sales. Industry has reported that export licensing procedures limit their ability to respond rapidly to overseas sales opportunities, putting them at a disadvantage compared with their non-U.S. competitors. Many of the U.S. companies in these product lines are small businesses and are thus particularly vulnerable to the effects of licensing delays caused by a jurisdictional transfer. In sum, interfering with the ability of U.S. firms to compete in international markets can ultimately threaten U.S. production capabilities in these critical, dual-use product lines and thereby hurt our national security.

Conclusion

I would like to propose three principles for the committee to consider in addressing this issue. First, although there are times when unilateral controls are appropriate, such controls may hurt the US more than they hurt any intended target, particularly when industrial items are available from a broad range of non-U.S. sources.

Second, what is important is to resolve these issues in a way that supports both our national security and economic interests. I believe this will pose a greater challenge in coming years as Defense moves to greater procurement of commercial products for its needs.

Finally, the decision to return communications satellites to State's jurisdiction should not signal a wholesale remilitarization of space and the space-related industries. The civil use of space has exploded in the last ten years and will continue to outshadow military activities.

If the United States is to maintain its technological leadership, we will need to nurture the companies that provide it. Sales to the military or even domestic sales are insufficient. I hope we can, working together, avoid finding ourselves in the paradoxical situation that denial or delay of exports under the rubric of national security has, in the end, done more harm than good to our nation's military and economic strength.