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ECR Episode XI: Rewriting the Guide to the Galaxy – Satellites Passed to Commerce Control

Glancing through the fictional but fascinating Hitchhiker’s Guide to the Galaxy (Rsch. Ford Prefect; Pub. Megadodo Publications), one might recognize that the assertions therein are a bit confusing. Similarly, one might become confused when reviewing another, less whimsical, guide to the galaxy: the revised United States Munitions List Category XV – Spacecraft and Related Articles.

On November 10, 2014 Export Control Reform revisions will go into effect reshaping the USML category that has covered communications satellites for nearly 20 years. If you are responsible for complying with satellite export controls, we offer the same profound and pithy advice one finds right on the cover of the Hitchhiker’s Guide, “Don’t Panic.”

Background

“We demand rigidly defined areas of doubt and uncertainty!”[1]

A series of highly publicized violations in the mid-nineties involving the export of launch and guidance technologies to China caused the U.S. government to move all satellites to the controls of the International Traffic in Arms Regulations. As a result, commodities and technical data at the core of one of the most rapidly growing communications industries of our age have been constrained in our country by the regulatory bindings normally applied to exports of military items. U.S. manufacturers and exporters have been at a distinct competitive disadvantage because, for the past 20 years, the United States has been the only country that treats all satellites and related items as munitions.

This week, some of those regulatory limitations will fall away as many communications satellite items and technology are moved to Department of Commerce control under the Export Administration Regulations. With fewer hurdles to export, technology sharing, and collaboration, one might say the sky is the limit. With apologies for the abysmal pun, we recognize that the limit will, in fact, be the scope and authorizations of the EAR.

The Opportunities

“Space is big. You just won’t believe how vastly, hugely, mind-bogglingly big it is. I mean, you may think it’s a long way down the road to the chemist’s, but that’s just peanuts to space.”

The export control changes in effect November 10 will create new export opportunities for U.S. satellite manufacturers. Many commercial satellites and related items currently controlled under USML Category XV will move to the Commerce Control List into a new “500 series category,” including the following:

  • Communications satellites that do not contain classified components;

  • Remote sensing satellites with performance parameters below certain thresholds; and

  • Systems, subsystems, parts, and components associated with these satellites and with performance parameters below certain thresholds specified for items remaining on the USML.

These items will be classified as ECCN 9_515.  That is: 9A515 will cover spacecraft systems equipment and components; 9B515 will cover test inspection and production equipment; 9C515 will cover materials; 9D515 will cover software; and 9E515 will cover technology related to spacecraft and related items.

Most items in the new 500 series will generally be subject to the de minimis exception, which would permit the reexport of satellite components to most countries as long as they were incorporated into a foreign satellite containing 25% or less by value of controlled U.S.-origin material. Prior to the ECR revision, if an ITAR-controlled satellite part were incorporated into a foreign satellite, no de minimis exception applied; the entire satellite was thus subject to ITAR regulations.  Now, foreign OEMs can purchase U.S. satellite parts and components and incorporate them into their products without subjecting themselves to onerous ITAR export restrictions. This should open up new markets for U.S. component manufacturers.

Further, the 500 series items will be eligible for certain license exceptions available under the EAR, including the following: limited value shipments; temporary exports; repair and replacement; government exports (including U.S. government, cooperating government, and support contractor provisions); and unrestricted software and technology. Importantly, the 500 series items will also be eligible for the Strategic Trade Authorization exception, which permits the export without a license of many items listed on the Commerce Control List to thirty-six countries, including NATO members and other close U.S. allies.

The Limitations

“For a moment, nothing happened. Then, after a second or so, nothing continued to happen.”

Certain items will remain on the USML, including the following:

  • Satellites that perform a purely military or intelligence mission;

  • Remote sensing satellites with defined high performance parameters;

  • Systems, subsystems, parts, and components unique to USML satellites and not common to EAR satellites; and

  • Services in support of foreign launch operations for USML and CCL designated satellites.

U.S. regulators have determined that these items still provide the United States a military or intelligence advantage and should, therefore, still be protected by ITAR controls.

Additionally, the items that move to the 500 series on the CCL will not be freely exportable to all countries.  In fact, when destined to the People’s Republic of China or a country listed in Country Group E:1 of the EAR, exports of items classified under any 9_515 ECCN will be subject to a policy of denial. Further, under the revised EAR, there will be no de minimis exception available for foreign-made items that incorporate U.S.-origin 9_515 when the items are destined to be reexported to a country listed in E:1 or to China. Thus, the export to any of these countries of a foreign-made satellite containing even a negligible amount of U.S.-controlled material would still require an additional license, and applications for such a license would be subject to a policy of presumptive denial.

The Tricky Parts

“So once you do know what the question actually is, you’ll know what the answer means.”

Many companies will be updating, perhaps even overhauling, their compliance policies to account for the regulatory changes. In the updating process, there may be a strong temptation to relax restrictions as far as an interpretation of the new rules might allow. However, the new regulatory details create complex nuances in how exports must be controlled. Further, U.S. officials have stated their resolve to step up export control enforcement.[2]  Taking these two points together it appears that businesses should seek out all the new openings the regulatory changes provide, but compliance personnel should remain vigilant for potential pitfalls in the revised regulations.

Conclusion

“So long, and thanks for all the fish.”

The potential gain to be realized under the Category XV revisions is clear: the United States will stand in a better position to regain a broader share of the global satellite industry. Like many of the ECR revisions, the complexity and density of the rules may be daunting, confusing, or frustrating, but the opportunities the revisions create make the new regulations, like other guides we’ve referenced too heavily in this article, worth the read.


[1] All quotes happily if vaguely recalled from Douglas Adams’ “trilogy in five books,” A Hitchhiker’s Guide to the Galaxy et seq.

[2] The Government will step up enforcement efforts “against individuals who flout the rules and against companies whose inadequate internal compliance programs tell us that they are indifferent to whether they follow the rules.” Under Secretary for Industry and Security Eric L. Hirschhorn at the Update Conference in Washington, D.C., August 31, 2010. http://www.bis.doc.gov/index.php/forms-documents/doc_view/1005-don-t-let-this-happen-to-you-071814

Copyright © 2018, Sheppard Mullin Richter & Hampton LLP.

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About this Author

Reid Whitten, partner, Sheppard Mullin Law Firm
Partner

Reid Whitten works with clients around the world to plan, prepare, and succeed in global business transactions.

In the areas of U.S. and international sanctions, export and defense export controls, and anti-corruption regulations, he supports clients in detecting and deterring potential compliance issues as well as conducting and defending investigations and enforcements. Mr. Whitten also advises on anti-dumping, anti-money laundering, and anti-boycott regulations.

Mr. Whitten is a thought leader on cross-border business regulations. He teaches a seminar on The Law of...

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