[Senate Hearing 106-866]
[From the U.S. Government Publishing Office]
S. Hrg. 106-866
OVERSIGHT OF SATELLITE EXPORT CONTROLS
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HEARING
BEFORE THE
SUBCOMMITTEE ON INTERNATIONAL ECONOMIC
POLICY, EXPORT AND TRADE PROMOTION
OF THE
COMMITTEE ON FOREIGN RELATIONS
UNITED STATES SENATE
ONE HUNDRED SIXTH CONGRESS
SECOND SESSION
__________
JUNE 7, 2000
__________
Printed for the use of the Committee on Foreign Relations
Available via the World Wide Web: http://www.access.gpo.gov/congress/
senate
__________
U.S. GOVERNMENT PRINTING OFFICE
68-770 WASHINGTON : 2001
COMMITTEE ON FOREIGN RELATIONS
JESSE HELMS, North Carolina, Chairman
RICHARD G. LUGAR, Indiana JOSEPH R. BIDEN, Jr., Delaware
CHUCK HAGEL, Nebraska PAUL S. SARBANES, Maryland
GORDON H. SMITH, Oregon CHRISTOPHER J. DODD, Connecticut
ROD GRAMS, Minnesota JOHN F. KERRY, Massachusetts
SAM BROWNBACK, Kansas RUSSELL D. FEINGOLD, Wisconsin
CRAIG THOMAS, Wyoming PAUL D. WELLSTONE, Minnesota
JOHN ASHCROFT, Missouri BARBARA BOXER, California
BILL FRIST, Tennessee ROBERT G. TORRICELLI, New Jersey
LINCOLN D. CHAFEE, Rhode Island
Stephen E. Biegun, Staff Director
Edwin K. Hall, Minority Staff Director
------
SUBCOMMITTEE ON INTERNATIONAL ECONOMIC POLICY,
EXPORT AND TRADE PROMOTION
CHUCK HAGEL, Nebraska, Chairman
CRAIG THOMAS, Wyoming PAUL S. SARBANES, Maryland
BILL FRIST, Tennessee JOHN F. KERRY, Massachusetts
RICHARD G. LUGAR, Indiana BARBARA BOXER, California
(ii)
C O N T E N T S
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Page
Association of American Universities, the National Association of
State Universities and Land-Grant Colleges, and the Council on
Governmental Relations, statement submitted for the record..... 49
Bodner, Hon. James M., Principal Deputy Under Secretary of
Defense for Policy, Department of Defense, Washington, DC...... 15
Prepared statement........................................... 18
Holum, Hon. John D., Senior Adviser for Arms Control and
International Security, Department of State, Washington, DC.... 2
Prepared statement........................................... 6
Mowry, Clayton, executive director, Satellite Industry
Association, Alexandria, VA.................................... 33
Prepared statement........................................... 38
Reinsch, Hon. William A., Under Secretary of Commerce for Export
Administration, Department of Commerce, Washington, DC......... 9
Prepared statement........................................... 13
(iii)
OVERSIGHT OF SATELLITE EXPORT CONTROLS
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WEDNESDAY, JUNE 7, 2000
U.S. Senate,
Subcommittee on International Economic
Policy, Export and Trade Promotion,
Committee on Foreign Relations,
Washington, DC.
The subcommittee met at 2:33 p.m., in room SD-419, Dirksen
Senate Office Building, Hon. Chuck Hagel (chairman of the
subcommittee) presiding.
Present: Senator Hagel.
Senator Hagel. Good afternoon.
Today's hearing is this subcommittee's second oversight
hearing on commercial satellite export controls since the
Congress transferred responsibility for licensing for
commercial satellites from the Commerce Department to the State
Department in March 1999. This hearing will focus on what
progress has been made in improving the system since our last
hearing in June 1999.
On our first panel, we welcome Under Secretary of Commerce
for Export Administration, the Honorable William A. Reinsch.
Before coming to the Commerce Department, Secretary Reinsch
served as a senior legislative assistant to Senator Jay
Rockefeller and also served on the staff of the late Senator
John Heinz. Welcome, Secretary Reinsch.
Our second witness is the Honorable John D. Holum, Senior
Adviser for Arms Control and International Security Affairs at
the Department of State. Mr. Holum has been nominated to be
Under Secretary for Arms Control and International Security
Affairs. Mr. Holum served as Director of the Arms Control and
Disarmament Agency from 1993 to 1999, when that Agency merged
with the State Department. Previous to that, Mr. Holum
practiced law in Washington, DC, and served on the staff of
former Senator George McGovern. Welcome, Mr. Holum.
Mr. Holum. Thank you, Mr. Chairman.
Senator Hagel. Our third witness is the Honorable James M.
Bodner, Principal Deputy Under Secretary of Defense for Policy
and Counselor to the Secretary of Defense. Previously Mr.
Bodner served as Special Assistant to the Secretary and Deputy
Secretary of Defense, responsible for coordinating issues and
projects throughout the Department.
From 1983 to 1996, Mr. Bodner served as then Senator
Cohen's legislative assistant for national security, foreign
affairs, international trade, and science and technology.
Welcome to you, Secretary Bodner.
On our second panel, we welcome Mr. Clayton Mowry,
executive director of the Satellite Industry Association. Prior
to joining SIA, Mr. Mowry worked as a satellite industry
analyst and senior international trade specialist for the
Office of Telecommunications in the Department of Commerce. Mr.
Mowry served as the International Trade Administration
Representative to the 1992-1994 U.S.-Russia, U.S.-EU, and U.S.-
China commercial launch services negotiations. Before joining
the Commerce Department, Mr. Mowry served on congressional
staffs on both the House and the Senate sides. Welcome to you,
Mr. Mowry.
The fiscal year 1999 Defense Authorization Act moved
jurisdiction over commercial satellites and related items from
the Commerce Department back to the State Department, where it
had traditionally resided. This was done out of national
security concerns. Commercial satellites and their components
are now controlled on the State Department's Munitions List.
Through our hearing today, the subcommittee will hear from
the various Government agencies with current and past
responsibility for handling commercial satellite exports, as
well as from the satellite industry itself, as to whether the
current system is working. Is the current system protecting
national security and allowing American companies to still do
business? Is the State Department capable of undertaking this
difficult and complicated responsibility?
My understanding is that other colleagues will join us
during the course of the hearing, and with that, I again
welcome our distinguished witnesses. The committee is grateful
for your taking your time to come this afternoon, and I once
again apologize for having to cancel our hearing a couple of
weeks ago. But democracy rolled on and we continued to do good
for the world with insightful and important votes. I feel that
we will be spared that high burden over the next 2 hours. We
have had a series of votes already and some, as a matter of
fact, in the general arena of your responsibilities. And I can
assure you we all voted right.
Now, with that, let me ask, by the order of the lineup
here, Mr. Holum to begin his testimony and thank you for
coming.
STATEMENT OF HON. JOHN D. HOLUM, SENIOR ADVISER FOR ARMS
CONTROL AND INTERNATIONAL SECURITY, DEPARTMENT OF STATE,
WASHINGTON, DC
Mr. Holum. Thank you, Mr. Chairman. Thank you for the
opportunity to provide the subcommittee with the Department of
State's views today.
The topic of commercial communications satellite export
licensing is very important to our national security and
foreign policy interests. It is also important to our economic
strength and technological leadership, particularly in an age
when our security interests and our technological leadership
are increasingly dependent on the health and innovation of our
telecommunications and aerospace industries and not, as
previously, on government funded research and development. So,
we need export licensing policies and procedures that safeguard
our security interests, but also ensure that the right things
get to the right people in a global economy in which
international competition has become tougher, delivery
schedules have been compressed, and multinational teaming of
U.S. companies with foreign firms continues to expand.
Slightly more than 1 year after the return of comsats to
State's jurisdiction, as legislatively mandated by Congress, it
is appropriate to examine how well this change in jurisdiction
has been implemented and is working in practice. I will get
right to the main points of what we wish to highlight
specifically, where we feel we have met the goals we have set
out to accomplish last year, what issues or problems we have
identified, and what we are doing to resolve them.
First, the overarching national security objectives of the
legislation, which transferred licensing jurisdiction back to
State, are being met. More than 2,000 export license
applications have been considered. In each case, as Congress
mandated, there has been thorough and consistent consideration
of U.S. national security interests. Export license
applications are now receiving all of the scrutiny and control
that is reserved under U.S. law for articles on the United
States Munitions List. This includes expanded oversight by
Congress with regard to major exports.
Second, we are taking full advantage of the additional
budgetary resources Congress has provided for State's defense
trade control program. Prior to 1999, the authorized full-time
complement for our Office of Defense Trade Controls [ODTC] was
set at 45 employees, divided among licensing, compliance, and
support functions. The personnel allotment for ODTC has been
increased by 23 new positions, the lion's share of those being
deployed in the Arms Licensing Division, which will essentially
double in size.
We have already brought on board seven new licensing
officers and are awaiting security clearances on several
others. Active recruitment efforts continue toward the goal of
filling out the ranks by the end of the calendar year.
Third, we have not only met but significantly bettered in
most cases the 90 working day goal we established as an average
time for processing satellite related cases. Many in industry
expressed concern that license decisions for satellites, under
the State export licensing system, would be protracted and
greatly exceed the 90-day average established for Commerce
licenses. Some predicted the process would take two to three
times as long.
In the first 6 months of State's jurisdiction, satellite
related licenses averaged 70 working days for exports requiring
interagency review and 18 working days for exports licensed by
State without review by other agencies. In the most recent 8
months, the average times have improved to 50 working days for
interagency reviewed cases and 17 working days for those
reviewed only by State. This improvement has been due to
concerted efforts by both State and Defense to deploy more
personnel. Processing times for State, in particular, will
continue to improve as new licensing officers are brought on
board.
It is worth noting that these figures are true averages
from start to finish and include cases requiring mandatory
intelligence community review, Missile Technology Export
Committee review, and congressional notification. The State
Department does not stop the clock or discount days while
waiting for other agency views or additional information from
companies or because there may be complex policy issues
involved.
Fourth, we have fulfilled the commitment we made last year
to work with the Senate and House committees to expedite cases
requiring notification to Congress under section 36 of the Arms
Export Control Act. Thanks to the excellent cooperation we
received from Congress, these major U.S. satellite exports,
valued at $3 billion, went smoothly over the past year, some in
very impressive times when necessary to meet changes in launch
schedules. For example, space system Loral's Telstar 7
satellite was notified to Congress in about 32 working days.
Lockheed Martin's New Skier satellite sale to The Netherlands
was notified in about 35 working days, Lockheed Martin's NSTAR
satellite sale to Japan in about 30 days, Hughes' Galaxy IVR
satellite launched earlier this year from French Guiana
required 36 days, and Hughes' Panama sat-9 satellite took 20
working days. A complete list of satellite exports notified to
Congress since State assumed jurisdiction is annexed to my
prepared statement.
Fifth, some manufacturers clearly have experienced problems
in transition to control under the U.S. Munitions List [USML].
This was particularly true for component and system-level
manufacturers. Many components, parts, and systems specifically
designed for commercial communication satellites and their
associated technical data became subject to a requirement for
an export license for the first time in several years.
So, no matter what our average processing times were, they
would always require more time than in the previous environment
in which no license was required for things like plant visits,
requests for proposals [RFP's] involving technical data,
acceptance testing, and the like. The result has been a
difficult transition for certain U.S. suppliers and frustration
and delays for their partners abroad, possibly reinforcing a
tendency in Europe to bias procurement toward other European
suppliers through such actions as shortened deadlines for U.S.
companies in responding to RFP's.
To address these problems, Mr. Chairman, we have designed a
special regulatory regime for satellite-related exports to U.S.
allies.
Before I describe that, I would like to digress briefly to
caution against exaggerating the impact of these problems in
terms of lost sales and market share for the U.S. satellite
industry. I fully understand the opposition of the U.S.
industry to the control of commercial communications satellites
on the U.S. Munitions List. The State Department neither sought
nor welcomed this decision. But I also do not believe it is
useful to interpret every development in the international
satellite market solely on the basis of the U.S. Government's
export licensing policy.
Mr. Chairman, section 1309(a) of the Foreign Relations
Authorization Act for Fiscal Years 2000 and 2001 authorized the
Department to establish a regime for the expeditious export
licensing of commercial satellites, satellite technologies, and
their components to U.S. allies. We welcome this mandate which
is complementary to several initiatives State and Defense have
developed to deepen defense cooperation in other areas with our
allies in Europe and Asia.
The regime we have designed, with invaluable assistance
from our industry advisory committee, as well as from our
colleagues at Defense, has several important distinguishing
features. The main one is the ability to use high volume export
licenses for components, systems, accessories, and technical
data, known in the trade as bulk licenses, which will be valid
for 4 years for multiple shipments to any of the NATO or major
non-NATO allies on the basis of a preapproved list of foreign
aerospace firms and satellite projects. The list will be
scrutinized carefully and then be made a matter of public
record.
Another important feature is that it will not be necessary
to provide in advance the details of purchase orders or
contracts or retransfer and end-use certificates where
required. All of this documentation will continue to be
mandatory, but it will only be required to be furnished to the
State Department within 15 days following shipment from the
United States. So, for appropriate products and approved firms,
instead of submitting an export license application to the
State Department after receiving a purchase order or signing a
contract, they will be prepositioned with one or more export
licenses for a 4-year period that will cover most of their
business transactions with our allies in Europe and Asia.
A further feature of the special regime is that, within the
defined territory of the 19 NATO member countries and the 8
countries that have been designed major non-NATO allies,
retransfers of most U.S.-origin components and technical data
licensed for export under this regime will also be permitted
without individual written, prior U.S. Government consent for
the entire approved list of satellite programs and for use by
one or more approved foreign companies.
For more sensitive components, such as missile technology
control regime [MTCR] controlled items, the State Department's
longstanding controls, including non-transfer and end-use
certificates, parts control plans, and the like, will continue
to be required. But a means will be provided by which this
documentation can be furnished electronically, in most cases
within 15 days of shipment, again for approved products and
firms. Restrictions may be imposed on the license in certain
cases in view of the specific items proposed for export and
consistent with our missile technology control policies.
Of course, none of the special procedures will apply should
the transaction at any stage involve an activity beyond the
territories of U.S. allies, such as space launches from the
People's Republic of China or Russia.
The regulations for the new regime were published in the
Federal Register on May 26, and they will take effect on July
1. Between now and then, we will continue to work with industry
in preparing detailed guidelines that will assist in the
preparation of license applications. We also plan an industry
workshop on June 28 to answer questions and discuss all the
details associated with electronic license submissions,
electronic reporting, and the use of the new regulations.
Mr. Chairman, this concludes my remarks, and I look forward
to address any questions you may have. Thank you.
[The prepared statement of Mr. Holum follows:]
Prepared Statement of Hon. John D. Holum
Mr. Chairman, I thank you for the opportunity to provide the
Subcommittee with the Department of State's views today on the subject
of commercial communications satellite export licensing. This matter is
very important to our national security and foreign policy interests,
as well as to our economic strength and technological edge. Indeed, in
today's international security environment these areas--national
security, leading edge technological development, and healthy
telecommunications and aerospace industries--are mutually dependent,
and we need to ensure in our policy development and execution that they
are mutually supportive.
Recalling that the State Department neither sought nor welcomed the
decision of Congress to return control of commercial communications
satellites to the U.S. Munitions List, we, nevertheless, committed to
administer this responsibility in accordance with well-established
policies and practices that characterize the strong control our
Government has always exercised over the international export or
transfer of defense articles and services, especially when it comes to
protecting U.S. national security interests.
We also said that, within the overall context of U.S. Munitions
List control and the standards and practices of the International
Traffic in Arms Regulations (ITAR), we would do our best to ensure that
legitimate exports to U.S. friends and allies went forward in a timely
manner by taking certain steps to establish average processing times as
a goal within a 90 working day period; to expedite major satellite
exports involving foreign launches in view of the additional
requirement in law for congressional notification of exports exceeding
$50 million; and, to deploy additional resources in the State
Department's Office of Defense Trade Controls in order to meet these
objectives.
With about fifteen months experience since commercial
communications satellites were returned to State Department
jurisdiction, we are in a good position to provide you with a report on
where we have met the goals we set out to accomplish, where we have
identified issues or problems, and what we are doing to resolve them.
In this regard, the solution to several issues we have identified lies
in an amendment to our regulations (ITAR) that we will be promulgating
in the coming days in order to implement section 1309(a) of the Foreign
Relations Authorization Act for Fiscal Years 2000 and 200l, concerning
the establishment of a special regime in order to expedite satellite
related exports to U.S. friends and allies. As I know this is a subject
of interest to Congress, to our aerospace industry, and to our allies,
I will also describe the new approach we have developed in some detail
later in my statement.
That said, please allow me to touch on several aspects of how we
view the overall scorecard for export licensing of comsats over the
past year.
NATIONAL SECURITY INTERESTS AS TOP PRIORITY
First, the overarching national security objectives of the
legislation transferring export licensing jurisdiction back to the
Department of State effective March 15, 1999, are being met
consistently. More than two thousand export license applications have
been considered. There has been thorough and consistent consideration
of U.S. national security interests in all instances. And, in each case
considered, priority has been given to our national security interests
and to our obligations under the Missile Technology Control Regime.
Commercial communications satellites and related items, associated
technical data, and all foreign launches of U.S. communications
satellites licensed by the State Department are now receiving all of
the scrutiny and control, including expanded congressional oversight,
that are reserved under U.S. law and regulation for the export of
articles on the United States Munitions List. This includes the
expanded controls set forth in detailed provisions of the Strom
Thurmond National Defense Authorization Act for Fiscal Year 1999.
On a related point, the Department has also implemented fully the
Administration's response to recommendations in this area falling under
our purview that were set forth in the House Select Committee on U.S.
National Security and Technology Transfer to the People's Republic of
China (``Cox-Dicks''), such as those related to the control of
satellite technical data to foreign insurance companies.
AUGMENTATION OF DTC RESOURCES
Second, we are taking full advantage of the additional budgetary
resources Congress has provided for the administration of our defense
trade control program. Prior to 1999, the authorized full time
complement for our Office of Defense Trade Controls was set at 45
employees, divided among licensing, compliance and support functions.
The personnel allotment has been increased by 23 new positions, with
the lion's share of the new slots deployed in the Arms Licensing
Division. That division, formerly comprised of 14 State Department
licensing officers, four military officers on detail from the Military
Departments, and three supervisory officers, will essentially double in
size.
We have already brought onboard seven new licensing officers and
have awaiting security clearances on several others. Active recruitment
efforts continue to fill the remaining vacancies. In addition, we have
made some progress in establishing two of the new licensing positions
at higher grade levels (GS-14) in an attempt to stem the continuing
loss of experienced personnel to higher-graded jobs at DOD and in the
defense industry. We are also optimistic about prospects for having
several additional positions upgraded. But, candidly, this is a problem
we need to continue to work hard at solving for the long term.
90 WORKING DAY GOAL FOR AVERAGE PROCESSING TIME MET
Third, we have not only met, but significantly bettered in most
cases, the 90 working day goal we established as an average time for
processing satellite-related cases in the Secretary's report to
Congress last year concerning our plans for implementation of the NDAA.
Many expressed the concern that license decisions for satellites under
the State export licensing system would be protracted and greatly
exceed the 90-day process established for Commerce licenses. Indeed,
some predicted the process would take two to three times as long.
In the first six months we had jurisdiction (March-September 1999),
an export license for a satellite-related case averaged 70 working days
(98 calendar days) if it required inter-agency review and 18 working
days (25 calendar days) if it did not, and could be decided by State,
alone. Over the past eight months (September 16, 1999-May 10, 2000,
average processing times have improved to 50 working days (70 calendar
days) for inter-agency reviewed cases and to 17 working days (24
calendar days) for those reviewed only by State. This improvement has
been due to concerted efforts by both State and Defense to deploy more
personnel. Processing times for State, in particular, will continue to
improve throughout this year and into 2001 as our expanded licensing
officer complement becomes fully staffed.
CONGRESSIONAL NOTIFICATION OF MAJOR SALES
Fourth, we made a commitment last year to work with the appropriate
committees of Congress, the Foreign Relations Committee and the House
International Relations Committee, in order to expedite cases requiring
notification to Congress under section 36 of the Arms Export Control
Act before an export license may, by law, be issued. Thanks to the
excellent cooperation we have received from Congress, not only have we
been able to expedite these major sales and satellite exports for
launch abroad, we have succeeded in doing so in several cases in record
times when necessary to meet urgent launch schedules.
To date, cases requiring congressional notification account for
approximately $3 billion in contracts. The details of these cases are
set forth in a fact sheet annexed to my statement. Notably, although we
excluded such cases from the 90 working day goal we established last
year because of the extensive higher level coordination that takes
place within the Administration and because of the statutory waiting
periods (15 days for NATO, Australia, New Zealand or Japan; 30 days for
all others), the cases requiring congressional notification to date
meet the 90 working day average.
TRANSITION TO USML CONTROLS FOR COMPONENTS PRODUCERS
Fifth, while our average processing times were even better than
expected, and while all of the major satellite exports proceeded
smoothly through the export licensing and congressional notification
processes, manufacturers, particularly component and system level
manufacturers, experienced a number of problems in the transition to
State Department export licenses. This is because many components,
parts, and systems specifically designed for commercial communications
satellites, and their associated technical data, became subject to a
requirement for an export license for the first time in several years.
As a result, no matter how promptly we processed these licenses,
they would always require more time than in the previous environment in
which no license was required. According to reports from various U.S.
firms throughout last year, this resulted in some delays or disruptions
in certain areas, e.g., supply relationships, acceptance testing of
equipment, plant visits and the like. In response, it may also have
reinforced, also as reported by U.S. firms, a tendency on the part of
certain European companies to shorten deadlines provided to U.S.
suppliers for responding to requests for proposals or requests for
prices, particularly if the item was available from another European
company.
We concluded after some considerable analysis with aerospace
industry representatives on our federal advisory committee for defense
trade matters (the Defense Trade Advisory Group) that we needed to
devise a new licensing vehicle that would provide U.S. manufacturers
with much greater flexibility to exchange technical data and with more
speed to fill orders. While doing so, we still have to ensure
application of the same strict standards and practices of the Arms
Export Control Act and the International Traffic in Arms Regulations as
intended by Congress when enacting the NDAA for FY 1999. This is why
the State Department strongly supported enactment of Section 1309(a) of
the Foreign Relations Authorization Act for Fiscal Years 2000 and 2001.
SPECIAL REGIME FOR NATO AND MAJOR NON-NATO ALLIES
Section 1309(a) of the Foreign Relations Authorization Act for
Fiscal Years 2000 and 2001 authorized expressly the Department of State
to establish a regulatory regime for the expeditious export licensing,
as appropriate, to U.S. allies of commercial satellites, satellite
technologies, and their components. At the same time, it provides for
ensuring priority in the evaluation of licenses to ``national security
and U.S. obligations under the Missile Technology Control Regime.'' The
Department welcomed this mandate, which provides a clear expression of
Congress' view that exports to U.S. allies should be expedited
consistent with our international security interests.
This mandate is also fully in keeping with a variety of initiatives
the Administration has been developing to deepen defense cooperation in
other areas with our allies in Europe and Asia, and to establish
special channels and procedures in order to expedite exports of defense
articles and services which advance our common security interests.
In order to enlist the assistance and expertise of the U.S.
aerospace industry in implementing this new mandate for satellites,
State and Defense asked the Defense Trade Advisory Group (a federal
advisory committee to the State Department) to form a task force of its
members last January. Since then, the task force has been working with
experts from State and Defense to design an approach that accomplishes
the specific objectives of the legislation, taking into account the
experience gained and issues identified since the transfer of licensing
jurisdiction to State. The main elements and conceptual framework were
mapped out during January-March through a series of meetings between
industry representatives and State and Defense, and the draft proposal
previewed in April at the Spring conference held in Laguna Beach,
California of the Society for International Affairs, an association of
about two hundred defense and aerospace firms that specializes in
symposia and workshops covering export licensing and compliance.
I am pleased to report to you that the new regulation implementing
this new regime was published in the Federal Register on May 26, 2000.
The new regulatory regime for U.S. allies will focus on priority
areas identified by industry: (1) the supply of satellite components,
systems and associated technical data subject to the State Department's
control, including for off-shore procurement; (2) technical information
needed to respond to bids, to requests for quotations, plant visits,
acceptance testing of equipment and the like; and (3) technical data
for satellite insurance purposes, including for on-orbit anomalies.
The regime's main feature will be the ability to use high volume
export licenses for components and technical data (known in the trade
as ``bulk'' licenses), which will be valid for four years for multiple
shipments to any of the NATO or major non-NATO allies. Another
important feature is that it will not be necessary to provide in
advance the details of purchase orders or contracts or re-transfer and
end use certificates where they may be required.
While all of this documentation will continue to be mandatory, it
will only be required to be furnished to the State Department within 15
days following shipment from the United States, at which time U.S.
companies will report the appropriate shipping information and furnish
electronic images of the required documentation.
In this regard, the Department decided to implement the satellite
licensing regime for U.S. allies concurrently with another mandate
provided by Congress in the same legislation: the requirement for
reporting by the U.S. defense industry of all U.S. Munitions List
exports from the United States within 15 days of shipment. State will
also provide an electronic reporting procedure, including the necessary
software at no charge, for this purpose.
Further, within the defined territory of the nineteen NATO member
countries and the eight countries that have been designated by the
President as major non-NATO allies of the United States (Australia, New
Zealand, Japan, Republic of Korea, Israel, Egypt, Jordan, and
Argentina), re-transfers of most U.S. origin components and technical
data licensed for export under this regime also would be permitted for
an approved list of satellite programs involving U.S. allies and for
use by an approved list of allied aerospace firms, all of which will be
scrutinized within the USG before they are approved--without requiring
written prior USG consent in individual cases since preapproval
operates as an advance consent.
Both lists will be kept up to date and made publicly available by
posting on the Website of the Office of Defense Trade Controls, and by
other means.
For more sensitive components, such as those MTCR-controlled items
subject to State's jurisdiction, the State Department's long standing
controls, including non-transfer and end use certificates, parts
control plans and the like, licenses will continue to be required. But,
a means will be provided by which this documentation can be also
furnished electronically, in most cases within 15 days of shipment,
provided the transfers are limited to the approved projects and for use
by approved firms. Restrictions may be imposed on the license in
certain cases, in view of the specific items proposed for export and
consistent with our missile technology control policies.
None of the special procedures will apply should the transaction at
any stage involve an activity beyond the territories of U.S. allies,
such as space launches from the People's Republic of China or Russia.
In those cases, the State Department will continue to require case-by-
case licensing and all of the rigors of existing law and regulation
through individual licenses.
By the same measure, although not specifically provided for in the
authorizing legislation, we will be prepared to include within this
regime on a case by case basis certain aerospace companies located in
additional member states of the European Space Agency and the European
Union, as a number of these companies are closely involved in aerospace
projects with our firms or those of our NATO allies.
The regulations will take effect on July 1. Between now and then we
will be continuing to work with industry through our advisory committee
and through a workshop, which the Society for International Affairs
plans for June 28, in order to answer questions and discuss all of the
details associated with electronic license submission, electronic
reporting, and other guidelines that should be followed.
Mr. Chairman, thank you for the opportunity to provide the
Department of State's views on satellite licensing and export controls.
As you can see, we share your opinion of the importance of this matter
for both our national security and our economic prosperity, and we are
committing the necessary resources to carry out our responsibilities in
the most efficient and effective manner possible.
Senator Hagel. Mr. Holum, thank you.
Secretary Reinsch.
STATEMENT OF HON. WILLIAM A. REINSCH, UNDER SECRETARY OF
COMMERCE FOR EXPORT ADMINISTRATION, DEPARTMENT OF COMMERCE,
WASHINGTON, DC
Mr. Reinsch. Thank you, Mr. Chairman. It is a pleasure to
be back. Let me commend you and the committee for keeping track
and keeping up to speed on a difficult issue. I think it is
awfully tempting for Congress to make decisions and make
changes and then never look at them again for a very long time,
and I think it is commendable that you, in particular, and the
committee have chosen to keep your eye on this because the
consequences of what you have done are so significant. It is
important that you continue to exercise close oversight. So, I
am happy to be back and I was happy to be back 3 weeks ago as
well.
Just speaking on behalf of the administration, let me say
that we are always delighted when the Senate is voting on
anything.
So, if you want to go back and vote some more this
afternoon, that is fine with us too.
Since March 17, 1999, when the Congress transferred export
license jurisdiction for commercial comsats back to the State
Department, we have engaged in a large scale experiment in
export control policy that has serious implications for future
efforts to reform or restructure our controls. I believe the
outcome of that experiment has not been positive, and it is not
one that I think the United States should repeat.
Since the transfer, which this administration opposed, as
you know, satellite exports have declined 40 percent according
to Census Bureau export statistics, and the satellite industry
has told us that the U.S. share of the world market has dropped
from 73 percent in 1998 to 62 percent in 1999 to 52 percent for
the last three quarters. The changed controls on satellites
bears some of the responsibility for this, and we can only
conclude that a system that works well for arms exports is,
even with the best intentions in the world, not appropriate for
commercial exports. This is a fundamental point for export
controls. Treating exports of commercial items like comsats as
arms sales does more harm than good to our national security
and to the high tech industries upon which our military and
intelligence agencies depend.
Let me touch briefly on a number of factors which I hope
you will consider as you contemplate this issue.
The first is that we are operating in an increasingly
global economy where commercial cooperation between companies
in different countries is the norm and where technology flows
are shaped less by national borders than by the needs of the
global market. No one nation can remain at the leading edge of
technology unless it participates in this global market. This
requires the ability to export.
Long-term changes in defense spending also shape the
satellite export control issue. The civil use of space has
exploded. Ten years ago, DOD and NASA accounted for more than
half of aerospace sales. Today industry sources say that
government purchases account for only 35 percent of sales while
exports account for 40 percent. As the commercial
telecommunications markets have exploded, companies have come
to rely on commercial sales, including exports, for the bulk of
their business. Globally there is overcapacity, and sales to
DOD or the U.S. domestic market are not enough to maintain a
strong and leading edge space industry that will stay at the
cutting edge of technology.
It may seem contradictory to say that we do more to build
our strength the more open we are as an economy. However, as
the Defense Science Board Task Force on Globalization and
Security recently reported, shutting U.S. companies out of
markets that are served instead by foreign firms weakens U.S.
commercial advanced technology sectors upon which U.S. economic
security and military advantage depend. In the case of
satellites, the same companies that manufacture the most
sophisticated satellites are the leading commercial
communications satellite makers as well.
The third factor is the difference between the two systems
that we have under discussion, one for weapons, one for dual
use. These differences are appropriate. We should treat the
export of tanks, fighters, or submarines in a more deliberate
and restrained manner. However, the arms export system can be
needlessly damaging when applied to commercial items like
communications satellites. Exports of major weapons systems
have serious implications for our foreign policy and defense,
and a process of lengthy deliberation and complex licensing
requirements is appropriate. However, regulating commercial
goods as if they were weapons harms our technology lead and the
industrial base that is the basis for our military strength.
Two procedural differences are most important. One is the
scope of controls. Items on State's Munitions List require an
individual license to any destination, whether that is India or
the U.K. or whatever. In the case of satellites, many separate
licenses can be required for a single sale. In some cases, one
license is required for technical data, another to make a bid,
a third to actually export hardware, and so on. This has proven
to be particularly important in the satellite field, as one
result of the transfer of jurisdiction was that U.S. companies
now have to obtain licenses for routine exports related to
satellite launches or manufacturing for Japan and the NATO
countries that previously could move under license exception.
The State Department, in cooperation with the Defense
Department, has put into place a package of reforms to bring
some flexibility to State's licensing process, which Mr. Holum
has already described for you in some detail and which I
suspect Mr. Bodner will address as well in his testimony.
The second crucial difference is the extraterritorial reach
of the two systems. Once a munitions item has been exported,
U.S. approval for any resale or re-export is required. Further,
any foreign-made item which incorporates a U.S. munitions item,
no matter how small, is considered to have become a U.S.
munitions item and also requires a license for any resale or
re-export. To use an actual example, if DaimlerChrysler
Aerospace [DASA], uses a piece of plastic film which is on the
U.S. Munitions List in a satellite it is building in Germany,
that satellite becomes subject to U.S. controls and a license
is required from the State Department for any sale. If, on the
other hand, DASA buys the film from a British firm, the U.K.
does not consider the film or the satellite a munition and no
further license from Britain is required. This is a significant
problem in cases like comsats, since our partners in the
multilateral regimes consider communications satellites and the
parts that go in them as dual use items, not munitions. Only
the U.S. treats these sales as arms exports.
The obvious response of foreign manufacturers is to avoid
using U.S. parts and components, and we have seen a trend to
design out U.S. satellite components that poses grave risks to
our industry. Several U.S. satellite component suppliers were
notified by DASA that it has been directed to find European
suppliers for parts. Other European and Japanese aerospace
companies, Matra, for example, have made similar public
statements.
Another factor is the fact that the commercial satellite
market has tripled in size since 1992. Increasingly, these
launches are for foreign satellite operators and international
consortia. The pace of sales is also much faster. In 1992, it
took 2 or 3 years to manufacture a satellite. Now it is down to
1 year in many cases. Today the most important criteria in the
success of a commercial satellite business are reliability,
scheduling, and cost in that order. While U.S. firms still
enjoy a cost advantage, export restrictions can have a
devastating effect on timeliness and on predictability. It is
the uncertainty of the process, not just the time of the
process, that is a critical element.
An illustration of the scope of this problem is that some
financial analysts now predict that the jurisdiction change
will affect the ability of U.S. satellite makers to tap capital
markets. Other analysts believe that the main effect will be on
companies' ability to obtain launch insurance, which is often
critical to securing sales and financing. To have a strong
space industry, we need our companies to be able to compete in
the international market for communications satellites, and the
companies that can best service the international market will
dominate the space sectors. While the United States was, before
the transfer of jurisdiction, the unquestioned leader, we have
seen in the last year the early warning signs of a shift in
market leadership. Our current export controls on satellites
have had the unintended consequence of building stronger
competitors overseas. Losing the lead in satellites to foreign
producers is not a good outcome for our national security.
Obviously, any consideration of the jurisdictional issue
must address the question of illicit technology transfers and
the security of foreign launches of U.S. satellites. That is
what the congressional inquiry was all about. This matter has
been subject to extensive scrutiny and is routinely cited to
justify the action that Congress took. The specific cases in
question are under investigation, and it would not be
appropriate to comment on them, but it is important to note
that all of them, whether they were licensed by Commerce or
State, occurred prior to the President's 1996 transfer of the
remaining jurisdiction to Commerce, and we believe that as part
of that decision in 1996 and subsequently we have put in place
procedures sufficient to protect our security. In other words,
we believe that we have already addressed the problem that
Congress decided it wanted to fix, we believe incorrectly, in
1998.
To sum up, we find ourselves in the paradoxical situation
where 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. Industry figures from
the past 15 months suggest that the changed controls on
satellite exports hurt the United States more than they hurt
any intended target. While the Department of State has laudably
taken action to alleviate problems, the fundamental issue
remains that it is not practical or desirable to treat
commercial exports as munitions transfers. The better solution
is to recognize dual use items for what they are and control
them through the Commerce procedures that are designed for that
purpose. In fact, Congressmen Gejdenson and Goodlatte last
month introduced bipartisan legislation in the House to do
precisely that.
The position of this administration has been that the
United States can achieve a net security gain if it properly
exploits globalization and commercial trends. Our satellite
export policy must reflect this, and I think the best way to
ensure that is to begin the process of considering how best to
transfer the control of satellite exports back to Commerce
while ensuring U.S. Government oversight over sensitive
exports.
Thank you, Mr. Chairman.
[The prepared statement of Mr. Reinsch follows:]
Prepared Statement of Hon. William A. Reinsch
Thank you for this opportunity to appear before the Committee on an
important and troubling issue.
Since March 17, 1999, when the Congress transferred export
licensing jurisdiction for commercial communications satellites back to
the Department of State, we have engaged in a large scale experiment in
export control policy that has serious implications for future efforts
to reform or restructure our controls. The outcome of this experiment,
I would say, has not been positive and it is not one I think the U.S.
should repeat. I applaud the Subcommittee for examining this problem.
The jurisdictional change affected our foreign relations, our
national security and a broad range of U.S. industry, from small high
tech firms to industrial giants, even for sales to allies. Since the
transfer, which this Administration opposed, satellite exports have
declined forty percent, from $1.06 billion in 1998 to $637 million in
1999 according to Census Bureau export statistics, and the satellite
industry has told us that the U.S. share of the world market has
dropped from 73% in 1998 to 62% in 1999 and to 52% for the last 3
quarters. The changed controls on satellites bear some of the
responsibility for this, and we can only conclude that a system that
works well for arms exports is, even with the best intentions in the
world, not appropriate for commercial exports. This is a fundamental
point for export controls--treating exports of commercial items, like
communications satellites, as an arms sale does more harm than good to
our national security and to the high tech industries upon which our
military and intelligence agencies depend.
I would like to touch briefly on a number of factors which the
Committee may wish to consider as it contemplates the satellite
licensing issue. The first factor is that we are operating in an
increasingly global economy where commercial cooperation between
companies in different countries is the norm and where technology flows
are shaped less by national borders than by the needs of the global
market. Information, financing, research and development, and
production are broadly diffused and can be quickly transferred to meet
market needs. No one nation can remain at the leading edge of
technology unless it participates in this global market. This requires
the ability to export.
More efficient transportation and communication, the
internationalization of capital flows and the growth of an information-
based economy have transformed national industrial systems into
components of this larger market. The ability of any one nation to
prevent the technology transfers that accompany such flows is limited.
The power of the global market is such that if one source chooses to
deny an export, absent a broad consensus among our partners, some other
supplier will meet the demand. To succeed in this market requires
companies--and nations--to evolve and to adapt practices which
emphasize speed and the transnational nature of business. Failure to
adapt means economic decline.
Long-term changes in defense spending also shape the satellite
export control issue. At the end of the previous administration,
agencies with a role in space operations realized that DOD purchases
would no longer be enough to support the robust satellite industry we
need to meet our military and intelligence requirements. In contrast,
the civil use of space has exploded. Ten years ago DOD and NASA
accounted for more than half of aerospace sales. Today, industry
sources say that government purchases account for only 35 percent of
sales, while exports account for 40 percent. As the commercial
telecommunications markets have exploded, companies have come to rely
on commercial sales--including exports--for the bulk of their business.
Globally there is overcapacity, and sales to DOD or the U.S. domestic
market are not enough to maintain a strong and leading edge space
industry and to stay at the cutting edge of technology.
It may seem contradictory to say that we do more to build our
strength the more open we are as an economy; however, as the Defense
Science Board Task Force on Globalization and Security recently
reported, shutting U.S. companies out of markets that are served
instead by foreign firms weakens U.S. commercial advanced technology
sectors upon which U.S. economic security and military advantage
depend. In the case of satellites, the same companies that manufacture
the most sophisticated military satellites are the leading commercial
communications satellite makers.
The third factor that bears on the satellite issue is the
difference between our two principal export licensing systems--one for
weapons and one for dual-use industrial products. These differences are
appropriate; we should treat the export of tanks, fighters or
submarines in a more deliberate and restrained manner. However, the
arms export system can be needlessly damaging when applied to
commercial items like communications satellites. Exports of major
weapons systems have serious implications for our foreign policy and
defense, and a process of lengthy deliberation and complex licensing
requirements is appropriate. However, regulating commercial goods as if
they were weapons harms our technological lead and the industrial base
that is the basis for our military strength and economic health.
There are many procedural differences between the systems which
have contributed to the problems the satellite industry now faces, but
two are most important. One is the scope of controls. Items on State's
Munitions List require an individual license to any destination,
whether that destination is India or the United Kingdom. In the case of
satellites, many separate licenses can be required for a single sale.
In some cases one license is required for technical data, another to
make a bid, and a third to actually export hardware. If technology is
transferred, another license is required. Some of these licenses may
have to be notified to Congress. Commerce regulations allow safe
transactions to go forward without delay. This has proven to be
particularly important in the satellite field, as one result of the
transfer of jurisdiction was that U.S. companies now have to obtain
licenses for routine exports related to satellite launches or
manufacturing for Japan and the NATO countries that previously could
move under license exception. The Department of State, in cooperation
with the Department of Defense, has put into place a package of reforms
that bring some flexibility to State's licensing which my colleagues
can describe in more detail.
The second crucial difference is the extraterritorial reach of the
two systems. Once a munitions item has been exported, U.S. approval for
any resale or reexport is required. Further, any foreign made item
which incorporates a U.S. munitions item, no matter how small, is
considered to have become a U.S. munitions item and also requires a
license for any resale or reexport. To use an actual example, if
DaimlerChrysler Aerospace (DASA) uses a piece of plastic film which is
on the U.S. Munitions List in a satellite it is building in Germany,
that satellite becomes subject to U.S. controls and a license is
required from the State Department for any sale. If, on the other hand,
DASA buys the film from a British firm, the U.K. does not consider the
film or the satellite a munition, and no further license from Britain
is required. This is a significant problem in cases like communications
satellites, since our partners in the multilateral regimes consider
communications satellites and the parts that go in them as dual use
items, not as munitions. Among all the satellite producer nations in
the world, only the U.S. treats these sales as arms exports.
The obvious response of foreign manufacturers is to avoid using
U.S. parts and components, and we have seen a trend to ``design out''
U.S. satellite components that poses grave risks to our industry.
Several U.S. satellite component suppliers were notified by DASA that
it has been directed to find European suppliers for parts. Other
European and Japanese aerospace companies, Matra for example, have made
similar public statements. Commerce regulations, while they also apply
to certain high-level re-exports, were modified in the Reagan
Administration to avoid this broad extraterritorial reach. I expect the
industry panel can provide you with additional examples of the damage
caused by the transfer of jurisdiction.
Another factor is the fact that the commercial satellite market has
tripled in size since 1992. Increasingly, these launches are for
foreign satellite operators and international consortia. The pace of
sales is also much faster. In 1992, it took 2 or 3 years to manufacture
a satellite. Now, manufacturing time is down to one year in some cases,
as satellite companies begin to produce ``standard'' models. Recent
consolidation in Europe's commercial space industry, coupled with the
history of cooperation on joint projects through the European Space
Agency, have created a collaborative environment well suited to rapid
manufacturing, and one of the main advantages that Europeans now have
is being able to deliver spacecraft on a more timely basis. The ability
to meet customer demands quickly is particularly important in light of
the way that the satellite services industry is developing. Today, the
most important criteria in the success of a commercial satellite
business are reliability, scheduling and cost--in that order. While
U.S. firms still enjoy a cost advantage, export restrictions can have a
devastating effect on timeliness and predictability.
An illustration of the scope of this problem is that some financial
analysts now predict that the jurisdiction change will affect the
ability of U.S. satellite makers to tap capital markets. Other analysts
believe that the main effect will be on companies' ability to obtain
launch insurance, which is often critical to securing sales and
financing. To have a strong space industry, we need our companies to be
able to compete in the international market for communications
satellites, and the companies that can best service the international
market will dominate the space sector. While the U.S. was, before the
transfer of jurisdiction, the unquestioned leader, we have seen in the
last year the early warning signs of a shift in market leadership. Our
current export controls on satellites have had the unintended
consequence of building stronger competitors overseas. Losing the lead
in satellites to foreign producers is not a good outcome for national
security.
Obviously, any consideration of the jurisdictional issue must
address the question of illicit technology transfer and the security of
foreign launches of U.S. satellites. This matter has been subject to
extensive scrutiny and is routinely cited to justify the transfer. The
specific cases in question are under investigation, and it would not be
appropriate to comment on them, but it is important to note that all of
them--whether they were licensed by Commerce or State--occurred prior
to the President's 1996 transfer of the remaining jurisdiction to
Commerce, and we believe that as part of that decision and subsequently
we have put in place procedures sufficient to protect our security. I
would also point out that both the Defense and State Departments
concurred in each of the satellite licenses that the Department of
Commerce licensed, including all of the conditions of those licenses.
Further, these agencies would review any licenses we receive in the
future should jurisdiction be transferred back.
To sum up, we find ourselves in the paradoxical situation where
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. Industry figures from the past 15 months suggests
that the changed controls on satellite exports hurt the U.S. more than
they hurt any intended target. While the Department of State has
laudably taken action to alleviate problems, the fundamental issue
remains that it is not practical or desirable to treat commercial
export sales as munitions transfers. The better solution, in my view,
is to recognize dual use items for what they are and control them
through the Commerce procedures that are designed for that purpose. In
fact, Congressmen Gejdenson and Goodlatte last month introduced
legislation in the House to do precisely that.
Mr. Chairman, I applaud the steps State and Defense have taken to
streamline the arms licensing process for our closest allies. The
question for the Committee remains, however, whether it is appropriate
to treat commercial communications satellites as weapons. One
alternative is to return jurisdiction to Commerce in a way that
strengthens our national security and reverses the damage done to our
satellite industry. Part of any return should be a mandate for proper
monitoring of satellite campaigns by both Defense monitors and Commerce
enforcement agents knowledgeable in our regulations, and by better
educational efforts with U.S. companies to reduce or eliminate the risk
of technology transfer. A careful examination by experts from DOD, NASA
and other agencies with satellite expertise to identify critical
technologies which must be tightly protected is also necessary in this
regard. The alternative, an export strategy dominated by risk-
avoidance, may do more to damage our security than protect it. The
position of this Administration has been that the U.S. can achieve a
net security gain if it properly exploits globalization and
commercialization trends. Our satellite export policy must reflect
this, and I think the best way to ensure that is to begin the process
of considering how best to transfer the control of satellite exports
back to Commerce while ensuring U.S. Government oversight over
sensitive exports.
Senator Hagel. Secretary Reinsch, thank you.
Secretary Bodner.
STATEMENT OF HON. JAMES M. BODNER, PRINCIPAL DEPUTY UNDER
SECRETARY OF DEFENSE FOR POLICY, DEPARTMENT OF DEFENSE,
WASHINGTON, DC
Mr. Bodner. Thank you, Mr. Chairman. I appreciate the
chance to report today on the progress that DOD has been making
in reforming the processes we use for reviewing satellite
export licenses to improve national security, and to support
legitimate satellite cooperation with friends and allies.
The policy that we pursue is one to restrict the transfer
of technology to any foreign destination in two sensitive
areas. The first is detailed design, development, and
manufacturing technology for satellites, and the second is
technology that would improve foreign launch vehicles. The
focus of our policy is to ensure that U.S. technology is not
transferred in a way that would improve ballistic or other
missile capabilities where there are significant security
risks, namely in China and in Russia, for example.
To implement this policy and the legislative mandates that
we have been given, we have developed special export controls
in cooperation with our colleagues at the State Department.
These controls are embodied in a special section of the
International Traffic in Arms Regulation [ITAR], which of
course is the regulations that govern the transfer of arms.
At the same time, we recognize the desirability of
continuing robust space cooperation with our close friends and
allies. Therefore, while we reserve the right to apply these
special export controls for national security or foreign policy
reasons to transactions with allies and friends, we think that
we ought to apply these controls only in selective and very
narrow circumstances.
Since the last time DOD testified to this committee back in
June 1999, we have been working very hard to implement the
satellite export control provisions that were in the Defense
Authorization Acts for fiscal years 1999 and 2000. As directed
by those statutes, the satellite and launch monitoring mission
is being performed in DOD by our Space Launch Monitoring
Division of the Defense Threat Reduction Agency [DTRA]. Based
on the estimate of what we thought would be the workload
requirement for monitoring and licensing, we authorized a staff
of 42 people for that organization. At the time of last year's
hearing, we were just beginning to hire our first full-time new
staff members. This has proven to be very difficult to do
because we are facing the same shortage of skilled labor that
the industry faces.
At this point we are close to 80 percent of our hiring
goal, and we think that will be sufficient to meet this year's
requirement.
We have also devoted significant time and energy over the
last year to export control reform, as Mr. Holum referred to.
Secretary Cohen has identified export control reform as a
national security imperative for several reasons. First, we
think it is essential in order to protect critical technology.
Second, we think it is essential to promote allied
interoperability, and third, export control reform is essential
to preserve the health of our defense industrial base. The
steps we have been taking have been focused on improving our
processes so that we can perform high quality reviews of export
license applications in a timely way to meet the needs of
industry.
Looking beyond just the satellite arena, to all the export
munitions licenses that we review, we have reduced the average
review time over the last year from 45 days down to 17 days.
Moreover, a year ago, we had a backlog of over 600 cases that
were more than 60 days old. As of now, that has been
eliminated, and we hope to maintain that. This has been
accomplished primarily through changes in our processes and in
our organization, not through the addition of staff. Now that
we have reengineered our process and organization, we intend to
continue to improve the quality and the speed of our reviews by
adding 35 more licensing officers to DTRA's technology security
staff, which is about a 50 percent increase in our licensing
staff.
We are implementing these reforms with two primary
objectives. The first is to strengthen the license review
process in DOD by focusing greater attention on high risk
export applications and by adding well-trained staff. Currently
we have far too many low-risk applications that receive
multiple layers of review, not just by DTRA, but also by the
military departments and other organizations in DOD. We think
that we can handle those low-risk cases inside of DTRA, which
will free up the highly specialized but very limited resources
in the military departments. This will enable the military
departments, with their equities and expertise, to focus on
higher-risk license cases.
The second objective is that we want to make sure that DOD
is not a roadblock to the appropriate export of U.S. defense
goods and services abroad, especially to allies and friends.
This is very important as we seek to improve interoperability
and enhance coalition warfare capability, which the Kosovo
experience showed we have not done enough on.
In addition to the improved export review procedures that
we now have in place throughout the Department of Defense, we
have also made significant strides with regard to satellite and
space cooperation in particular. Within DTRA, the Space Launch
Monitoring Division that conducts all of our monitoring efforts
for space-related export reviews has moved forward and is
consistent with the law, the Defense Authorization Acts of 1999
and 2000. We think that we have a synergy between the license
and the post-license monitoring efforts that will improve
consistency and also ensure streamlined review, to enhance both
security and ensure that industry remains competitive. This is
consistent with the view we bring to this, that industry and
national security are best served by an approach in which we
work closely with the U.S. exporter from the very earliest
stages of contract and license development, all the way through
the design, the manufacture, and the actual launch. Security
and the industry both require a consistent approach throughout
what amounts to a multi-year program life for every satellite
launch campaign, and we think that having this dedicated team
approach works best in ensuring security and in ensuring the
needs of industry.
Presently there are about 100 satellite and launch vehicle
programs that are subject to the more rigorous special export
controls, which is to say those programs that require some form
of DOD monitoring. Now, that monitoring might range at one end
from a DOD presence in all technical meetings and at the launch
site to the other end of the spectrum which would entail a DOD
review of a company's internal control plan for authorized tech
transfer. If you like, I can go into more detail about how our
space launch monitoring system works.
Let me just emphasize again that the special export
controls I have discussed we think should only be applied in
very limited circumstances with a very limited focus when we
are dealing with friends and allies. We think that the recently
published changes in regulations that Secretary Holum referred
to will, in fact, result in an expedited and more focused
license process for NATO nations, as well as major non-NATO
allies. So, we support that strongly.
I would like to reiterate that for DOD our central focus
remains the task that has been given to us in the law. We are
putting our principal efforts where we believe the principal
risks to be, namely China and the former Soviet Union. We have
designed our monitoring program against those risks and we
think we have added a significant security element whose
attention is focused on the program and launch site physical
security, which is where it should be focused.
DOD is focused on protecting what we should be and what the
law requires and doing so in a way that ensures both technology
security is protected, but also does not unnecessarily add
bureaucracy or encumber industry. And we are confident that we
can do better in the future. We have made enough progress in
the last year to know how to improve. We are adding more
people. We think we will get better in terms of process times,
but also in terms of the quality of the reviews we provide.
With that, Mr. Chairman, I conclude my statement.
[The prepared statement of Mr. Bodner follows:]
Prepared Statement of Hon. James M. Bodner
Mr. Chairman, I would like to thank you for the opportunity to
report to you today on the significant progress DOD has made in
reforming satellite export control processes to improve national
security while supporting legitimate space cooperation with allies and
friends. I would like to address our policies and then the procedures
that we have in place to implement those policies.
It is our policy to restrict the transfer of technology to any
foreign destination in two sensitive areas: (1) detailed design,
development and manufacturing technology for satellites; and, (2)
technology that would improve foreign launch vehicles. A major focus of
our policy is to ensure that U.S. technology is not transferred that
would improve ballistic and other missile capabilities in countries
where there are significant security risks such as China and Russia.
To implement this policy and various legislative mandates, we have
developed special export controls in cooperation with our colleagues at
the Department of State. These controls are embodied in a special
section of the International Traffic in Arms Regulations.
We also recognize the desirability of continuing robust space
cooperation with our close allies and friends. Therefore, while we have
reserved the right to apply these special export controls for national
security or foreign policy reasons to transactions with those allies
and friends, we have been and intend to continue to apply those
controls in very selective and narrow circumstances.
Since DOD last testified before your committee in June 1999, we
have been working hard to implement the satellite export control
provisions mandated by the Fiscal Year 1999 Strom Thurmond National
Defense Authorization Act. We have also been incorporating in those
measures legislative direction contained in the FY 2000 National
Defense Authorization Act.
As directed in those statutes, the satellite and launch monitoring
mission is being performed by a dedicated and trained professional
cadre in the Space Launch Monitoring Division, which is part of the
Technology Security Directorate of the Defense Threat Reduction Agency.
Based on our estimate of the monitoring and license workload the office
would undertake, a 42-person staff was authorized with a mix of
military and civilian personnel. At the time of last year's hearing, we
were just beginning to hire our first new full-time staff members. This
has proven to be an extraordinary challenge since we face the same
skilled labor pool shortage encountered on a daily basis by the
commercial space industry.
We are close to 80 percent of our hiring goal, which will meet our
current projection of the number of monitoring days required to meet
satellite launch program workload this fiscal year (about 2500
monitoring work days). When we and industry meet later this summer to
discuss next year's monitoring requirements, we'll be prepared to move
closer to our full strength, if the market and our security
requirements warrant.
As the law requires, we have set exacting standards for both our
engineering and security staffs--and we are very pleased with the
results. While our physical and electronic security staff comes largely
from the government sector, our engineering staff is a mix of highly
skilled former industry engineers, civilian national security launch
and satellite engineers, and very experienced former military engineers
with commercial sector experience.
We have also devoted significant time and energy over the last year
to export control reform, which Secretary Cohen has said is a national
security imperative because it is essential to protecting critical
technology, promoting allied interoperability, and preserving the
health of our defense industrial base. The steps that we have taken
focus on improving our processes so that we are performing quality
license reviews in a timely way.
So far, for all munitions licenses reviewed by DOD, we have reduced
the average review time from 45 days a year ago to 18 days today. A
year ago, we had a backlog of more than 600 cases more than 60 days
old, which we have eliminated as of last month. This has been
accomplished primarily through changes in DOD processes and
organization for reviewing licenses, not the addition of new staff. Now
that we have reengineered our process and organization, we intend to
further improve the quality and speed of our reviews by adding 35
people to DTRA's technology security staff, increase of about 50
percent.
We are implementing these reforms with two primary objectives.
First, we are seeking to strengthen DOD's export license review process
by focusing greater attention on high risk exports and by adding
dedicated staff that will be trained and experienced with export
controls. Currently, there are many low-risk licenses that are reviewed
by the Military Departments and other DOD entities. We hope to handle
these cases in DTRA, which will free up the limited resources in the
Military Departments to focus on those higher-risk license cases where
they have military equities and critical expertise. Second, we want to
ensure that DOD is not a roadblock to the appropriate export of U.S.
defense goods and services abroad, especially to our valued allies and
friends. This is very important as we seek to improve interoperability
and coalition warfighting capabilities with our close allies and
friends that we found lacking in our Kosovo experience.
In addition to the improved export review procedures now in place
throughout the Department, we have also made significant strides in the
satellite and space area. The DTRA Space Launch Monitoring Division
that conducts our monitoring effort is now the principal reviewer of
all space-related export licenses. This synergy between licensing and
post-license monitoring provides consistency and streamlined review
that enhances our security and ensures that our industry is
competitive. This approach is fully consistent with our view that
industry and national security are best served by an approach in which
we work closely with the U.S. exporter from the early stages of
contract and license development through design, manufacturing and
launch. Our security and our industry requires a consistent approach
throughout the multi-year life of satellite programs; and we believe
that our dedicated team approach is focused and streamlined.
Presently, about 100 satellite and launch vehicle programs,
involving 37 companies, are subject to the more rigorous ``special
export controls'' identified in the International Traffic in Arms
Regulations--controls that require some form of DOD monitoring
throughout the export and launch process. This can range from a DOD
presence at all technical meetings and at the launch site to simple DOD
review of a company's internal control plan for authorized technology
transfer.
Let me re-emphasize that special export controls should only be
applied in very limited circumstances with a very limited focus when
our allies and friends are involved. In this regard, we believe that
the recently published change in regulations referred to by Mr. Holum
will result in an expedited and more focused license process for NATO
nations and major U.S. allies.
I want to reiterate that DOD's central focus remains the task given
to us in the law. We are putting our principal efforts where we believe
the risks of technology loss are greatest--China and the Former Soviet
Union. We have designed our monitoring program against these risks,
adding a significant security element whose attention is focused on
program and launch site physical security.
We believe DOD is protecting what we should--and what the law
requires--in a way that ensures U.S. technology security and does not
unnecessarily encumber U.S. industry. We are confident that we can
continue to do better as the process and regulation changes mature. The
continuing interagency discussions on improved export controls will
serve the American people well, simultaneously protecting both American
national and economic security.
Thank you, Mr. Chairman. I look forward to any questions the
committee may have.
Senator Hagel. Secretary Bodner, thank you, and again, to
each of you, we are grateful for your time.
As you know, behind you in the next panel will be an
industry representative, and I suspect he will have questions
about some of the points in your testimony as to how effective
the new regulations have been in light of Secretary Reinsch's
comments about market share losses. I suspect those are real
numbers. And that might be a good place to start. Mr. Holum,
you know those numbers. You heard what Secretary Reinsch said.
What is your explanation for those losses in market share for
our satellite industry?
Mr. Holum. Let me preface by repeating what I said in my
statement that we did not ask for this jurisdiction, but given
it, we had to take into account the fact that Congress did not
say you have jurisdiction over commercial satellites. It said
commercial satellites are ``munitions.'' And that means we are
required to treat them as munitions. We are trying to make the
best of a circumstance that Congress mandated that we did not
ask for and that does have, by virtue of the character of our
licensing process, definite disadvantages for a commercial
product. It is not designed for commercial products, as
Secretary Reinsch said.
It would also be entirely inefficient and duplicative for
the State Department to parallel the Commerce Department
process. If you are going to do something that would have
agency voting and rigid timetables built into it, then you
should not have it under a national security oriented munitions
list. It should be in the Commerce Department.
That said, I think it is fair to say that we have made the
very best of a situation that we did not request in trying to
deal with these licenses in a timely way. You have heard my
description in my statement about the average licensing times
for commercial satellites. There are serious problems that I
hope our reform, with respect to NATO and major non-NATO
allies, is designed to address and will address and that is the
fact that Commerce had decontrolled and had the license-free
treatment for a number of parts, components and related
technology that were also returned back to the State
Department. We do not have in the State Department a CCL-99. We
license everything that is in our jurisdiction. Everything
requires a license. So that meant a number of things, parts and
components, went from no license treatment to some license
treatment, and no matter how fast it is, it is not going to be
as fast as it was before because then the time was zero. So, I
think that is the major focus of the problem.
We have not had a satellite manufacturer come to us and say
they have lost a sale because of inability to obtain a license,
other than cases where licenses have explicitly been turned
down for security reasons related to countries other than NATO
and non-NATO allies. So, I think the major focus, the major
source of the problem which we are trying to resolve, is in the
parts and components area.
Senator Hagel. Staying on that subject and your comments,
as well Secretary Bodner's comments about the new expedited
licensing procedures--does that include complete satellites?
Can you break that down for me? Are we talking about a complete
satellite?
Mr. Holum. No, it does not include complete satellites, and
there is a specific reason for that. One is that complete
satellites, by virtue of the size of the contract, invariably
are more than $50 million, which means they require reporting
to the Congress and Congress' acceptance of the notification.
Complete satellites are also not suitable for bulk licensing
because, by definition again, they are a single product
exported in a point-to-point transaction, constructed wherever
they are constructed, shipped to the point of launch, and
launched into space. So, it is not something that is suitable
for multiple licenses. It is a single license case.
In addition, we feel that has been covered. In the initial
regulations, a number of the controls that applied globally did
not apply to NATO and non-NATO allies. And then as the record
demonstrates, in terms of practice, we have been pumping these
licenses out in a timely fashion. I gave you the list, and
there is a longer list attached to my statement demonstrating
how fast complete satellites have been licensed, and I think
they have been moving expeditiously.
Senator Hagel. Secretary Reinsch, would you care to comment
on either of the two questions I posed to Mr. Holum?
Mr. Reinsch. Sure, Mr. Chairman. I guess I would say two
things.
I think he struck the central point. They have been working
very hard to tweak the system, but as Mr. Holum said, there is
only so much you can tweak because there are some fundamental
differences. To steal a phrase from John Hamre, who is not here
to hit me over the head for stealing it, it is like putting
lipstick on a dying pig. It makes it look better, but it does
not solve the fundamental problem. The fundamental problem is
satellites do not belong over there. We all know that, and
there are limits as to what they can do.
I will leave to Mr. Mowry, who is better equipped than I
am, to discuss the question of what the practical effect has
been on the industry. I do have with me a three and a half page
list of media reports about business lost by specific U.S.
companies over the last 9 months that I would be pleased to
submit to the committee. It details individual companies that
have not been able to do business or have lost business or have
not been offered to bid on contracts in many cases because of
the licensing process.
Senator Hagel. Thank you.
Mr. Bodner. Mr. Chairman, could I add a comment?
Senator Hagel. Secretary Bodner, yes.
Mr. Bodner. To the first question you asked Mr. Holum, I
hear black and white explanations as to why this shift in
market share. On the one hand, I heard some say that it is
solely due to export controls and the transfer that took place.
On the other hand, I hear explanations that are totally
unrelated to that. I think the situation is mixed.
In general--not in the satellite arena, but in general--we
have an export control system which is sclerotic, which is very
slow. It does not serve national security interests as well as
it needs to, and national security interests in this arena are
twofold. One, we need to open a gap with our adversaries by
denying them things. We need to close the gap with our allies
by facilitating their getting things, getting technology. Both
of those are essential national security. The system we have
tries to do that. It does not do it well enough on either
objective.
We have worked tremendously hard at DOD, and the numbers I
cited indicated some of the progress we made. But I know how
hard it is to make that progress. It is not simply hiring
people. That does not do the job. There are genuine process
changes that are required. We have tried to do that. I think we
now have an interagency process trying to do that. Export
controls have contributed to the problem I think that Mr.
Reinsch described, but they are not solely at issue, and I
think that we have now in place improvements that will help
alleviate the degree to which it contributed to the problem.
I think there are other factors at work, as Mr. Holum
suggested. One factor--I am not the expert in this--I believe
is that out of the roughly two dozen contracts over the last
year for geo-satellites, only a very small number of those were
actually openly competed. Others were captured, in essence,
within the European market because they were directed, if you
will, by the contracting authorities. It is my understanding. I
do not know the details in precise. Maybe Mr. Mowry can comment
on that.
Senator Hagel. Are you suggesting, Mr. Secretary, that the
Congress should go back in and take a look at the national
security implications of this with a little more intensity than
we did before?
Mr. Bodner. For DOD, as Mr. Holum suggested, we did not
seek, we did not welcome the change. We could work with the
system as it was before and ensure that the national security
was met. We can work with the current system and ensure that
our aspect in this can be met. DOD can do its job in ensuring
security. We can work either way with it.
I do think that the Congress needs to focus more broadly on
export controls and how to make sure that export controls can
do both functions: close the gap with our allies, open the gap
with our adversaries. I do think that there is a misperception
that the only function of export controls is the latter,
opening the gap with adversaries by denying them things. We
have to make sure our export control system facilitates
cooperation between United States and allied industry and the
transfer of technology to allies who have to fight with us side
by side. Both of those are essential to the national security.
Senator Hagel. Do you believe congressional action is
needed to accomplish this in more defined ways than maybe we
have been able to do in the last 2 years or is that a function
of the three Departments who are working with this, primarily
your Department?
Mr. Bodner. Well, again, Secretary Albright and Secretary
Cohen just announced 2 weeks ago a series of initiatives to try
to improve the export control process, and we think that they
will simultaneously assist industry to collaborate with
European partners and also Australian and Japanese partners and
improve security at the same time. We specifically designed
those 17 reforms so they would not require legislation because
we were not sure we could get legislation. There are additional
reforms beyond that that no doubt could be sought that would
require legislation.
The first thing I would ask is first do no harm. If we
could work with Congress to make sure we do not have
legislation to prevent us from taking these 17 reforms, that
would be very helpful because I do think there are some people
considering legislation to block those 17 reforms.
Senator Hagel. Are you familiar with Congressman
Gejdenson's bill?
Mr. Bodner. Sir, I am not familiar with the details, no.
Senator Hagel. Do you know generally what that bill is
about?
Mr. Bodner. Is this to return jurisdiction?
Senator Hagel. Yes.
Mr. Bodner. Again, I do not think that the administration
sought the change in jurisdiction. DOD's view is we can live
with the change. We can live with the current structure. We
have worked with State to work out better procedures. DOD is
not pursuing a change in jurisdiction. We can do our job, our
role, satisfactorily under either arrangement.
Mr. Reinsch. If I can comment on that, Mr. Chairman.
Senator Hagel. Yes.
Mr. Reinsch. The administration does not have a position on
the bill. It was introduced only last month. It is H.R. 4417, I
gather. It does have some unusual features that I think would
probably give us some pause as we go through the details of it.
But you have heard all three of us say that we did not seek
and, in fact, opposed the initial transfer, and I think we
welcome efforts to go back. Whether this particular approach is
the right one is something we have not addressed yet.
Senator Hagel. Mr. Holum, would you like to comment?
And I heard, by the way, very clearly your disclaimers here
that you did not seek this responsibility.
Mr. Holum. No. We will do as Secretary Bodner said. We will
deal with whatever Congress asks of us. My concern is that
Congress be definitive and durable in its decision one way or
the other. We have had some internal conversations about what
would we do if jurisdiction were transferred back, and I think
the consensus view is that we would have a party.
But we want clarity in what our mission is. We are doing
the very best we can and I think we are doing a pretty good job
of getting licenses dealt with, addressing specific problems,
consulting closely with industry, trying to resolve concerns,
but this is a system designed for weapons, for munitions. It is
not a system designed for commercial products.
Senator Hagel. And it appears--and I suspect again we will
hear more directly from our industry representative--that
commercial products are getting snagged in the underbrush of
this noble, important effort. Generally would you agree with
that statement or not?
Mr. Holum. Well, yes, and in particular, as it applies to--
I think as a matter of objective reality that commercial
satellites are not munitions--the satellite itself is a
commercial product. There is a close relationship between the
satellite and the launch vehicle which is a munition even if it
is launching a satellite because there is no difference between
a space launch vehicle and a missile that anybody can rely
upon.
But the satellite and most of the related components in my
view are commercial products objectively. Now, they have been
defined as munitions for licensing purposes, and that is the
complication here.
Now, within that framework, there are great many associated
parts and components and technical data that, under the
Commerce structure, required no license. They had gone through
a Commerce determination that they were not sufficiently
sensitive to be on a control list. So, they were, in essence,
decontrolled except for shipment to terrorist countries. Those
items all require a license under the State system. I have no
doubt that many of them are purely commercial products. So,
they are folded up in this transfer of jurisdiction.
Senator Hagel. Do either of you have a comment on that
question?
Mr. Bodner. No.
Mr. Reinsch. No, I agree.
Senator Hagel. Let me ask each of you this question.
Realizing that we are early into this, less than a year and a
half into it, and that we have burdened the State Department
with some heavy responsibility, are we in fact any closer to
accomplishing the objective that we set out with in this
legislation? Is our national security in better shape today,
more secure than it was 4 years ago, 3 years ago, and in fact
is our commercial industry more productive? Are the
opportunities less prohibitive? So, the obvious objective is
protecting our national security without harming our industry.
Are we accomplishing both with this legislation, or are there
things that we need to come back and do? Mr. Secretary?
Mr. Reinsch. Well, my view frankly, which I am sure comes
as no surprise, is that we are worse off for the action that
Congress has taken. Our security is worse off because the
industry is worse off. And as I tried to demonstrate in my
testimony--and Mr. Bodner made exactly the same point--that in
a world of globalization and in a world where communications
technologies are integral to military strength and military
capability, our ability to run faster than our adversaries is
as important as our ability to hold our adversaries back.
Export controls do the latter, but if we are strangling our own
companies at the same time, we are hurting our security--it is
very simple. They export. They make money. They plow their
money back into R&D on next generation products.
If you go out and visit the Hughes High Bay, which is in
southern California, where they actually make these things, you
are walking along and you see various satellites underway, and
then all of a sudden there is this area with all this dark
plastic sheeting all over it. Well, what is it? It is a
classified project. These are the same people that are doing
military work. They are doing classified military work, and
they are doing commercial satellite work at the same time. If
we are going to hurt these companies, there is a spillover
effect that simply cannot be ignored that has a direct impact
on our security.
I think we are not only worse off for the action that we
have taken for that reason. I would contend that what Congress
did was to step in and attempt to solve a problem which we had
already solved and which we had already addressed. The
situations that spun everybody up occurred in 1993, 1994 and
1995 and the first 2 months of 1996. The President did not take
the action that Congress reversed until after those actions. He
made the decision to transfer jurisdiction in March 1996, and
the reg was not issued until October 1996.
In the process of issuing those regs, we have done a number
of other things. We beefed up monitoring. We have regularized
the process. We had all three agencies reviewing individual
licenses. We felt that we had a tight process at that time. And
I think it is not insignificant that the Congress, despite the
320,000 pages of documents that we provided, and I assume
comparable amounts that my colleagues provided in this period,
never came up with any problems in 1997 or 1998 or the latter
part of 1996. They came up with historical problems that all
occurred before the transfer of jurisdiction.
Our view has consistently been that to the extent there was
a problem, we fixed it, and now Congress has stepped in to fix
it again, and by doing so has made everything worse.
Senator Hagel. Well, that is rather clear.
Mr. Reinsch. I do not mince any words.
Senator Hagel. Thank you.
Secretary Bodner.
Mr. Bodner. Thank you, Mr. Chairman. Let me make three
points.
First, with regard to the monitoring that we do, from the
earliest stages of design of the system all the way through
launch, our system has gotten better. I do think the
legislation has helped. The legislation provided for
reimbursement, for example, of the cost associated with our
monitoring program. Our monitoring program has gotten more
disciplined. We got guidance in the legislation for precisely
what we ought to be doing. And so, I do think congressional
action has helped on that. I do think national security is
being served better today than several years ago because our
program has gotten better.
I would also note that we have greater transparency into
the State Department run Munitions List process than we do
sometimes into the dual use licensing process. In that regard,
DOD feels more comfortable. We do not think anything is
slipping through that we are unaware of on that front.
As I said before, my second point is the impediments inside
the export control process undoubtedly have contributed to some
of the market problems, but there are many other factors at
play. I cited the captured market as part of the problem which
might explain much of the decline in the number. I also think
that the bottom has fallen out of the market. I pay attention
to that more on the launch side than I do on the actual
satellite side. The market is not what it was several years
ago. Somehow that, I am sure, has contributed to the problems
that Mr. Reinsch is identifying. I cannot tell you how much
they have contributed but that is part of the picture as well.
Again, I would go back to in general, export controls--not
on satellites, but in general--to the need for continued focus
on reform. They have not been performing the job of protecting
technology as well as they should. And that is something,
because of the change in business practices, we need to
continue to focus on. We have to stay ahead of the changes in
business practice or our existing export control system will
not keep pace, and we will no longer have the security we need.
But export controls also need to continue to be reformed to
ensure that people who we are going to fight side by side with
are interoperable with us.
Senator Hagel. I suspect the industry representative, Mr.
Mowry, will cover some of the area and will be interested in
your analysis as to why the market has gone to hell. So, thank
you for your thoughts.
Mr. Bodner. I acknowledge the limitations of my knowledge,
sir, on that.
Senator Hagel. Well, that is why we have Mr. Mowry here. He
will help us with that, but thank you, Mr. Secretary.
Mr. Holum.
Mr. Holum. I would just reinforce maybe a couple of points.
One is that there is no question about what exports of
satellites and parts and components and technology are more
tightly controlled now to China and Russia than they were in
the past. The monitoring and the licensing requirements are
also more tightly controlled every place else as part of the
process. So, you have to make a judgment as to which goal is
more important. We are, as I said at the beginning in my
statement, scrutinizing these licenses very closely from a
national security and foreign policy perspective. They are
carefully reviewed, and I think there is more of that. We do
not know in great detail, for example, what was decontrolled by
Commerce. What we know is we got it all back and everything is
now ours. So, it certainly is more tightly controlled.
But I also would reinforce the point that I think it is
self-defeating to overestimate the effect of the licensing
system on the market. It is a fact that military aerospace
exports in 1999 grew to $12.4 billion. Military aircraft sales
grew to $36 billion. Missile sector sales, again purely
munitions, grew to $8 billion. All of those are also licensed
by the Office of Defense Trade Controls. Yet, the licensing did
not prove to be an impediment.
Now, certainly the market is different, I grant you, for
satellites than for munitions. But the munitions licensing
process cannot be that big a clog. One of the things that Jim
Bodner referred to I have also seen referred to, and that is
the fact that a lot of these contracts are linked, are tied;
they are not competitively bid. Of the ones that were awarded
in 1999, only seven were in fact competitive. There has been
shrinkage in the market due to excess transponder capacity in
geosynchronous orbit. The lingering effects of the Asian
financial crisis. You could point to a number of things.
I am only saying it is self-defeating to exaggerate this
because it gives the competitors the opportunity to argue,
well, that whole licensing mess in Washington means you better
go with us when, in fact, we are getting licenses out pretty
quickly. So, U.S. industry should not be handing its
competitors a golden award here, a golden argument for going
with other firms.
Mr. Reinsch. May I add something, Mr. Chairman?
Senator Hagel. Yes.
Mr. Reinsch. I hesitate to do this, but I do have to take
exception to a couple things my colleague said just to clarify
the record from my point of view.
First of all, the Commerce Department does not remove
things from the control list unilaterally. If we decided that a
part or component did not need to be controlled, it was because
the State Department and the Defense Department concurred in it
and knew about it. It is not an action that we take by
ourselves.
Second of all, I have always resisted the implication that
the Commerce Department control system is somehow not as tight
as the State Department control system. I suppose one can argue
that if you have to go through 24 hoops, it is tighter than
having to go through 2 hoops. But I think that if you look at
satellites in particular and go back to the history of this, of
the three, I believe, cases that Congress identified as
problematic, two of them were licensed by the State Department
in 1994 and 1996, and one of them was licensed by the Commerce
Department. We had our problems with this system, and I was
quite clear in testimony before Congress at the time in
explaining what our problems were.
But I do not think it would be correct to infer that the
Commerce Department is the only agency which had those problems
and that one system is in some sense tighter than the others.
Both our testimonies spent considerable time talking about the
differences between the systems and the difference in their
focus, and I would prefer to leave it at that rather than
getting into judgments about which one is tighter.
Senator Hagel. Secretary Bodner, do you want to say
anything about this issue?
Mr. Bodner. Just to clarify a point which has been relevant
in the satellite arena in the past and the differences between
the two systems. I think this is what Mr. Holum was referring
to when he used the word ``decontrol.'' He may not have meant
decontrol in the sense of taking it off the commodity control
list so much as in the process of determining whether something
is subject to controls, Commerce and State operate slightly
differently. We have good transparency into the State
Department when they make such a determination, which is called
a commodity jurisdiction determination. We do not always have
such good transparency within the dual use system for a
commodity classification. This is a subject that we have all
testified to before. We think we should have better
transparency. So, that is one benefit, a mix of many factors,
one benefit of the switch over to State. We have confidence
that when a determination is made as to whether something is
subject to licensing, we know what is going on.
Senator Hagel. Secretary Reinsch, you mentioned three
specific cases: two licensed by the State Department, one by
the Commerce Department. Are you talking about the Chinese
cases?
Mr. Reinsch. Yes. There was the Hughes case, which was
ours. There was the Loral case, which was State's, and the
Lockheed Martin case which was also State's.
Senator Hagel. The infamous cases that began this creative
journey.
Mr. Reinsch. Hughes and Loral were the two big ones, yes.
One of them was ours.
And I indicated quite clearly in testimony at the time that
upon further review, we should have handled ours differently.
We made a mistake and I have acknowledged that. But that was
one of the cases.
Mr. Holum. It is important to keep in mind in that context
that what allegedly happened--and these are still under
investigation by the Justice Department, so we cannot go into
much detail, but what is alleged to have happened is something
required a license, and one was not secured. A launch failure
investigation, which implied sharing of technical data relating
to the space launch vehicle, always required a license--did
while it was under Commerce's jurisdiction, and did while it
was under State's jurisdiction. You have to have a license to
help anybody analyze why their rocket did not go up as
estimated because that deals with something that is clearly a
munition, was then, is now.
Senator Hagel. Thank you.
Let me ask Secretary Bodner and Mr. Holum about a statement
that Secretary Reinsch made in his testimony. He said: ``Today
the most important criteria in the success of a commercial
satellite business are reliability, scheduling, and cost in
that order.'' Secretary Bodner, do you agree with that?
Mr. Bodner. I am not sure I am in a position to make a
decision of which of those factors is most important for any
given contract decision. I think they are all three important.
Reliability has many factors to it. The speed of license review
is one of the important factors associated with it, and that is
why we are focused on making sure that we have a process which
is a quality review but an expeditious review. They are all
important. And we can do better. We are doing better today than
a year ago, but I think we can do better still.
Senator Hagel. So, you would not necessarily agree that
reliability, I think emphatically pointed out by Secretary
Reinsch, is the most important component in the success of our
commercial satellite companies.
Mr. Bodner. I just do not think I am in a position to make
that judgment.
Senator Hagel. Thank you.
Mr. Holum.
Mr. Holum. It certainly sounds reasonable. From what I know
anecdotally about the market, reliability is certainly a large
factor, and there have been some failures that have caused
competitive, as well as economic problems.
I also think that timeliness is becoming increasingly a
concern because of the shrinkage between the time when
contracts are awarded and satellites need to be launched. This
used to be a longer-term, 2- or 3-year process. Now it is
closer to a year, from what I understand, so that the entire
process needs to be accelerated.
Mr. Reinsch. That is a very important point, Mr. Chairman.
I mentioned it in my testimony, but I am glad Mr. Holum
mentioned it.
When we were doing this, we had the luxury of taking a long
time because it took a long time to build the thing, and then
there was a launch window that was down the road. He is quite
right. These things are being cranked out much more quickly
now. The competitive environment has changed a lot. There is a
lot more pressure on State to move quickly.
Senator Hagel. A question I have for each of you--and we
have touched on it, each of you in your own way in your
testimony, and then during the give and take here--about
illicit technology transfer and the security of foreign
launches of U.S. satellites.
We all understand you can pass all the laws and all the
regulations, have all the good intentions, but there are some
out there whose intentions and motivations are not as pure and
noble as ours.
So, with the new law, as it is constructed and being
implemented, are we any closer to getting at the core problem
of tightening down the illicit transfer of technology than we
were 3 years ago, 4 years ago when, as Mr. Reinsch points out,
we had difficulties with the two cases that brought all this
together? Is it any better? Is it too early to tell? Or is it
about the same, or is it worse? Mr. Holum.
Mr. Holum. I was struck by something Bill Reinsch said
about the fact that this problem was being fixed; it had been
recognized. It seems to me that the ideal circumstance might
have been that if Congress had had the full set of hearings
that it had and then did not legislate because it certainly did
contribute to raising the consciousness throughout the
administration. The legislation did result in more routine
defense monitoring of transactions, launches in sensitive
locations.
I recall, in all of those hearings, there was a broader
concern raised. There were some who argued if you help the
Chinese improve their space launch capability simply by giving
them the economic incentive for launches, just by providing
launches, you help them, through the principle of practice
makes perfect, improve their missiles. Now, for a variety of
reasons I do not think that is an accurate conclusion. Their
space launch vehicles are not likely to be what they end up
using for missile programs.
But if that is what you believe, then our position does not
help because we still believe that it is important to, and that
we can safely, prevent the transfer of sensitive technology
while licensing launches of U.S. commercial satellites on
Chinese or Russian or other countries' launchers.
But more broadly, I think whether or not Congress had
legislated, the issue would have been addressed and is being
addressed in a much more rigorous way.
Senator Hagel. Thank you.
Mr. Reinsch. I would second that, Mr. Chairman. I think it
is better because of the hearings. I think it is not better
because of the legislation.
We are not involved in the licensing process now, so I
cannot comment on the merits of any decision that State has
made in the intervening period because we do not see the
applications anymore.
But I think, in general, the hearings that were held and
work that we had underway prior to that time, as I said, has
made the situation tighter now than otherwise.
It is uniquely a difficult area to maintain controls and to
successfully monitor because all the incentives, if you will,
are to have contact and to have exchanges of information. If
you think about the vulnerable points in a whole launch
program, the vulnerable points are, first, when the satellite
arrives--take China--in China and they are bolting it onto the
rocket. That is a point where there is potential technology
transfer. If it is launched successfully, it is up there. You
never see it again and there is not a lot of further technology
transfer.
The other big vulnerable point comes in if the satellite
blows up because then what happens is that the insurance
companies come in--and each side has an insurance company--and
they have a great interest in making sure that it was somebody
else's fault so the other company has to pay. At the same time,
who is there but a bunch of engineers, and their job is not to
make things blow up. Their job is to make things work. And so,
everybody that is part of this equation is motivated to try to
figure out what happened and how to fix it and to make sure it
will not happen again. That is what they do. They are
engineers, they are scientists, and they are insurance
companies.
In that environment, it has proved very, very difficult to
prevent technology transfer from occurring because that is what
these people do. Frankly, I have some sympathy for an argument
that Henry Sokolski, with whom I rarely agree on these issues,
made at the time, which is that with respect to China, if you
are concerned about this, you really need to make the decision
up front as to whether you want to do business with them in
satellites or not, because if you do business with them, there
is going to be some leakage over time because of the nature of
the transaction. And you either accept that and do your best to
minimize it, or if you are troubled by it, you say no launches.
In retrospect, I almost think that might have been a better way
to go, to confront that issue head on and say, are we troubled
by this, in which case let us get out of that business and go
elsewhere, although that would have had a lot of implications.
We are doing this a lot better now than we used to, but I
think there are still these vulnerabilities there. It is
inevitable in the nature of the transaction.
Senator Hagel. Secretary Bodner, I know you have a date at
the White House and need to leave at 3:45.
Mr. Bodner. You know my schedule better than I do.
Senator Hagel. Well, we are the all-knowing, omnipotent
Senators. It is scary and frightening really how much we do not
know and think we do.
You have got about 2 minutes before you have to leave. How
is that? I am letting you off the hook a little bit here. So,
if you could give me whatever you think is the appropriate
answer in 2 minutes, you can escape. And I have one more
question for your colleagues, but we will submit yours in
writing. Thank you.
Mr. Bodner. Thank you, Mr. Chairman.
Let me add a layer of detail beyond what Mr. Reinsch said.
I do not think it is the case that everyone involved is solely
focused on making it work, whether it is a launch failure or
not. We have monitors there. They are there to make sure that
inappropriate tech transfers do not happen. And I do think that
things have gotten significantly better. We have a much better
monitoring system today than we did a couple of years ago, and
that is partly due to the legislation.
I say the legislation that affected the monitoring, a
distinct legislation provision from the one that transferred
jurisdiction. We used to have temporary duty assignment of
missile engineers go off and monitor meetings, launch sites, et
cetera. We now have a dedicated team of people. I think we have
33 today. We will be up above 40 next year. That is all they
do, and they monitor these things from cradle to grave. When it
comes to China and Russia, they attend every technical meeting
where there might be transfer of tech data. That is certainly
one of the most vulnerable points. It is not just at the launch
site or in the case of a failure. It is in the design of the
system in the first place because some of the most critical
losses are the tech data that might be lost. So, we have
definitely gotten better.
This improved monitoring system we have will be in place
regardless of where the jurisdiction lies. So, if Congress were
to change things, we would still have this improved system in
place.
Again, we do not advocate changing the jurisdiction. Flux
in the system can contribute to difficulty in maintaining
controls here. We have already gone through tremendous flux
shifting in one direction. If we shift back, we have to accept
that there will be a period of time in which we are going to
have a fluid situation where it is going to be hard to control
again. But we will do what the Congress tells us to do and DOD
can do its job either way.
Senator Hagel. Secretary Bodner, thank you. Thank you for
your service to the country as well. We are grateful.
If I might, gentlemen, I just have one general question.
Picking up on your answers to my question on illicit transfer
of technology and what the real world is about out there,
connect that with what you have said in the last hour about the
new competitiveness in this industry and the new products and
the new players.
At some point I suspect we could ratchet sales down as
tightly as we possibly can and go beyond where we are now, but
it may not make all that big a difference because of the new
competitive market and the other suppliers who are out there.
How much is that a factor in your thoughts on this, coming
from, Secretary Reinsch, your background in this and your past
responsibilities moving forward, Mr. Holum, to your present
responsibilities?
Mr. Reinsch. That is a really good question, Mr. Chairman,
and it is one that requires a lot of thought. Let me say a
couple things, but I would also like to reserve the opportunity
to perhaps get back to you at greater length later after I have
had a chance to ponder it.
I think you have touched on the problem that bothers us
across the board in export controls now. In the 1950's and
1960's and into the 1970's, the United States was the world's
leader in most everything that mattered from a military
standpoint, and export controls was kind of an easy process
because foreign availability was few and far between, and we
had to make decisions about what we wanted the other guys to
get, but we did not have to worry too much about what would
happen if we said ``no.'' We had to worry about leakage,
somebody cheating, somebody filling out the form falsely. Every
administration has had this problem--something that ends up in
the wrong place.
But as the years go on, and particularly in the last
decade, we have been really overwhelmed with the problem that
you just described, which is that a lot of this technology is
becoming ubiquitous in many respects, thanks in part to the
Internet and more rapid means of communication. But if you want
to look at the big picture, you should look more than anything
else at the enormous numbers of foreign students that are being
educated here and are getting their Ph.D.'s in various
engineering sciences and then going back to their own countries
and doing good things. As a matter of national policy, we
believe that is important because they take American ideas with
them, and they take democracy with them, and they take freedom
of the press with them. They take a lot of things with them.
Oftentimes they do not go back. They stay here and they add to
the great body of knowledge and skill that we have in this
country that has made us what we are.
But some of them do go back, and the result is that in all
the sectors we are talking about, we have got competitors. Talk
to the phone companies. Talk to Motorola. Talk to the computer
companies, as we are tomorrow. They are all in town. Talk to
the software people that you may have met with over the last
couple of days. There is this undercurrent sort of fear, if you
will, that runs through a lot of what is going on now that they
have got competitors that, 10 years ago, 15 years ago, they
would not have had. That makes our job much more difficult
because, first of all, it magnifies the economic consequences
when we say no because there is somebody else out there ready
to pick up the slack immediately, and it magnifies the security
risk because those things can go from foreign sources and have
the same consequences as if they came from the United States.
It is a fair question to ask in the case of the Chinese,
how much difference did we really make? I think John's comment
about practice makes perfect is well taken. That is an argument
that is worth mentioning, but the Chinese have been launching
missiles since the 1960's, and they did not do it in the 1960's
and 1970's with any help from us. Those are capabilities that
were there.
I think this is a situation that is only going to grow. I
do not want to say get worse. It just poses a different set of
challenges, and we are going to have to deal with them. Most
people, both parties, bipartisan, have tended to say the way to
deal with them is by trying to control fewer items better,
focus in on the narrow range of stuff that really matters, keep
up with technological change, and above all, do not do things
that hold your own people back. Make sure that they can run
faster.
The fact is, however, that getting agreement on any given
action within that general set of principles is often
difficult, and that is what we wrestled with between ourselves
and the Congress and amongst the three of us on numerous
occasions.
Senator Hagel. Thank you.
Mr. Holum.
Mr. Holum. I think there are two distinct areas to focus
on, and Under Secretary Reinsch has addressed very articulately
the dual use realm.
Defense is a different item. This is not, as some argue, a
cold war regime. This is actually a regime that goes back to
the Neutrality Acts of the 1930's. It has always had a global
focus. And we control many items in which there is enormous
competition. Anything that is a munition down to an M-16 rifle,
any commodity that is in a military inventory and has a
military purpose and is on the Munitions List needs a license,
low tech or high tech. We control for foreign availability
purposes. Even if all the countries in the world are competing
to send AK-47's into Sierra Leone, we do not think we should do
that. So, it is a different kind of market.
At the high end, what I think we need most to do, picking
up on what Secretary Bodner said earlier, is maintain our edge,
our superior capability, and that means having a strong
industrial base. Increasingly, it means having a strong
multinational industrial base, including facilitating teaming
arrangements, long duration licenses for major projects with
our European allies and Japan and Australia. And that is what
the new structure that Secretary Albright and Secretary Cohen
announced in Florence a couple of weeks ago is designed to do.
This is a very far-reaching set of new license capabilities
that will facilitate precisely the kind of the relationships
that we need to develop in order to build the best defense
industrial base that we can in common with our allies, as well
as in the United States.
A lot of focus in that discussion has been on the exemption
idea of exempting preferred allies from ITAR's for the
government and approved industries. That is important, and I
think it can serve as an incentive for those countries to
strengthen their munitions controls to parallel ours. In fact,
that is a condition in order to grant the exemption.
But it has sort of taken attention away from the other 16
reforms that, if used fully, I think will answer a large number
of the concerns including, incidentally, in the satellite
industry because these project and product and global licenses
will also work for satellites as well as other munitions. So, I
think we are moving to reform the defense trade control realm
in a pretty significant way that helps not only meet
competition, but incorporate competition and build a stronger
multinational base.
Senator Hagel. Thank you. Gentlemen, you have been generous
with your time. The committee is grateful. If we have
additional questions from any of my colleagues, we will submit
those for the record, but thank you and thanks for what you do
for our country.
Mr. Holum. Thank you.
Mr. Reinsch. Thank you.
Senator Hagel. Mr. Mowry, welcome. We appreciate your being
here. You are all set up with water and you appear comfortable.
You have your testimony. Please begin.
STATEMENT OF CLAYTON MOWRY, EXECUTIVE DIRECTOR, SATELLITE
INDUSTRY ASSOCIATION, ALEXANDRIA, VA
Mr. Mowry. Thank you, Mr. Chairman. I hope I can live up to
the lofty expectations that my previous panel has put upon me.
I will do my level best to answer your queries, and hopefully I
will have all the answers.
I would like to thank you for the opportunity to testify
here today on this important issue of satellite export
controls. As executive director of the Satellite Industry
Association [SIA], a private sector organization that
represents U.S. companies in every aspect of the design,
manufacture, launch, and in-orbit operation of
telecommunications satellites, I am concerned about the issue
of satellite export controls. American satellite companies have
worked diligently over the past 40 years to establish and
maintain their leadership position in this critical high
technology industry. But hard-fought U.S. dominance in
satellite manufacturing could quickly be lost to European and
Asian enterprises that are striving to win market share in this
dynamic of the global telecommunications industry.
Mr. Chairman, let me begin by saying that the U.S.
satellite industry holds concern for national security in the
highest regard. Over the past 4 decades, American satellite
manufacturers have worked to ensure that U.S. Armed Forces can
maintain the high ground in outer space that translates to
superiority on the battlefield. The same American manufacturers
that supplied telecommunications satellites to the world have
also designed and built our Nation's military communications,
observations, and early warning satellites. As such, the
economic health of the commercial satellite industry directly
impacts our national security, and I think you heard that from
all the speakers before.
While much of our industry's heritage can be attributed to
the early defense and NASA space initiatives, commercial
telecommunications satellite technology actually developed in
parallel with government space programs. Commercial satellites
have grown over the years from systems used largely to deliver
basic long-distance telephone service and live international
news or sports coverage to ones that are now providing services
in competition with terrestrial telecommunications networks
like cable television and fiber optic networks.
Today commercial satellites provide subscription television
service to nearly 14 million American homes. That is about one
in eight TV households here in the United States and nearly one
in five homes in your home State of Nebraska, sir. By next
year, you can expect to see satellite radio receivers in every
new American automobile and the advent of two-way, high-speed
Internet service via satellite to American homes. Congress has
worked hard to enact legislation over the past several years to
promote competition and diversity in telecommunications
services and the satellite companies are now stepping up to
that challenge.
Let me say that the commercial satellite industry today is
a $69 billion a year global industry and about a little less
than half, about 45 percent, of that revenue is derived from
satellite services, some of the products I mentioned before
like direct-to-home television, video programming, and
connecting Internet service providers around the world.
Satellite manufacturing and ground equipment together account
for $32 billion in annual revenue and the commercial launch
segment that has gotten a lot of attention recently makes up
the remaining $6 billion, roughly a smaller share of the
overall marketplace. Nearly half of the revenues, about 45
percent, are earned by U.S. companies, and the U.S. satellite
industry has consistently contributed to a positive balance of
trade and employs over 100,000 highly skilled American
technicians, engineers, and professionals.
That is not to say there is not competition in this
business. There is. In fact, the list of foreign satellite
manufacturers is long. There are major European industrial
conglomerates involved in this business. Alcatel is one.
Astrium is a new company that has formed from the merger of
several other major European companies like DaimlerChrysler
Aerospace, Aerospatiale Matra, and BAE. The Japanese have two
companies that are formidable in Mitsubishi and NEC. And most
recently we have seen the advent of Russian joint ventures that
use Western electronics on Russian-built satellite buses, and
those companies, NPO PM and NPO Lavotchkin, are starting to
compete in the marketplace.
Over the past 3 years, the global satellite industry has
grown by nearly 50 percent. That growth has been driven by the
explosion in multi-channel video programming and Internet
services, and in many parts of the world, the only cost
effective way to provide telecommunications services is via
satellite. Indonesia is a case in point. Domestic and
international satellite networks connect 216 million people
scattered across 17,000 islands in that country. Satellites
connect Internet service providers, link telephone companies,
and bring TV news to homes throughout the island archipelago.
Media accounts indicate that the most recent uprising in East
Timor--the format for that--that was done over the Internet and
a lot of that traffic was carried via satellite.
Yet, licensing for commercial satellite technology on the
State Department's Munitions List nearly prevented companies
from providing Y2K upgrades to satellite networks last year, as
well as launching of a mobile satellite telephone service in
Indonesia. The sanctions legislation that aimed at halting the
sale of firearms and other weapons to the Indonesian military
swept up telecommunications satellites and other products on
the USML. Ultimately our industry persuaded Congress and the
administration to carve out commercial satellites from those
sanctions, allowing U.S. companies to continue the work on the
software upgrades. But those types of sanctions will reoccur as
long as satellites remain on the U.S. Munitions List.
As you know, the National Defense Authorization Act
transferred jurisdiction for licensing of satellites and
components and technical data to the State Department on March
15, 1999. Since that time, U.S. manufacturers of satellites and
subsystems have encountered delays in receiving export licenses
and approval for technical assistance agreements.
A typical telecommunications satellite will require
multiple technical assistance agreements [TAA's] and export
licenses from the State Department in order to be sold to an
international customer. Once those licenses have been
processed, the State Department must also notify Congress of
the sale. This was mentioned before. They are products that
tend to be about $100 million at a pop and require
congressional notification. And when you add that all together,
the time it takes to license and notify a satellite system can
begin to approach the time it takes to build a satellite. We
have dramatically reduced our times from 2 to 3 years down to
about a year. So, our market position now is at risk.
You heard the statistic that Secretary Reinsch mentioned,
and I will say it again. In 1997, we had about 76 percent of
the commercial marketplace for satellite orders, and when we
looked at the date of the transfer, March 15, the last three
quarters of 1999 and the first quarter of 2000, we had seen the
market share erode to 52 percent.
Now, I am not claiming that this significant decrease is
entirely or directly attributable to the shift in control. But
one thing is clear: The perception is in international markets
it is more difficult to buy a commercial satellite from a U.S.
supplier than from a European supplier. There were high profile
stories in the Wall Street Journal, the Financial Times, and
Newsweek that detailed lost contracts over the past 2 years,
and they added to this perception. And the real life experience
of U.S. companies that have spoken to me over the past 2 years
have said it is more difficult to obtain TAA's and to hold
basic marketing discussions with their customers, and that has
been a major cause of concern.
Let me jump ahead a little bit here.
Fourteen months since the shift in licensing authority, the
State Department has finally issued new regulations reforming
its process for the bulk licensing of satellite parts and
components to NATO and major non-NATO allies. We are grateful
for the hard work that both the Office of Defense Trade
Controls and Defense Threat Reduction Agency have put into
crafting these new regulations. The satellite industry believes
the new regulations are a positive step forward. We think they
will help to improve the State Department licensing system and
allow legitimate commercial sales of parts and components to
occur in a timely fashion.
However, we are also concerned that the new regulations
focus primarily on the export of parts. It is unclear from the
Federal Register notice--and this is the one that was published
on May 22, the interim final rule--how licenses for technical
data for marketing bids, insurance, and on-orbit anomalies will
be expedited. I look forward to the June 28 briefing that they
talked about and hearing how these regulations are going to be
implemented. It is unclear from a four-page notice exactly how
this process is going to move forward. So, we are eager to see
that.
Both the laws and new regulations are aimed at speeding
trade between allied nations, and rightly so.
Let me jump ahead again.
But many of the countries whose satellite operators have
purchased commercial telecommunications satellites from U.S.
manufacturers over the last 10 years are not NATO or major non-
NATO allies. These are friendly nations like Brazil, Malaysia,
Mexico, Philippines, Taiwan, and the UAE. In addition, there
are five other European nations that are active members of the
European Space Agency. That is the EU's equivalent of NASA
roughly. And they are not members of NATO and, therefore, are
not subject to the expedited approval regulations. So, we are
concerned there.
Let me also add that the change in our relationship with
Canada has caused concern amongst a number of our companies, in
particular one that had a major contract there. The Canadian
Government's recent decision to purchase a satellite bus from a
European company, after waiting 10 months for a U.S. license,
was a clear signal that we have a problem here. Even more
troubling are the recent press accounts indicating that
commercial satellites may not be included in a list of products
on the U.S. Munitions List that are under negotiation between
the United States and Canada that will be eligible to receive
the renewed exemption from State Department licensing. So that
means Canadians may ultimately be allowed to buy military
weapons from U.S. suppliers under the exemption but not
commercial telecommunications satellites.
The commercial satellite industry should not be forced by
Government policy into a similar position as our aerospace
counterparts in the commercial aircraft and space launch
industries. Lost market share is a difficult thing to regain,
and the U.S. Government's decision to launch all satellites
aboard NASA's space shuttle still reverberates amongst our
domestic launch industry. Since the Challenger tragedy and
President Reagan's decision to launch commercial satellites on
board unmanned expendable rockets, Europe has dominated the
commercial launch marketplace. In fact, over the past decade,
more than 50 percent of all U.S. satellites have been flown by
Arianespace, which is a European launch company.
At the time Congress debated shifting the export licensing
back to the State Department, it was suggested that the move
would ultimately help U.S. launch companies regain their lost
market share. Now Members of Congress, including Representative
Dave Weldon, who represents the district that includes Cape
Canaveral and our launch facilities there, realize that just
the opposite is true. Even a U.S.-built satellite launched on a
U.S. rocket for a U.S. customer requires an export license from
the State Department. Why is that? I have asked this question
countless times and most people do not know the answer. The
answer is that most of the insurance, 70 percent or better,
comes from European suppliers, and so you have to get that
license in order for that launch to take place.
Mr. Chairman, the rules governing the export licensing
process for communications satellites will play a major role in
determining whether our manufacturers can maintain the
technological edge that serves our national security. Since the
shift in licensing authority, we have worked diligently to
improve the State Department licensing process so that it might
work more efficiently.
Specifically, our industry has worked to help the State
Department Office of Defense Trade Controls obtain resources to
hire and train officers. We worked closely with authorizers,
appropriators, and the administration to fix the problem. We
think the efforts are beginning to pay off. We achieved a 50
percent increase in funding for ODTC in last year's
appropriations bill. We secured bill language that will allow
State to increase the GS levels for licensing officers to help
attract and retain qualified individuals, and we backed
legislation that will allow State to expedite licenses for NATO
and major non-NATO allies. We continue to push for $30 million
in reprogrammed funds that will allow DOD to upgrade their
computer networks and those of agencies that now must review
nearly 2,000 additional satellite license applications per
year.
This committee can and should make recommendations to
implement several practices within the existing laws and
regulations that will allow U.S. satellite manufacturers to
effectively compete in the worldwide telecommunications market
while ensuring that adequate safeguards are employed to protect
our national security. As we at SIA see it, those
recommendations could include some of the following items.
First, the State Department should move quickly to
implement all sections of the laws passed by the Congress to
create a speedy and transparent licensing process for
commercial satellites and related equipment. This includes
fully implementing the so-called Rohrabacher amendment language
in the Foreign Relations Authorization Act [FRAA] and resolving
the outstanding issue of how to deal with space-qualified
components.
Second, the Defense Department has already undertaken a
comprehensive internal review of its practices for processing
and scrutinizing export license applications with an aim toward
dramatically reducing the time it takes to review licenses for
commercial products such as satellites. We applaud their
efforts and we encourage the State Department to mirror their
processes and time lines to ensure that no one Federal agency
becomes a bottleneck in this process.
Third, we encourage the administration to make the
necessary funds available for the computer upgrades at the
State Department, Defense Department, and within the
intelligence community that will allow companies to file
applications electronically and for Federal agencies to share
these documents without having to print and transport reams of
paper between offices throughout the greater Washington
metropolitan area.
Fourth, commercial telecommunications satellites must be
freed from the weapons-related sanctions imposed on countries
where commercial telecommunications products can still be sold.
It goes back to the Indonesian example I mentioned. U.S.
satellite manufacturers must have a level playing field to
compete with both foreign suppliers of satellites as well as
makers of terrestrial telecommunications equipment, and both of
those products are controlled as commercial items.
Finally, if promised improvements do not yield dramatically
better results in the near future, Congress should consider
passing bipartisan legislation that seeks to reclassify
telecommunications satellites as commercial products for export
control purposes. Such legislation would help ensure that
commercial satellite exports are not put at a disadvantage vis-
a-vis foreign satellite manufacturers and other products that
are licensed as commercial items.
In closing, I would like to reiterate that the satellite
industry is committed to ensuring that the Arms Export Control
Act and its implementing regulations protect the national
security of the United States. We believe that our national
security is enhanced by having a healthy and robust satellite
industry that can compete an equal footing in the international
marketplace.
Once again, I would like to thank you for the opportunity
to testify and would be happy to answer any of your questions.
[The prepared statement of Mr. Mowry follows:]
Prepared Statement of Clayton Mowry
Mr. Chairman, Members of the Committee: Thank you for the
opportunity to testify before you today regarding satellite export
controls.
As Executive Director of the Satellite Industry Association, a
private-sector organization representing U.S. companies involved in
every aspect of the design, manufacture, launch, and in-orbit operation
of telecommunications satellites, I am concerned about the impact of
export controls on the commercial satellite industry. American
satellite companies have worked diligently over the past 40 years to
establish and maintain their leadership position in this critical high
technology industry. But hard fought U.S. dominance in satellite
manufacturing could be quickly lost to European and Asian enterprises
that are striving to win market share in this dynamic sector of the
global telecommunications business.
In order to address this issue today, I have organized my statement
into four parts. First, I will provide an overview of the commercial
satellite industry. Second, I will discuss how export controls can
adversely impact our business. Third, I will talk about what our
association has been doing to improve the export licensing process. And
fourth, I will finish my remarks by making recommendations regarding a
course of action that Congress and the Administration should take to
address this vexing issue.
Mr. Chairman, let me begin by saying that the U.S. satellite
industry holds concern for national security in the highest regard.
Over the past four decades, American satellite manufacturers have
worked to ensure that U.S. Armed Forces can maintain the high ground in
outer space that translates into technological superiority on the
battlefield. The same American manufacturers that supply
telecommunications satellites to the world have also designed and built
our nation's military communications, observation, and early warning
satellites. As such, the economic health of the commercial satellite
industry directly impacts our national security.
While much of our industry's heritage can be attributed to the
early Defense and NASA space initiatives, commercial telecommunications
satellite technology actually developed in parallel with government
space programs. Commercial satellites have grown over the years from
systems used largely to deliver basic long-distance telephone service
and live international news or sports television programming, to ones
that are now providing services in competition with terrestrial
telecommunications technologies such as cable television and fiber
optic telephone networks.
Today, commercial satellites provide subscription television to
nearly 14 million American homes--that's more than one in eight TV
households across the country and nearly one in five homes in Senator
Hagel's home state of Nebraska. By next year, you can expect to see
satellite radio receivers in every new American automobile and the
advent of two-way, high-speed Internet service via satellite to
American homes and offices. Congress has worked hard to enact
legislation over the past several years to promote competition and
diversity in telecommunications services and satellite companies are
now stepping up to the challenge.
The commercial satellite industry today is a $69 billion-a-year
global industry. Over $31 billion--nearly 45 percent of the industry's
revenue--is derived from satellite services such as direct-to-home
television, video programming distribution, and connecting Internet
Service Providers around the world. Satellite manufacturing and ground
equipment together account for over $32 billion in annual revenue with
commercial launch services making up the remaining $6 billion. Nearly
half--over 45 percent--of those revenues are being earned by U.S.
companies. The U.S. satellite industry has consistently contributed to
a positive balance of trade and employs over 100,000 highly skilled
American technicians, engineers and professionals.
Competition in the commercial satellite market is intense. The list
of foreign satellite manufacturers is long. It includes several major
European industrial and telecommunications conglomerates--Alcatel,
Alenia Spazio, and Astrium (Aerospatiale Matra, DaimlerChrysler
Aerospace and BAE Systems); the Japanese--Mitsubishi and NEC; as well
as Russian joint ventures using western electronics and power systems
aboard Russian-made satellite frames--NPO PM and NPO Lavotchkin.
Over the past three years the global satellite industry has grown
by nearly 50 percent. That growth is being driven by the explosion in
multi-channel video programming and Internet services. In many parts of
the world, the only cost-effective way to provide telecommunications
services is via satellite. Indonesia is a case in point. Domestic and
international satellite networks connect 216 million people scattered
across 17,000 islands in that country. Satellites connect Internet
Service Providers, link local telephone networks, and bring TV news to
homes throughout the island archipelago. Media accounts indicate that
the recent uprising in East Timor was organized largely over the
Internet--and that the data was carried over satellites.
Yet licensing commercial satellite technology on the State
Department's U.S. Munitions List (USML) nearly prevented U.S. companies
from providing Y2K upgrades to satellite earth stations and launching
mobile satellite telephone services in Indonesia last year. Sanctions
legislation aimed at halting the sale of firearms and other weapons to
the Indonesian military swept up telecommunications satellites and
other commercial products on the USML. Ultimately, our industry
persuaded Congress and the Administration to carve out commercial
satellites from those sanctions--allowing U.S. companies to continue
their work on software upgrades to satellite earth stations in the
country and permitting the launch of a new mobile telecommunications
satellite that is now serving the south east Asian region. But these
types of sanctions issues will reoccur as long as satellites reside on
the USML.
Indonesia is but one example of how placing commercial
telecommunications satellite technology on a list designed to control
weapons has had unintended consequences. Let me take a moment to
quickly outline our other problems.
As you know, the National Defense Authorization Act for Fiscal Year
1999 (NDAA) transferred jurisdiction for export licensing of all
commercial satellites, components and technical data to the State
Department on March 15, 1999. Since that time, U.S. manufacturers of
satellites and subsystems have encountered delays in receiving export
licenses and approvals for Technical Assistance Agreements (TAAs).
A typical telecommunications satellite will require multiple TAAs
and export licenses from the State Department in order to be sold to an
international customer. Once those licenses have been processed, the
State Department must also notify the Congress of the sale, adding
still more time for review. When you add it all together, the time it
takes to license and notify the satellite can begin to approach the
time it takes to build the satellite. The speed at which U.S.
manufacturers can deliver a satellite has, heretofore, been a major
competitive advantage for our companies. But our market position is now
rapidly eroding.
Mr. Chairman, the United States' leading edge in the commercial
satellite manufacturing business can be captured in a single statistic:
Historically, U.S. manufacturers have built more than two-thirds of the
world's telecommunications satellites. In fact, in 1997, U.S. companies
won 76 percent of all announced contracts for internationally-competed
telecommunications satellites. Similarly, in 1998, America racked up 73
percent market share. Yet in the past twelve months, U.S. companies'
share of announced orders dropped to 52 percent.
We are not claiming that this significant decrease in market share
is entirely or directly attributable to the shift in satellite export
licensing from the Commerce Department to the State Department. But one
thing is clear--the perception today in international markets is that
it is more difficult to buy a commercial satellite from a U.S. supplier
than from a European supplier.
High profile stories in the Wall Street Journal, Financial Times,
and Newsweek that detailed lost U.S. satellite contracts over the past
two years have added to this perception. And the real life experience
of U.S. companies who are now required to obtain TAAs merely to hold
basic marketing discussions with their customers has been a major cause
of concern among foreign telecommunications companies accustomed to
working closely with American suppliers.
Licensing delays have been particularly troubling for commercial
satellite exports to countries that are members of the North Atlantic
Treaty Organization (NATO) and other major non-NATO allies. Both the
NDAA and last year's Foreign Relations Authorization Act for Fiscal
Year 2000 (FRAA) included sections specifically seeking expedited
approval of satellite export licenses for allied nations. Both pieces
of legislation sought to shorten timelines and improve transparency in
the processing of satellite export license applications at the State
Department. The laws also specifically called for expedited approval of
licenses dealing with launch insurance, on-orbit satellite failures,
the return of defective parts, and responses to requests for proposals
(RFPs) from customers in NATO and major non-NATO allied countries.
Now 14 months since the shift in licensing authority, the State
Department has finally issued new regulations reforming its processes
for the ``bulk'' licensing of satellite parts and components exported
to NATO and major non-NATO allies. We are grateful for the hard work
that both the Office of Defense Trade Controls (ODTC) and the Defense
Threat Reduction Agency (DTRA) have put into crafting these new
regulations. The satellite industry believes the new regulations are a
positive step forward. We think they will help improve the State
Department licensing system and allowing legitimate commercial sales of
parts and components to occur in a timely fashion.
However, we are also concerned that the new regulations focus
primarily on the export of parts. It is unclear from the Federal
Register notice how licenses for technical data for marketing bids,
insurance, and on-orbit anomalies will be expedited--as required by the
NDAA and FRAA. These areas must also be dealt with and quickly.
Both the laws and the new regulations are aimed at speeding trade
between allied nations, and rightly so. The majority of commercial
trade in this sector is between countries that are either NATO allies
or major non-NATO allies. These are nations that present no national
security threat to the United States. Countries such as Luxembourg,
Norway, Canada, The Netherlands, Argentina, Spain, Japan, and Australia
have been longtime buyers of U.S. telecommunications satellites. And
yet, we've made it increasingly difficult for U.S. companies to sell
satellites to their legacy customers in those markets. The new State
Department regulations are a positive step in the right direction, but
they clearly don't solve all of our problems.
Many other countries whose satellite operators have purchased
commercial telecommunications satellites from U.S. manufacturers over
the last ten years that are not NATO or major non-NATO allies. These
are friendly nations such as Brazil, Malaysia, Mexico, Philippines,
Taiwan, and the UAE. In addition, five other European nations that are
active members of the European Space Agency (the EU's equivalent of
NASA) are not members of NATO, and therefore are not covered under the
NDAA and FRAA exemptions. The new regulations do not address commercial
trade and cooperative programs between U.S. manufacturers and their
customers in these important countries.
The change in our relationship with Canada has also caused concern
for U.S. satellite suppliers. The Canadian Government's recent decision
to purchase a satellite bus from a European satellite supplier after
waiting ten months for a U.S. license is a clear signal that we have a
continuing problem. Even more troubling are recent press accounts
indicating that commercial satellites may not be included in the list
of products on the USML under negotiation between the U.S. and Canada
that will be eligible to receive the renewed ``exemption'' from State
Department licensing. So Canadians may ultimately be allowed to buy
military weapons from U.S. suppliers under this exemption, but not
commercial telecommunications satellites.
The commercial satellite industry should not be forced by
government policy into similar dire straits as our aerospace
counterparts in the commercial aircraft and space launch industries.
Lost market share is an extraordinarily difficult thing to regain. The
U.S. Government's decision to launch all satellites aboard the NASA
Space Shuttle still reverberates among our domestic commercial launch
service providers. Since the Challenger tragedy and President Reagan's
decision to launch commercial satellites aboard unmanned expendable
rockets, Europe has dominated the commercial satellite launch market.
In fact, over the past decade, more than 50 percent of all U.S.-made
commercial geostationary satellites were launched from French Guiana,
by Arianespace--the European launch company.
At the time Congress debated shifting satellite export licensing
back to the State Department it was suggested that the move would
ultimately help U.S. launch companies to regain their lost market
share. Now Members of Congress including Rep. Dave Weldon, who
represents the district that includes Cape Canaveral Air Station,
realize that just the opposite is true. Even a U.S.-built satellite
launched on a U.S. rocket for a U.S. customer requires an export
license from the State Department. Why? Because over 70 percent of the
insurance underwriting that make such launches possible comes from
European companies.
Mr. Chairman, the rules governing the export licensing process for
communications satellites will play a major role in determining whether
U.S. satellite manufacturers can maintain the technological edge that
serves our national security. Since the shift in licensing authority we
have worked diligently to improve the State Department licensing
process so that it might work more efficiently.
Specifically, the U.S. satellite industry has worked hard to help
the State Department Office of Defense Trade Controls obtain the
necessary resources to hire and train new licensing officers. We have
worked closely with authorizers, appropriators, and the Administration
to fix this problem. And our efforts paid off. We achieved a 50 percent
increase in funding for the ODTC in last year's appropriations bill. We
secured bill language that would allow State to increase the ``GS''
grade levels for licensing officers to help attract and retain
qualified individuals. We backed legislation that would allow State to
expedite licenses for NATO and major non-NATO allies. And we continue
to push for nearly $30 million in reprogrammed funds that would allow
the Department of Defense to upgrade computer networks for all the
agencies that must now review the nearly 2,000 additional satellite
license applications each year.
The U.S. satellite industry agrees with the President and the
Congress that the transfer in licensing authority to the State
Department should have been accompanied by swift changes in the USML
licensing process that would allow for timely licensing of satellite
exports while ensuring our national security is not placed in jeopardy.
Because the shift in authority was not accompanied by clear and
measurable improvements in the timeliness and transparency of the USML
licensing process, has had a profound impact on the U.S. satellite
industry's ability to compete in the global telecommunications
marketplace of the 21st century.
This Committee can and should make recommendations to implement
several practices, within the existing laws and regulations, that would
allow U.S. satellite manufacturers to effectively compete in the
worldwide telecommunications market while ensuring that adequate
safeguards are employed to protect our national security. As we at SIA
see it, those recommendations could include the following:
First, the State Department should move quickly to implement all
sections of the laws passed by the Congress to create a speedy and
transparent licensing process for commercial satellites and related
equipment. This includes fully implementing the so-called ``Rohrabacher
amendent'' language in the FRAA and resolving the outstanding issue of
how to deal with space-qualified components.
Second, the Defense Department has already undertaken a
comprehensive internal review of its practices for processing and
scrutinizing export license applications with an aim toward
dramatically reducing the time it takes to review licenses for
commercial products such as satellites. We applaud their efforts and
encourage the State Department to mirror their processes and timelines
to ensure that no one Federal agency becomes the bottleneck in this
process.
Third, we encourage the Administration to make the necessary funds
available for computer upgrades at the State Department, Defense
Department, and in the Intelligence community that would allow
companies to file applications electronically and for Federal agencies
to share these documents without having to print and transport reams of
paper between offices throughout the greater Washington metropolitan
area.
Fourth, commercial telecommunications satellites must be freed from
weapons-related sanctions imposed on countries where commercial
telecommunications products can still be sold. U.S. satellite
manufacturers must have a level playing field to compete with foreign
suppliers and makers of terrestrial telecommunications equipment.
Finally, if promised improvements don't yield dramatically better
results in the near future, the Congress should consider passing bi-
partisan legislation that seeks to reclassify telecommunications
satellites as commercial products for export control purposes. Such
legislation would help ensure that commercial satellite exports are not
put at a disadvantage vis-a-vis foreign satellite manufacturers and
other domestic suppliers of terrestrial telecommunications equipment--
whose products are licensed as commercial products.
In closing, I'd like to reiterate that the satellite industry is
committed to ensuring that the Arms Export Control Act and its
implementing regulations protect the national security of the Unites
States. We believe that our national security is enhanced by having a
healthy and robust commercial satellite industry that can compete on an
equal footing in the international marketplace.
Once again, I thank you for the opportunity to testify today and to
take part in the policy discussion concerning such issues of vital
importance. I would be happy to answer any questions that the Committee
might have.
Senator Hagel. Mr. Mowry, thank you.
I would like to pick up with some of your testimony as it
relates to the previous witnesses' concerning market share. You
covered some of it, especially on page 3 of your testimony. But
you say--and I quote from your testimony--``Over the past 3
years, the global satellite industry has grown by nearly 50
percent.'' The global market is increasing, but it appears our
share is decreasing. You heard Secretary Bodner's and others'
explanation for that. Is their explanation on target?
Mr. Mowry. I would say that a number of things they said
are quite true. There is some cyclicality in the business.
There was a slowdown in the Asian market. That had an impact
really a couple years later because it does take a year or two
from the order date to the delivery date of the satellites. And
there were clearly some other larger issues of satellites being
pulled off the pad because they had some technical difficulties
and they had to be redone and some launch vehicle failures that
also limited the overall number of launches that took place and
the satellites that were delivered to pads and launched into
orbit.
That said, it is difficult to look at the cyclicality that
is somewhat inherent in the business from a year-to-year basis
and the upward line that is taking place--we are looking at an
overall growth in the industry over time--and to say that what
has been happening on our satellite manufacturing side has not
been affected in some way by the shift in export licensing. It
is difficult to draw a line and say this license was lost and
this means x number of dollars outside of the licenses that
were either denied by the State Department or took a long time,
and therefore, in the Canadian example, for instance, where the
Canadian Government, just after 10 months, threw up their hands
and said we are going to buy from Europe. You can quantify
those dollar to dollar, and you can draw the direct line to the
State Department process. But outside of that, it is difficult
to do.
So, we put the market share statistics out there basically
to talk really about the perception in the marketplace, and I
think the perception is it is harder to buy a satellite from a
U.S. company. And that is a problem for our companies.
Secretary Holum mentioned that maybe we do not want to say that
because it does provide our foreign competitors with a good
example, and if the perception is a reality in this
marketplace, that means our companies are not going to maybe
win all the contracts that they could. But we have to talk
about the problems that face our industry and we have to talk
about the regulatory issues that we are encountering. I do not
think you would hear the industry yelling as loudly as it has
been if there were not real problems here.
Senator Hagel. I assume if over the last 3 years the global
satellite industry has grown by nearly 50 percent, as you
state, it is a result of a considerable increase in demand. Is
that right?
Mr. Mowry. That is absolutely true, and it is driven by the
demand for telecommunications services. As we all know, the
Internet is growing rapidly. We have got a multi-channel
television universe now that is 200, 300, 400 channels and is
growing more rapidly. And all that needs to be carried,
particularly internationally--not only here in the U.S., but
internationally--via satellite. So, we tend to be a smaller
part of the global telecommunications business, about 5 percent
of all the traffic out there. But that traffic, particularly on
the data side and the Internet world, is increasing quite
rapidly, and so we are seeing quite a bit of growth in the
services end of the business.
Senator Hagel. And you are saying that the new growth, as
you laid out directly and clearly in your testimony, is being
inhibited by these new regulations and the new legislation that
now is being implemented as law. Is that correct?
Mr. Mowry. That is correct. As I say, it is difficult to
quantify specifically the impact on some of the contracts. We
can say overall that it has had a chilling effect on the
industry. It has certainly slowed down the delivery of a lot of
these products, and it is taking longer.
A lot of these companies, as I mentioned before,
particularly the parts suppliers, are not used to dealing in
the environment where they had to go get multiple licenses from
the State Department. They were smaller companies. They did not
have staffs of three or four or five people here in Washington
just to baby sit a license through the process. So, we had some
very small companies calling me from Buffalo, New York and
Kansas and other places where you do not expect to have big
aerospace companies. These were small companies. They were
saying, how do we deal with this? How do we go about getting a
license through this process? How do we go about competing
against a French company or a German company that can respond
to an RFP within 30 days or 60 days when it takes us 60 days
just to get the license from the State Department to be able to
respond to that request? So, that is the type of examples that
we have been seeing.
Senator Hagel. So, those most vulnerable are the little
guys.
Mr. Mowry. Absolutely. I think, by and large, we have not
had Hughes come to me and say, we lost the sale because of the
State Department licensing process. It just has not happened.
There have been instances--and there still are satellites out
today--that they have not reached a decision on, and so I do
not know if those are counted in the averages that the
Secretary mentioned or not. I am not quite clear as to what is
all being involved in those 50-day and 70-day averages that he
mentioned.
I would like to add, though, that those are working days
and not actual days and there is somewhat of a difference
there. You get a 60-day RFP, it is not a 60-working day RFP, it
is a 60-day RFP. Clearly the companies are struggling to get
the license quickly enough to reply to those requests and
submit bids.
Senator Hagel. So, you would take some issue with Mr.
Holum's analysis of how quickly these licenses are being pumped
out. He was quite specific about the effectiveness of the State
Department's ability to get those licenses out in a rather
timely way, implying that he did not necessarily believe that
there was anybody being hurt or losing business.
Mr. Mowry. As I say, I do not think the major companies
involved here have lost specific contracts outside of those
where the licenses were denied. But I do not know that I would
say that the process is working so well that there are no
problems out there. There continue to be some problems. They
have dramatically improved the process. We are hearing fewer
complaints from industry. In fact, a number of the folks in
industry are saying they are really working hard at this. The
folks that are involved at the State Department are really
doing their jobs quite well.
We are not out here to beat up on State or anybody else. We
think they were really underfunded and under-resourced when
this transfer took place, and that is why we fought very hard
to get them the funding that they needed. But we still think
there is room for improvement in that process and that they
continue to reduce those times and get closer to what would be
a commercially acceptable timeframe for processing those
applications.
Senator Hagel. And you do not believe generally it is quite
there yet.
Mr. Mowry. No. Overall it is getting there. We think it is
getting close, but from time to time, we still hear of
difficulties and there are some last-minute fire drills that
still do take place. But by and large, we are getting our
licenses and we are still able to do business.
Senator Hagel. Mr. Reinsch mentioned that he had, I think,
three pages of companies--I believe he said this or implied
this--that had lost contracts or lost business as a result of
the time problems and the lag and the complications of the
licensing process. Are you familiar with the list that he is
talking about? He has entered it or will enter it for the
record.
Mr. Mowry. I have not seen the specific list. I know there
have been a number of press reports out there. I mention a
couple in my testimony as well from Financial Times and Space
News and the trade publications, as well as national
publications. Newsweek had a story that outlined several of the
problems like Radarsat was one that I mentioned with Canada.
So, there have been a lot of instances, and they have been well
publicized where U.S. companies have lost business.
Senator Hagel. Your organization does not keep an inventory
or a list of those companies who have had problems?
Mr. Mowry. We have a press file of all those clippings and
all those accounts, but the companies do not always share every
lost sale with me for competitive reasons. We are a trade
association and we do not try to get into their individual
contracts and where they may or may not have won a bid or been
able to reply to a request on an individual license.
Senator Hagel. Mr. Holum mentioned that the expedited
procedures for NATO and our other allies, or some of our
allies--and he listed them in his testimony, and you are
familiar with all of them--is going to vastly improve the
situation. I asked him a question, and he talked about parts of
satellites. And I asked the question about complete satellites,
and you heard his answer. Do you agree with what he said as to
why complete satellites are not listed?
Mr. Mowry. I agree partially with what he said. I think
they are trying to reform the larger process for completed
satellites, and they are trying to expedite particularly the
congressional notification provisions that take place. By and
large, they are working to speed that up. But also I think on
the completed satellite side we could see some faster
processing. There are clearly some ways to improve that process
I think.
Whatever is done on the completed satellite side, we would
like to see it done in a way that ensures that all the launch
companies are treated in the same way, that it does not benefit
one supplier over another in terms of delivery of a satellite
for a launch because that could impact the launch marketplace.
But we think there are some things that could be done to help
process completed satellites.
Senator Hagel. Well, it seems to me--and I am quickly out
of my depth here--that if competition is developing as rapidly
as it is within this expanded market with this kind of demand,
then complete satellite sales are a very big part of this and
are a critical dynamic in dealing with the competitiveness part
of this. I am a little surprised that we are not focusing more
on the complete satellite issue. Am I overstating it?
Mr. Mowry. It is clearly important. When you come down to
it, you have a $100 million piece of equipment that might be
sitting on the ground completed ready to go to launch and you
are waiting on a notification or you are waiting on a license.
Every month that that spacecraft is not in orbit the company
could be losing upwards of $10 million from transponder related
revenue. They have got to go out to the capital markets, raise
the money. Time is money, and clearly getting those licenses in
a timely fashion is important to the companies, particularly to
the prime contractors, as well as their customers. These are
companies like NBC and CNN and they are waiting for that bird
to get up.
Senator Hagel. And they need a complete satellite.
Mr. Mowry. They need a complete satellite. Absolutely, and
that is important to our industry. There is no doubt.
Senator Hagel. And so the market drives this like anything.
Mr. Mowry. Absolutely.
Senator Hagel. You mention in your testimony here--you said
rather plainly--``but our market position is now rapidly
eroding.'' I assume everything you said points to your comment
here. That is a tough statement. But yet, I do not get a sense
of urgency from you that these licenses are all that big a
problem yet. They are working them through, I think you said.
If your market is eroding as deliberately as you have stated
here, what are you doing to deal with that? And I suspect there
is always going to be, as you live in this real world, some
kind of regulation, some kind of government entity that is
going to deal with these kind of things. So, if your market is
eroding, what are you doing about it?
Mr. Mowry. Well, the companies are trying vigorously to
compete. As I said, there is rapid consolidation in Europe.
They are getting better. Their companies are pulling together
to try to compete against our contractors. Our companies are
trying to reduce the cycle times, improve the lifetime of the
satellite, how many transponders, its power, its capabilities.
Obviously, they have devoted considerable staff and resources
to export licensing now. They have got a lot of people that
baby sit these things all the way through. They pay for all the
monitoring that is done by DTRA and DOD, so they put a lot of
resources into those efforts. And they are trying to make sure
that the process that we live with today--and this is our
reality. We know we are at the State Department, that we are
going to try to make that be the best process that we can have
and that we can do our business.
It has been a difficult 2 years for the satellite industry.
I think overall, if you talk to the companies, they will tell
you that the market has not been quite as robust as they would
like to see. We have had, as I said, some issues with satellite
failures. But we think the market is going to come back. I
think overall the market for these types of high speed data
satellites that connect Internet service are going to be
important.
And our companies are going to have to get better and
continue to work to compete against consolidating European
companies that are going to be formidable suppliers of these
satellites. If you look at other industry examples like Airbus
and like Ariane where the Europeans stepped up and they made a
major concerted effort to compete against the United States in
these critical parts of the aerospace industry, they captured
considerable market share. We obviously would like to see our
market position within the satellite----
Senator Hagel. Well, is that due to the over-restrictive
regulatory process that we have?
Mr. Mowry. I would say partially. Clearly the Europeans
license their satellites as dual use commercial products, and
we license ours as weapons. And that is a fundamental
difference. They do not have the same types of restrictions in
terms of the types of technical data transfer that we have,
particularly with customers that are within the European Union,
which represent quite a few of our satellite buyers. So, we
have got that to deal with and we are going to try to deal with
it the best we can.
Senator Hagel. Do you believe what happened in March of
last year was a mistake?
Mr. Mowry. I would have to say yes. We have always said
that commercial communications satellites should be treated as
commercial products and not as weapons. The problem was
satellite launches in China and the failure investigations. The
answer was dealing with all telecommunications satellite
exports to the entire world. It was a very blunt instrument to
try to fix what seemed to be a specific problem. So, we support
the goal of trying to license satellites ultimately as
commercial products, and we think that is the way we are going
to be able to compete both against foreign suppliers and
terrestrial providers of telecommunications equipment.
Senator Hagel. You spent some time in your testimony
talking about Canada. Again, quoting from your testimony, ``So,
Canadians may ultimately be allowed to buy military weapons
from U.S. suppliers under this exemption,'' the previous
exemption that we referred to and laid out, ``but not
commercial telecommunications satellites.'' Explain a little
bit more about that and what your industry is doing about this
problem.
Mr. Mowry. I think this issue--and I am not the expert in
the Canadian exemption, but for a very long time, Canada was
exempted from a lot of the licensing requirements for all kinds
of products that were on the Munitions List, commercial
satellites and military products as well. That exemption was
withdrawn by the administration. I think it was about a year
and a half ago, and now they are in negotiations to try to
restore that exemption. There were a few announcements earlier
in the spring about work and negotiations between the
administration and the Canadian Government to restore that
exemption. But there have been some press articles, most
recently in Space News and Defense News, that have said that
administration officials may not be considering including
satellites as part of that exemption. So, if the exemption is
restored, it would allow sales of military products that are on
the Munitions List to basically be free and clear of a lot of
the licensing requirements, but satellites would still be
burdened with a number of the licensing requirements that come
with being on the Munitions List.
And it is a stark example because of the Radarsat contract
that was lost and the 10-month delay that it took in trying to
get that contract through. It was a contract for the satellite
bus and not for the electronics and components inside the
satellite. So, it was one where I think the U.S. company that
was involved in it was quite troubled in losing the contract to
a European company when it felt like it was not something that
should have been controlled. It is Canada, and they think that
we should be able to do business there.
Senator Hagel. If we would rearrange the deck chairs again
and move it all back to Commerce and go back to where we were,
does that help, hurt, or make any difference? I suspect we all
accept that we are going to continue to have an agency--
certainly DOD will always be a piece of this--to regulate,
oversee, and process sales of this kind of technology.
How do you do it better, realizing that any time there is a
shift there is going to be a period of working through the
glitches, as the State Department is doing? How do you make it
better? Does it make any difference whether we go back, change
it, or let this settle in at the State Department, let them get
proficient, let them hire up, and hopefully get to a point
where they know what they are doing with it? I do not mean that
in a derogatory way. Any agency with this kind of burden put on
them all of a sudden is going to take time to get to where they
need to be. I think we all accept that. So, what do you think?
Mr. Mowry. To answer the first part of your question, it
would help if we were licensed as commercial products because
clearly we would not run into the weapons related sanctions
issue that I mentioned. Clearly there would be countries that
we are trying to sell to that are not NATO or major non-NATO
allies, which we would like to have an expedited process for.
So, in those two specific instances, it would be better to be
licensed as a commercial product than as a weapons item.
That said, obviously the State Department is working very
hard to improve their process and we are going to try to work
under that framework until the time that Congress decides that
it is time to treat us as commercial products again. Until that
time, we are going to do our level best to improve the State
process, help them get the resources they need to do their job,
and the companies are going to continue to work with the State
Department folks to make sure that we can get these things
through and be able to compete. We are hopeful. This is a good
sign. It took them 14 months to get the regulations out, but we
are hoping that once they get the thing in practice, that it is
going to work better. According to the people I have talked to
in the business, this should clear the decks of something like
70 percent of the problems that they see out there, these bulk
licenses.
Senator Hagel. Your people think that?
Mr. Mowry. Yes, our people, our companies. The licensing
officers that work for a number of our major contractors have
told me that roughly 70 percent of the application problems
that they have deal specifically with these bulk licensing type
of issues where you have to keep going back time after time to
get licenses for a specific part or item. That obviously
protracts the entire process of licensing the commercial
satellite itself. The idea is, as State gets better at dealing
with those bulk licenses, they can focus on the completed
satellites and that those will be able to move through even
faster. That is our hope.
Senator Hagel. What do you think of the Gejdenson bill?
Mr. Mowry. We support the goals of the Gejdenson bill. As I
said before, I think we would like to be treated as a
commercial telecommunications product and not as a weapon.
There are specifics of that legislation that we are still
looking at, and I even heard today from a couple of folks I
talked to here that there may be some specific issues in the
way the bill is written that we may want to look at. But
overall, we support the goals of that legislation.
Senator Hagel. Is there anything else you want to add?
Mr. Mowry. I would just say that our industry--I cannot
underline this point enough--is trying to compete in a global
telecommunications marketplace, and that is a marketplace that
moves very rapidly. In fact, you are seeing technology and the
speed of technology change very quickly, much like in the
computer industry, not quite the application of more is law,
but we are seeing cycle times reduced. We are seeing a very
competitive market from our European suppliers and from our
Asian markets that are suppliers. We want to make sure that the
satellite industry can compete both against the terrestrial
guys, the fiber guys, the cable guys, the wireless guys. Those
are our competitors. We see it in spectrum areas. We see it in
licensing areas as well against our foreign satellite
manufacturers. So, we are just asking for a level playing field
really with those types of entities. We are treated
differently, and as such, it makes it more difficult for
satellite companies to really have commercial products that
serve a retail consumer marketplace in the world.
Senator Hagel. Mr. Mowry, thank you. I am grateful that you
would take time to come before this committee. Your testimony
and questions and answers have been important.
Mr. Mowry. Thank you, Mr. Chairman.
Senator Hagel. You helped us. We may keep the record open
for a couple of days in case my colleagues wish to ask
questions. But thank you.
[Whereupon, at 4:33 p.m., the subcommittee was adjourned.]
----------
Additional Statement Submitted for the Record
Prepared Statement of Association of American Universities, the
National Association of State Universities and Land-Grant Colleges, and
the Council on Governmental Relations
Thank you for the opportunity to submit testimony to the Senate
Foreign Relations Committee. This testimony is submitted on behalf of
the Association of American Universities (AAU), the National
Association of State Universities and Land-Grant Colleges (NASULGC),
and the Council on Governmental Relations (COGR). These three
associations represent most of the major research universities affected
by the International Traffic in Arms Regulation (ITAR).
As you know, Public Law 105-261 transferred responsibility for
export licensing of all space satellite technology from the Department
of Commerce to the Department of State. Neither department requested
this transfer nor wanted it. As a result of the transfer, virtually all
information related to scientific satellites, including all related
components, software, parts, and materials, are designated significant
military equipment (SME) and are thus covered by the tightly-controlled
Munitions List, regardless of whether the underlying hardware is
actually SME. Consequently, a non-citizen's participation in research
and development of a scientific apparatus that involves or relates to a
satellite (such as a gravity measurement device to be placed in earth
orbit) may be, under ITAR, a ``deemed export'' requiring an export
license from the Department of State before the data may be shared with
a foreign collaborator or fellow researcher. This is so even when the
technology and data utilized are already in the public domain, as is
the case with most university-based research.
Both the ITAR and the Department of Commerce's Export
Administration Regulation (EAR) have existed for a number of years and
serve a valid national purpose. The Department of Commerce, through the
EAR, has devoted significant coverage to fundamental research. The
freedom to communicate research techniques and results within the
academic community is essential to the synergy and vitality of the
research enterprise. Together with competition and peer review, this
broad and open communication constitutes a fundamental element of the
research enterprise and the development of intellectual capital.
Ultimately, this intellectual capital feeds industry and leads to
further innovation. Restriction of scientific communication is costly
and can inhibit continued advancement.
Over the last twenty years, open academic research has come to be
recognized as ``fundamental research'' not subject to export controls
or to special restrictions in federal contracts. Former president
Ronald Reagan, in National Security Decision Directive (NSDD) 189,
stated, ``It is the policy of this Administration that, to the maximum
extent possible, the products of fundamental research remain
unrestricted.'' Similarly, the statement that accompanied NSDD 189
stated, ``Our goal is to maintain the free and open exchange of
unclassified research so necessary to a free society and an expanding
economy.'' The policy, still in effect, was expressly intended to
forestall the imposition of special controls on fundamental research,
particularly that conducted in universities.
The definition of ``fundamental research'' is critical given this
position. NSDD 189, which established the term as a policy concept,
defined it as ``basic and applied research in science and engineering,
the results of which are published and shared broadly within the
scientific community as distinguished from proprietary research from
industrial development, design, production, and product utilization,
the results of which are ordinarily restricted for proprietary or
national security reasons.'' Moreover, the definition of technical data
does not include information concerning general scientific,
mathematical or engineering principles commonly taught in schools,
colleges and universities or information in the public domain. But for
this exclusion, universities would need an export license for each
foreign student matriculated, each foreign researcher invited, and each
collaboration with a foreign institution.
The success of university research in general and of collaborative
research programs in particular owes much to unfettered participation
by persons of all nationalities. In addition to considerable expertise,
they often bring state-of-the-art technology and research funds. Of
course, a legitimate need to protect national security also exists, but
as NSDD 189 suggests, classification--rather than export controls--is
the appropriate vehicle for controlling federally funded research if
national security is an issue. The adverse impact universities are
feeling here is generally in the realm of unclassified, non-weapons-
related research that is pulled into ITAR only because it is space-
based or relates to space technology.
ITAR's impact on university research has been substantial. The
following are examples of the difficulties universities have
encountered over the last year and a half.
Government projects hampered when university researchers
are afraid to travel overseas to assist collaborating institutions: A
major NASA-funded, international space exploration project included the
participation of a foreign university, funded by the foreign
government, to fabricate a piece of instrumentation that would be
shipped to the U.S. and integrated into the scientific payload. The
European partner was falling behind schedule, which would cost NASA $1
million per month for each month of delay. However, the NASA project
officer hesitated to authorize the U.S. scientist to go overseas and
get the collaborator back on track, and the university was unable to
assure the researcher that, under the newly-applicable ITAR, such
travel and discussions did not require an export license. Given the
jail terms and fines leveled against researchers personally even for
inadvertent violations of ITAR, university researchers are
understandably unwilling to take chances.
Government Requests for Proposals (RFPs) suggest that an
ITAR license may be required before discussing a proposed project with
foreign collaborators: While it is clear that international funding and
contribution to space missions is necessary, the NASA SMEX Mission of
Opportunity Q&A for Proposals that require such foreign support then
advises that the university may need a license prior to even discussing
the project with the intended collaborators.
Inventions developed by foreign students cannot be
developed or marketed: A Turkish national graduate student developed a
new hybrid rocket fuel that the university is in the process of
patenting. A commercial sponsor wanted to fund further testing of the
fuel, but insisted that information that they relate to the student
would need an ITAR license. It would be unrealistic to expect further
work on the invention be limited to U.S. citizens, or to seek ITAR
licenses for such university work.
Commercial defense contractor to issue Stop Work Order
because a key person was a Canadian citizen: The university contract
contained no restrictions on publication or foreign nationals; the
project was to test devices to grow cells in space designed for the
International Space Station. Upon learning that one of the key
personnel (for whom prior approval was required to replace) was not a
citizen, the defense contractor informed the university that the person
must stop work. The defense contractor has subsequently suggested that
a Technology Transfer Control Plan can be developed to authorize the
person to work; however, this is not acceptable to the university
because it is impossible to anticipate what foreign nationals may
participate, in a funded or unfunded capacity, in the future.
Expert project personnel precluded from further
contribution: A Chinese national post-doc wrote software for the NASA
funded Gravity Probe-B project, which was sent to NASA for their
review. NASA stamped the report and software ``ITAR-controlled'' and
insisted that the individual who wrote it now needed an ITAR license to
read their comments on the work.
In such a restrictive environment the message being sent throughout
the global science community is to avoid involvement of U.S. industry
in foreign scientific collaboration on space missions. This unwelcome
message has the effect of restricting the involvement of the United
States in foreign and joint science projects. As a global technology
leader, the U.S. cannot afford the negative consequences on industry or
on the advancement of the science.
The changes announced on May 26 by the Department of State are
certainly welcome, but are unlikely to have much impact on
universities. The regulations are specifically designed to improve U.S.
cooperation with allies and are geared more toward easing industry's
problems than addressing the academic community's concerns.
For example, the Streamlined Licensing for COMSAT Components/
Technical Data provision (proposal 14) applies only where all parties
involved are NATO countries. Many of universities collaborate closely
with the European Space Agency (ESA). In working with ESA, two problems
emerge. First, universities are not conducting ``sales'' of items.
Second, of the fourteen members of the ESA, five are not members of
NATO. These include Austria, Finland, Ireland, Sweden, and Switzerland.
Therefore, under the new regime, universities will still be regulated
by ITAR and required to obtain export licenses.
At best, the Major Program License (proposal 1) under which a
university might become a subcontractor, would require a continued
scrutiny of the research being done to maintain it within the initially
approved license parameters, which is not compatible with the open
inquiry of fundamental research. Such required monitoring would likely
have a chilling effect on the research performed. In addition,
collaborators on a fundamental research project are often not all known
and identifiable at the beginning of the project; they may be
determined only as the direction and/or needs of the research project
evolve, or they may change as researchers move from one institution to
another.
The Administration is to be commended for trying to address
industry's problems, but additional consideration should be given to
universities' needs as well. The following options may be of use in
trying to resolve this situation:
Clarify that the fundamental research exemption in the
ITAR is the same as under the Export regulations.
--The fundamental research exemption in ITAR should operate in the
same manner as it does in the EAR and should exclude from ITAR
export controls U.S. university-based research, scientific and
experimental satellites and related technical data.
--Universities need not register or secure export licenses when the
activity qualifies under the ITAR public domain and fundamental
research exemption.
--Universities may rely upon the Q&A section of the EAR, at 15 CFR
Part 734, as similarly applicable to ITAR.
Make explicit that prime contractors who accept controls
on access by foreign nationals and EAR or ITAR licensing requirements
should not flow down such requirements to university and laboratory
subcontractors when the subcontract activity qualifies as fundamental
research.
Urge that a system be created wherein Major Program
Licensees are not limited to subcontractors and collaborators
identified at the beginning of a project, but will also have the
flexibility to include additional subcontractors as needed, in keeping
with the current practices of fundamental research.
Recognize that universities cannot operate like defense
contractors; support the open, fundamental research environment, and
limit the use of closed meetings, non-disclosure agreements, and other
security controls when involving University-based researchers in
federally supported projects.
Clarify that ``Defense Services'' and ``Defense Articles''
are distinct from the education and fundamental research activities
conducted by universities and that universities need not secure State
approval for Technical Assistance Agreements when the activity
qualifies as public domain under ITAR.
The best result would be to return jurisdiction for
university aeronautical and space-based fundamental research programs
and their related satellite to the Department of Commerce, provided
that the satellite or related item is intended for basic or applied
research in science and engineering and that the resulting information
is published and shared broadly within the scientific community.