Aerospace

The Center for Strategic and International Studies, a Washington research group has released a 63 page report on the Health of the US Space Industrial Base and the Impact of Export Controls. The main concern from the report was that the US export controls that were tightening almost 10 years ago are hindering the US share of the global space markets.

The US tightened space technology-transfer rules in 1999 after investigators found China has acquired sensitive technology from US built commercial satellites. When the new rules were implemented they put commercial communications satellites, subsystems, and components on a munitions list that became subject to State Department licensing even if the product could be easily purchases worldwide.

The overall health of the top-tier manufactures in the industry such as Lockheed Martin Corp., Boeing Co. and Northrop Grumman Corp. all had “good financial health” despite the US industry’s loss of shares overseas. The report shows that Russia, China and others are gaining space market share aided by the US policy. Jeffery Foust, a space and telecommunications expert at Futron Corp explained that the US policy backfired in space. “The US is actually hurting national security by making it more difficult for the space companies it depends on to compete in the global market,” he said.

The study concluded that the ability for the government and industry to meet program execution commitments is inadequate and that there was a unanimous agreement that the export control process can be improved without adversely affecting national security.

More information:

• CSIS Briefing
• International Trade Law News article

Laura Wang-Woodford, director of Monarch Aviation Pte, Ltd. (“Monarch”) of Singapore was arrested and has been arraigned on a 20-count federal indictment. Wang-Woodford is accused of exporting components for Chinook military helicopters from the US to Singapore and then to Iran in violation of the International Emergency Powers Act, after identifying them as commercial components.

Ms Wang-Woodford and her husband ran Monarch, which has been importing and exporting military and commercial aircraft components for more than 16 years. Brian Woodford remains fugitive since his wife was arrested on December 23, 2007 at San Francisco International Airport.

The indictment charges consist of charges of:

1. Conspiring to export aircraft parts to Iran
2. Several counts of exporting aircraft parts to Iran against the IEEPA
3. Conspiring to export defense articles without a license
4. Exporting and attempting to export defense articles without a license in violation of the AECA and ITAR
5. Conspiring to launder the proceeds of the unlawful export of defense articles
6. Illegal export of US military aircraft components
7. Falsely identifying components in export documents filed to the US government
8. Conspiring to transmit funds from Singapore to Cincinnati, Ohio with the intent to promote the illegal export scheme in violation of the federal money laundering statutes

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President Bush issued an Export Control Directive on January 22, 2008, the directive is presumed to improve the way in which the Department of State responds to the many licenses it receives for the export of defense equipment, services, and technical data. Bush promised, “a more efficient and transparent export license process” and better “dispute resolution mechanisms” but was sure to include that there will remain a strong monitor on protecting national security.

The specific changes include:

1. Additional financial resources and intelligence support to provide timely adjudication of defense trade licenses
2. New guidelines requiring decisions by the U.S. Government on defense trade export license applications within 60 days unless there is strong reason for additional time which must be approved
3. The electronic licensing system will be upgraded to allow all types of defense trade licenses and their submission
4. An interagency will be created to allow for timely resolution of licensing jurisdiction issues under the Commodity Jurisdiction process
5. A multi-agency working group will be created to improve procedures for export enforcement investigations

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Immigration and Customs Enforcement (ICE) agents revealed a website run by Abraham Trujillo and David Waye which listed both F-14 and F-4 parts for sale. The website company, NSN Specialists, attempted to export the parts without a license. The ICE agents tracked the company over the next several months and eventually set up a sting operation to arrest the men.

Trujillo and Waye would repackage the parts and assign them commercial part numbers and even invoiced them as “gear sprockets” to guarantee that the parts would not be conspicuous. They intended on exporting the parts to Canada where they would then go to Iran where the only F-14 are flown.

The men are charged by the U.S. Attorney for Utah with 3 felony counts. The felony information includes attempted export of the F-14 and F-4 fighter aircraft parts without a license, attempted export of F-14 wiring harnesses and impeller assemblies and the repackaging to the goods.

During the 58th International Astronautical Congress in Hyderabad, India, many speakers from emerging space nations all voiced a concern over the United States International Traffic and Arms Regulations (ITAR). The speakers charged that the United States ITAR is holding back growth in the industry. All of the speakers made a point to explain that both cooperation and competition were necessary to ensure growth of the space industry, and the ITAR is holding emerging space nations back.

China claimed that the U.S. policy was the largest hurdle to be faced by the growth of new actors in the industry, while India claimed that there is more risk to non-US players because of the ITAR rules

(Hmmmm, I guess the US Government is glad to hear that news, because that is exactly the intent of the ITAR. — John Black)

Hua Changzhi, vice president of China Great Wall Corp. pointed out those U.S. satellite manufacturers had lost market share in recent years, he remarked, “This is the price paid by U.S. policy”. Ray A. Williamson, research professor, Space Policy Institute at George Washington University in the United States said that change in ITAR would make it easier for the international space industry to operate, “unfortunately, given the current political situation in the United States, I don’t think ITAR regime will change for the next five to ten years”.

Executive director of Antrix Corp Ltd, the commercial arm of Indian Space Research Organization, K.R. Sridhara Murthy called for addressing certain issues at a political level especially regarding the export policies of advanced countries. Murthy also called for a unified licensing system for space services and complementary ground services and also underlined a need to change policy and regulations to facilitate easy access to remote sensing data used by many companies. Another one of his concerns was the merger of smaller companies with the “big players” in the industry, explaining that the dominant players in the industry hurt the market and consumers. The industry is also faced with the fact that the orbit and spectrum resources are in the hands of the governments.

More information:

US regulations restrict space industry growth (Earth Times)

US regulations restrict space industry growth (India PR Wire)

Peter Selding of SPACE.com reported China has successfully launched a Thales satellite that did not contain any US components controlled by the International Traffic in Arms Regulations (“ITAR”). Any non-US origin satellite with one or more ITAR-controlled part (regardless of value) would require approval by the US State Department for transfer to China — and the State Department would not approve transfers of any commercial communication satellite with ITAR content to China. The Thales ITAR-free satellite proves that it is possible for companies to build satellites and sell them without having to deal with the cumbersome and sometimes prohibitive ITAR controls.

According to the report, the Chinasat 6B telecommunications satellite is the fourth satellite built for the Chinese satellite-fleet operators by Thales Alenia Space. And it looks like it doesn’t cost all that much to avoid ITAR components. According to the report, avoiding ITAR restrictions added approximately six percent to the cost of the satellite due to lack of options in choosing more competitive parts suppliers and the currency used in payment. Thales Alenia Space has pointed out going to a fully ITAR-free product line is out of the question because of the risk of not being able to keep up with the market demand as ITAR-free satellites rely on a supply chain that would have difficulty increasing deliveries in the short term. This sale might be a scary prospect for US satellite makers and US satellite component suppliers. The State Department will not approve license for transfers of US satellites or foreign-origin satellites with US content to China. Now Thales seems to have a monopoly on sales of satellites to China, or, at least Thales is going to get sales that neither US satellite manufacturers nor any foreign manufacturers who use ITAR components will get. Clearly, in attempting to prevent satellite sales to China, the US has used the ITAR to dam up most of the river while leaving an opening wide enough to launch a Thales satellite through. So, the Chinese get communication satellites and US manufacturers get bumpkiss (i.e., nothing). Well, perhaps US policy makers still feel good about the symbolic nature of the US “no satellite sales to China” policy, and as US policy makers are perched high atop their self-designated moral high ground, they will have a clear view of the ITAR-free satellite sales to China.

I will not ask if anybody in the US Government has unofficially threatened Thales or attempted to convince Thales to not go down the ITAR-free path.

The Commerce and State departments published changes to their respective export control regulations, the Export Administration Regulations (EAR) and International Traffic in Arms Regulations (ITAR) to change the scope of radiation hardened microelectronic circuits that are subject to the export jurisdiction of the ITAR.

Specifically, in Category XV of the US Munitions List in the ITAR, paragraph (d)(4) was changed from single event upset rate of 1 X 10 to the minus seven power to a single event upset rate of 1 X 10 to the minus ten power.

This paragraph (d) in Category XV controls any device with all five of the rad hardening characteristics in (d)(1) - (5). If a device does not have all five of those characteristics, it falls under the jurisdiction of the EAR. Of course, any device designed, modified, configured or adapted for space use falls under the ITAR regardless of its rad hardening characteristics.

The first-ever National Export Control Coordinator for the Department of Justice was appointed last June 20, 2007. Steven W. Pelak, a veteran prosecutor for 18 years, has been an Assistant U.S. Attorney and Senior Litigation Counsel in the National Security Section of the U.S. Attorney’s Office for the District of Columbia and, since September 2001, has served as the Anti- Terrorism Coordinator for the U.S. Attorney’s Office. Mr. Pelak is detailed to the Counter-espionage Section of the Justice Department’s National Security Division, wherein he will have some of the following responsibilities:

• development of comprehensive training materials on export control investigations and prosecutions for federal prosecutors nationwide
• solicit and receive regular progress reports from U.S. Attorneys’ offices on the development of export control cases
• coordinate between the Justice Department and the many other U.S. law enforcement, licensing and intelligence agencies that play a role in export enforcement.

Attorney General Alberto Gonzales mentioned in his June 11 speech on nuclear terrorism that the Justice Department’s National Security Division where federal prosecutors were provided instruction and guidance on export control cases, with trainers from the Justice Department and the relevant investigative agents on hand providing comprehensive prosecutorial instruction.

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OK, it has been a month since the US slapped new export controls on China to attempt to slow the growth of the Chinese defense industry, and thus hamper the growth of Chinese military capability. A considerable amount of concern about the rule was exhibited when more than 700 persons joined in the BIS conference call to discuss the new rule on June 20. Since the rule was published in the June 19, 2007 we have had plenty of opportunities to hear the US Government and other parties focus on how the new rule relaxes exports to China by establishing a procedure for license-free exports to Validated End-Users (VEUs) even though no VEUs actually exist.

What does exist today, and what companies must comply with today, is a new approach to restricting certain export to China that are imposed by the new set of export restrictions on China. So, let’s look at the details of the new requirements.

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Company Name Changed to Thales Alenia Space

In an effort to facilitate continued licensed defense trade between the United States and the recently renamed Thales Alenia Space, the DDTC has published guidance for dealings with the company and its subsidiaries.

Satellite designer and manufacturer Alcatel Alenia Space SAS (AAS), has its stock held by Alcatel-Lucent Participations SA (France) and Finmeccanica SpA (Italy). Subsidiaries of AAS are located in France, Italy, Belgium and Spain. As the result of a transaction reassigning its current stock, AAS has changed its name to Thales Alenia Space. Subsidiaries have also changed their names accordingly.

For the purposes of exporting against valid licenses after the transaction closing dates (April & May 2007), exporters should note the name change at the time of the AES filing. Submitting a DSP-119 is not necessary.

Example: “Thales Alenia Space France” formerly “Alcatel Alenia Space France”

For the purposes of current TAA and MLA agreements, an amendment must be submitted to each agreement to reflect the name change. Failure to submit the necessary amendment within 60 days of the transaction closing date for each entity will result in the termination of the agreement.

For the purposes of agreements currently in review, those pending approval will be processed under the submitted name. Once approvals are granted, exporters must change the name to the new entity before execution of the agreement or amendment and must note the change in the cover letter of the submission of the executed agreement.

For new licenses & agreements, exporters must supply the new legal name of the entity. New agreements submitted 60 days after specified closing dates with the incorrect name will be returned without action.

The relevant closing dates for entities affected by this change are as follows:

• Alcatel Alenia Space in France on April 6, 2007
• Alcatel Alenia Space in Belgium on April 11, 2007
• Alcatel Alenia Space in Spain on April 11, 2007
• Alcatel Alenia Space in Italy on May 4, 2007

Affected Companies and their former and current names can be viewed, along with the complete guidelines, at:

• www.pmddtc.state.gov/docs/exporter_guidance_AAS.doc (Word doc)

Lockheed Martin reports that no sensitive information was on a memory stick which an Azle, Texas truck driver found at a gas station. An employee of the Bethesda, MD based Lockheed who works in the jet program inadvertently dropped the stick. The truck driver, Glen Frausto, found the stick and plugged it into his home computer. He was surprised enough to call the FBI when he saw that the stick contained data and diagrams pertaining to a military jet being developed by Lockheed Martin.

At this point, the FBI is not investigating any wrongdoing or release of classified information. Lockheed stated that the employee had not broken any rules by having the memory stick with him. The jet referred to is the F-35 joint strike fighter which is currently involved in test flights. It will likely replace older jets currently being used by the military such as the F-16 and F-18.

(I wonder if anybody checked the citizenship of the “Texas” truck driver? —John Black)

Sources:

• The Boston Globe Online - April 19, 2007
• The Examiner Online, April 18, 2007

It appears that the indictments of four Indian nationals for export violations have muddied the water on the US-India nuclear cooperation talks. The talks between India and the US are important to India in terms of its civil nuclear capacities. Good relations with the US could pave the way for the lifting of restrictions by the Nuclear Suppliers Group (a group of countries who implement guidelines for exports of nuclear items and nuclear-related items to prevent the proliferation of nuclear weapons) on exports to India. Symbolicly, at least, successful talks with the US could also signal that the United State implicitly accepts the legitimacy of the Indian nuclear weapons program, even though the Indians (like the Pakistanis and Israelis) developed their nuclear weapons in direct violation of the Nuclear Non-Proliferation Treaty.

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US ITAR regulations are causing delays, and possible cancellations, in defense contracts between the United States and Canada. Briefing notes to Canada’s Defence Minister, Gordon O’Conner from last year show that American regulations have caused so many delays in Ottawa that the Canadian government had considered canceling a project to replace their 40-year old Sea King helicopters with 28 American-built Sikorsky Cyclone helicopters.The situation is resulting from the conflict between the ITAR’s regulations on dual-nationals and Canada’s anti-discrimination laws. US regulations prohibit Canadians with dual citizenship from having any contact with regulated materials or information. This has created a real dilemma for Canadian defense companies who risk breaking Canadian laws by releasing employees from working on sensitive US contracts. Sources close to the “Sea King” project state that juggling employees to comply with US regulations is costing Canadian companies a lot in time and money.

Canadian officials have refused to sign certain TAA’s and licenses which contain ITAR restrictions because they say they call for discrimination against Canadian citizens. This, also, is causing delays on the production and delivery of the Cyclones.

As General Motors in London, Ontario was recently fined $20 million for failing to comply with ITAR regulations relating to dual-nationals, Canadian companies know well the risks of non-compliance.

Upcoming Canadian purchases of Boeing helicopters and Lockheed-Martin planes could also be hindered by the problems.

Source:

• www.globeandmail.com, March 26, 2007

In an effort to send a signal to Iran, the State Department is seeking Congressional approval to sell arms to US allies in the Persian Gulf. Countries such as Saudi Arabia, Qatar, Kuwait, Bahrain, Oman and the United Arab Emirates could have their defenses bolstered through the purchase of sophisticated air and missile defense systems, advanced early warning radar aircraft and light coastal combat ships. It is also believed that Northrop Grumman’s E-2D Hawkeye 2000 early warning aircraft is under consideration for sale. The United Arab Emirates had tried to acquire this aircraft in 2003 but the deal fell through due to the US Navy’s hesitation to sell the necessary communication software.

US officials have been rather quiet about the proposed arms sales. This could be due to the concern that building up Iran’s neighbors could bring the US closer to an Iranian confrontation. Officials state the need for Congressional support and the need for a low level of publicity from the countries involved as the reason for being so tight-lipped. Several countries have been reticent about agreeing to sales because of the fear of sending a message of aggression to Iran.

Source:

• The Boston Globe - boston.com March 21, 2007, Author: Farah Stockman

On February 7, 2007, the Department of State amended the ITAR regarding its trade policy with Libya. In May of 2006, the US rescinded Libya’s designation as a state sponsor of terrorism. As a result of this, Libya has been removed from sections 126.1(a) and 126.1(d) of the ITAR and added to 126.1(k). This specifies the following:

“It is the policy of the United States to deny licenses, other approvals, exports or imports of defense articles and defense services destined for or originating in Libya except, on a case-by-case basis, for:

1. Non-lethal defense articles and defense services,
2. Non-lethal safety-of-use defense articles (e.g., cartridge actuated devices, propellant actuated devices and technical manuals for military aircraft for purposes of enhancing the safety of the aircrew) as spare parts for lethal end-items.”

As Libya is still proscribed in 126.1, exemptions other than 123.17 do not apply with respect to articles originating in or for export to Libya. Also, in terms of proposed sales, the requirements of 126.1 still apply.

Federal Register notice