Financial Times ; 10-Oct-2000
Curbs bring US satellite industry down to earth: The imposition of tough new export controls following a spying scare has had unforeseen drawbacks, writes Edward Alden:
By EDWARD ALDEN
Over the past decade US companies have dominated the rapidly expanding global market for communications satellites. But that was before China was accused of stealing the crown jewels of the US nuclear weapons programme.
Those accusations, made in a report by congressional Republicans in 1998, led Congress to take one action that critics now say may do more to damage US security than any secrets gleaned by the Chinese.
In March 1999 Congress imposed tough export controls on the US commercial satellite industry. Companies now face a State Department investigation before exporting a satellite to ensure that military technologies are not inadvertently transferred to potential adversaries.
Since those changes were enacted the US share of the global commercial satellite market has plummeted. In 1989-1999 the industry captured 75 per cent of all sales; in the first nine months of this year, US satellite makers such as Hughes and Loral won just 42 per cent of orders, according to the Satellite Industry Association.
Companies that have long chosen US satellite makers, including GE American Communications, Intelsat and Inmarsat, have recently given contracts to US competitors.
While the diminishing share is partly due to the emergence of European competitors such as Astrium and Alcatel Space, the industry puts much of the blame on the US government.
"Clearly it was a huge policy mistake by Congress," said John Douglass, president of the Aerospace Industries Association, which represents the big US satellite makers. "What they did was choke off American access to the international market, which was quickly exploited by European competitors."
The stakes are larger than just the Dollars 12bn (Pounds 8.2bn) commercial satellite market, however. The same US groups build military satellites, and use profits from the commercial business for research and development that supports US military programmes.
William Reinsch, under-secretary of commerce for export administration, said: "If you're crippling Hughes or Loral commercially, you're also making it that much harder for them to complete their classified programmes." The fight over controls on satellites reveals much about the complex interactions between US commercial interests and national security in an era when information is fluid and security threats much harder to define.
Commercial satellites use many of the same "dual-use" technologies found in powerful spy satellites. Equally, satellite launches use some of the same techniques as nuclear missile launches.
Launching US satellites on foreign rockets is "tailor-made for technology transfer", Mr Reinsch said. "There are very high risks there."
Nevertheless, the Reagan administration first approved launching US commercial satellites on Chinese rockets in 1986 because of a shortage of US launch capacity. Twenty-one launches of US-made satellites took place on Chinese rockets between 1992 and 1999.
But the US satellite companies found themselves in the crosshairs after two failed Chinese launches in 1995 and 1996, involving satellites built by Hughes and Loral. During subsequent investigations, both companies were accused of having passed to the Chinese, without US government approval, technical evaluations of the launch failures.
The companies are under criminal investigation, although no charges have been laid. Opinion is divided over the incidents. The congressional report concluded that the companies had shown China how to improve its rockets, thus improving its military capability. But Lewis Franklin, a US missile weaponry expert who evaluated the launch failures, says that little of military value was passed to the Chinese.
Congress nevertheless responded by reclassifying commercial satellites as military items. Where previously the Commerce Department had required one licence for a satellite export, the State Department now requires numerous licences.
Even the advocates of a tougher licensing regime acknowledge the damage done to the industry. Many of the same Republicans who authored the critical report said recently that delays in licence applications had "fuelled the perception abroad that US companies . . . are unreliable suppliers".
Congress has approved several measures this year to accelerate State Department processing. But industry officials say the problem will remain as long as satellites face the same export rules as tanks or jet fighters.
Critics of the tougher rules say that the US may inadvertently be hurting its own military capabilities. Industry consolidation means a handful of global-scale satellite makers is likely to emerge. The Pentagon will depend on those companies for military satellites.
"From a security standpoint, the question is do we want what's left to be European or do you want it to be American," said a senior US official. "What the Congress has done is making sure it's European."
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