ITAR_ITARInIndustry

Regulations and Challenges in the ITAR-related Industry

Every company or contractor who does business with the U.S. government should be aware of the International Traffic in Arms Regulations (ITAR). The U.S. government requires from all manufactures, exporters and brokers of defense articles, defense services or related technical data to follow the ITAR's requirements.

ITAR compliance is mandatory for all companies involved in the manufacture, sale or distribution of either goods or services covered in the United States Munitions List (USML) or a component supplier to goods covered under the USML.

It is not always easy to determine whether a product or service should be subjected to ITAR, particularly because many technologies that were originally developed with military purposes have evolved into mainstream commercial products. However, it is really important to understand this distinction and seeking advice from legal ITAR experts may be really valuable in this context. According to the article "Is Your Business ITAR Compliant? Should it be?" 14 : 

 

"(...) companies are requiring that ITAR compliance language be included in contracts, on purchase orders and requests for proposals. Nowhere in ITAR regulations is it spelled out what “ITAR certified” actually means, but generally ITAR compliance regarding technology and security companies affects the manufacture, sale, and distribution of technology and the control access to specific types of technology and associated data. In effect, the government is trying to prevent the disclosure or transfer of sensitive information to a foreign national. As a result, ITAR can pose challenges for global corporations, since data related to specific technologies may need to be transferred over the Internet or stored outside of the United States in order to make business processes flow smoothly. The responsibility lies with the manufacturer or exporter to take the necessary precautions and steps to certify that they are, in fact, meeting ITAR compliance requirements."

 

Companies offering products, services and software which are in the USML must meet a set of regulations related to a wide range of practices and situations. The presentation below lists some topics to which these companies should pay attention to. Nevertheless, this presentation (or any part of this module) should not be used as a primary guide for any kind of "real life" decision. 

 

Besides exports, ITAR also includes regulations related to domestic comercial  business. Violations in ITAR requirements may result in serious legal problems.14

 

Controversy and Criticism

In 1999 Congress transferred ITAR authority from the Department of Commerce to the Department of State. Since then, regulations and their enforcement became more strict. Thus, many people began to argue that ITAR is the main culprit in the loss of market share experienced by America's commercial space industry.

In the article "ITAR Dilemma: Finding The Balance Between Regulation And Profit"9, Kusiolek (2008) points out:

 

"The U.S. commercial space industry has been the global leader for more than 50 years, but as competition for contracts has become more intense around the globe, ITAR — a set of government regulations that controls the export and import of defense-related articles and services on the U.S. Department of State’s Munitions List — has been inhibiting the growth of thousands of small U.S.-based suppliers while protecting the larger providers, according to some industry officials and observers."

 

The table below (based on the article previously referred9)  summarizes the most common criticisms made against ITAR.

 

Number Critic
1 "The unintended impact of the regulation change has been that countries such as China, Pakistan, India, Russia, Canada, Australia, Brazil, France, the United Kingdom, Italy, Israel, the Republic of Korea, Ukraine and Japan have grown their commercial space industries, while U.S. companies have seen dramatic losses in customers and market share." 
2 "A study released by the American Institute of Aeronautics and Astronautics (AIAA) alleges that U.S. rules restricting exports of American military technology are harming the U.S. aerospace industrial base, especially in satellite component sales." 
3 "While other nations have restrictions that their corporations face on exports of militarily sensitive technology, the limitations there are nowhere near as restrictive as ITAR regulations, the AIAA says, and because of ITAR restrictions, some overseas firms may not wish to have U.S. companies participate in joint projects." 
4 "Along with losing potential international business and partnerships, an unintended consequence of ITAR is that in some cases, when U.S. sales of a certain type of item are barred by the U.S. government, foreign companies may develop that technology themselves and become competitors."
5 "The international companies also are benefiting from ITAR’s impact on U.S. higher education institutions such as Stanford University, the University of Michigan and MIT, which argue that ITAR prevents the best international students from studying and contributing in the United States and prevents cooperation on international scientific projects." 

Table 1: Common criticisms against ITAR

 

These criticisms are not endorsed by all experts, of course. Many argue that the decline in the aerospace industry has been aided by the technology outsourcing and offshoring business models that are fueling today’s business profits. Besides, the State Department sees no drag on the U.S. space industry and insists that the security benefit to the nation is something that businesses must bear.9

 

The ITAR Shift

There was a reform in ITAR in 2013, which sought to address some of the controversial issues presented above. The excerpt below, extracted from the "Aviation week network"16 website, explains the shift with further detail:

 

"Lawmakers signed off on a fiscal 2013 defense authorization bill that allows the president to remove commercial satellites and components from the U.S. Munitions List (USML) and allows him to decide which satellite technologies are the most important to protect. The bill still restricts the export and transfer of technology to China, Cuba, Iran, North Korea, Sudan and Syria.

Satellites and related items were placed under regulations in 1999, because of fears about dual-use satellite technology helping China develop its own launch and missile technologies. At that time, a congressional commission found that satellite companies knowingly transferred technical information to China. The debate began to shift very gradually. In 2008, a report by the Center for Strategic and International Studies laid out the unintended consequences of the restrictions. It described how important it was to defense and intelligence efforts for the U.S. to retain its technical edge, and the report drew a strong link between the industry's competitiveness and the nation's security. Afterward, industry sources say, the conversation began to shift in favor of lifting the regulations."

 

In May 2014, the satellites and related components were reclassified and they are no longer treated as weapons:

 

"After 15 years of restrictions and intense scrutiny, the United States Department of State has reclassified satellites and several related components so they will no longer be treated as weapons. The changes affect Category 15 of the U.S. Munitions List (USML), which covers spacecraft and related articles, by shifting most commercial, civil and scientific satellites and accompanying equipment to the Department of Commerce’s Commerce Control List (CCL)."18

 

The new classification became legally valid in November 2014.

 

The "National Academies of Sciences, Engineering and Medicine"23, published a report entitled "Export Control Revisions and CubeSat Programs"24, developed by the "Universities Space Research Association" (USRA)25,  that can be download here. The report provides the results of an informal survey performed in 2015 related to the ITAR/Export regulation changes and the potential benefits or issues for the CubeSat community. The report includes some interesting questions from: "Have these new policies affected how you conduct your CubeSat or other activities?”, to "What are the important constraints that will limit international collaborations for CubeSats?". The poll was answered by important members of USRA and also by universities and agencies directly related to satellite research and development, specially related to CubeSat development, including: JPL, MIT, NASA and the National Science Foundation among other, the full list of participant of the survey can be found on the report.

We invite you to read this interesting report since it provides straight feedback from researchers directly involved in CubeSat development and how the new ITAR and export regulations have good and not so good impacts in their projects. Following is a summary extract of the survey results: 
 

Summary of Responses24:

  • Universities are left with the burden of deciphering the new rules and how they are applied
    • NASA and NSF sponsors do not advise on EC compliance
    • Rigorous application requires EC experts and money
      • While security plans for FNs are sometimes possible, they generally are not practical or practiced
    • Some default to a conservative approach
      • limits student engagement, opportunities
      • no foreign national students allowed on HW or SW
    • Others claim Fundamental Research Exemption
      • may be a risky approach if misapplied

 

Positives impacts of the new ITAR/Export regulations24:

  • International collaboration and foreign student involvement should become easier in principle for universities
  • ITAR to EAR shift creates a more manageable compliance profile on some campuses, frees resources
  • Telemetry and housekeeping data as EAR 99 is a huge help
  • US commercial providers of CubeSat hardware are now in a much more competitive position globally
  • EAR licensing system is easier to use than the ITAR system, and universities should find compliance easier

 

Negative impacts of the new ITAR/Export regulations24:

  • Fundamental controls on certain systems remain, and still impact how university programs can be conducted
  • Rules remain somewhat vague in certain areas, and require expert interpretation
  • Launch services remain under ITAR control
  • Some universities avoid foreign collaboration or limit foreign student participation on hardware and software
  • Increasing numbers of foreign national students complicate space-systems research and operations programs
  • CubeSat technology growth in the US is being hampered as demand is met by foreign ITAR-free vendors
  • No funding for international collaboration

 

    The Global Satellite Market

    A report released in September 2015 by the "Satellite Industry Association"17 (SIA) describes the current state of the satellite industry, pointing that the 2014 global revenues were about $203 billion, consolidating a 4% growth when compared with 2013. The complete report can be found here. 

    Click on the hotspots in the global map below in order to discover which countries launched more satellites in 2014 as well as the percentage represented by that country in the total number of satellites launched that year.