Commentary: What's Shooting Down Satellite Sales

Congress needs to refine strict licensing rules meant to keep unfriendly states from buying U.S. technology

By Stan Crock

It's hard to find a more loyal customer for U.S. satellites than Telesat Canada. In the past 30 years, this unit of BCE Inc. has bought 14 birds, all from south of the border. But in March the Ottawa company announced it was buying a spacecraft from France's Astrium. After gaining experience with the new gear, Telesat will be less likely to return to U.S. suppliers: "It's very much easier to buy a second and a third," notes Roger J. Tinley, Telesat's vice-president for space systems.

What caused the shift? The inability of Congress to distinguish between an aircraft carrier and a TV satellite. In 1998, lawmakers put satellites on the State Dept.'s munitions list alongside traditional weapons, imposing the strictest export standards. Licensing, monitoring, and notifying Congress of each export deal may work for selling fighters to foreign governments but doesn't fly in the commercial world. "It's very difficult to do business with U.S. companies," Tinley gripes.

Satellites are Exhibit A in the case against Washington's quixotic attempt to regulate exports of widely available commercial products. The global spread of technology has rendered almost all such efforts obsolete. After the tough export rules took effect, America's share of global satellite sales plummeted from 64% of the $12.4 billion market in 1998 to 36% of the $12.1 billion market in 2002, according to the Satellite Industry Assn. And the U.S. turned from a net exporter of commercial birds and parts to a net importer. On July 15, former highflier Loral Space & Communications (LOR ) Ltd. filed for Chapter 11 bankruptcy. The same day, Boeing (BA ) Co. announced a $1.1 billion charge for its space operations -- further evidence that export rules handicap U.S. companies reeling from a stagnant world economy and the telecom bust. "We are jeopardizing America's dominance of the satellite industry," declares Representative Dana Rohrabacher (R-Calif.), who backed the 1998 rules but now has second thoughts.

The iron law of unintended consequences is clearly at work. A policy designed to deprive America's potential enemies of advanced spying and communications technology while protecting America's hardware edge has been ruinous on both counts. The barriers to U.S. sales have spurred rivals overseas to offer a variety of satellite services, so any adversaries can easily buy imaging and communications services elsewhere. And by making U.S. companies less attractive suppliers, the rules crippled an industry the Pentagon wants to rely on for space-based radar and lasers. The industry's "foundations are being eaten away," says Loral Chairman and CEO Bernard L. Schwartz.

The snafu is part of a larger problem. Export curbs make little sense when applied to "dual-use" items -- products, such as computers, with both military and commercial applications -- that are available in many places. Customers who want to continue buying U.S. technology suffer the delays but eventually get licenses, while terrorists and unfriendly states bypass the system. The solution: Instead of spending millions on bureaucracies to grind out licenses, Congress should shift the money to intelligence agencies to better monitor what America's adversaries are trying to buy. The spooks should forget about dual-use gear and focus on blocking sales of purely military technology, such as stealth equipment, for which there is no legitimate commercial market.

Trouble is, Congress seems incapable of fixing the system. The 1998 law grew out of allegations that Hughes, whose satellite operations Boeing later acquired, and Loral leaked satellite knowhow to China. Both paid large fines to settle the charges without admitting or denying wrongdoing.

The cases prompted GOP lawmakers during the Clinton Administration to give the State Dept. authority over space exports, taking it away from what Congress considered a lax Commerce Dept., which has jurisdiction over dual-use items. It wasn't a minor change. Each deal now requires approval by Congress, which has no deadline for acting. Foreign customers don't know whether or when a license will be granted. And when a part, such as an amplifier, fails in orbit, the spacecraft's maker must get a new license before the foreign customer can talk to its supplier or insurer. Anyone who buys European can resolve the problem the next day.

Industry efforts to return licensing power to Commerce have failed, so now companies' goals are more modest: Give the President discretion to switch some licensing authority back to Commerce. But with a divided Bush Administration on the sidelines and the China specter lurking in the shadows, not even 360 meetings between industry lobbyists and Capitol Hill staffers last year could end a stalemate between right-wing Republican factions over the issue.

Free-trader Rohrabacher wants the President to be able to use Commerce's simpler export process for sales to NATO and major non-NATO allies. Satellites are the only munitions-list item for which the President doesn't have this discretion -- which suggests the birds are more of a threat than nuclear subs. But House Armed Services Committee Chairman Duncan Hunter (R-Calif.), an America-firster, nixed the idea in his panel and prevailed when the House voted on July 15. Hunter wrote to colleagues saying that Rohrabacher's plan "threatens U.S. national security" by allowing sales to countries with unreliable export controls, such as Bahrain. A Senate version would exempt marketing overtures -- but not sales -- to NATO countries, Australia, Japan, and New Zealand from State Dept. licensing.

Even this tepid approach may not become law. Yet, clearly, a major overhaul is required. Only by freeing dual-use technology from export red tape can the U.S. win back customers like Telesat. A boost in satellite sales will help preserve America's competitive edge, and avoid what looks like strategic suicide.

Crock covers defense in Washington.

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