[House Hearing, 111 Congress]
[From the U.S. Government Printing Office]
EXPORT CONTROLS ON SATELLITE TECHNOLOGY
=======================================================================
HEARING
BEFORE THE
SUBCOMMITTEE ON TERRORISM, NONPROLIFERATION AND TRADE
OF THE
COMMITTEE ON FOREIGN AFFAIRS
HOUSE OF REPRESENTATIVES
ONE HUNDRED ELEVENTH CONGRESS
FIRST SESSION
__________
APRIL 2, 2009
__________
Serial No. 111-14
__________
Printed for the use of the Committee on Foreign Affairs
Available via the World Wide Web: http://www.foreignaffairs.house.gov/
______
U.S. GOVERNMENT PRINTING OFFICE
48-443 WASHINGTON : 2009
-----------------------------------------------------------------------
For sale by the Superintendent of Documents, U.S. Government Printing
Office, http://bookstore.gpo.gov. For more information, contact the
GPO Customer Contact Center, U.S. Government Printing Office.
Phone 202-512-1800, or 866-512-1800 (toll-free). E-mail, gpo@custhelp.com.
COMMITTEE ON FOREIGN AFFAIRS
HOWARD L. BERMAN, California, Chairman
GARY L. ACKERMAN, New York ILEANA ROS-LEHTINEN, Florida
ENI F.H. FALEOMAVAEGA, American CHRISTOPHER H. SMITH, New Jersey
Samoa DAN BURTON, Indiana
DONALD M. PAYNE, New Jersey ELTON GALLEGLY, California
BRAD SHERMAN, California DANA ROHRABACHER, California
ROBERT WEXLER, Florida DONALD A. MANZULLO, Illinois
ELIOT L. ENGEL, New York EDWARD R. ROYCE, California
BILL DELAHUNT, Massachusetts RON PAUL, Texas
GREGORY W. MEEKS, New York JEFF FLAKE, Arizona
DIANE E. WATSON, California MIKE PENCE, Indiana
RUSS CARNAHAN, Missouri JOE WILSON, South Carolina
ALBIO SIRES, New Jersey JOHN BOOZMAN, Arkansas
GERALD E. CONNOLLY, Virginia J. GRESHAM BARRETT, South Carolina
MICHAEL E. McMAHON, New York CONNIE MACK, Florida
JOHN S. TANNER, Tennessee JEFF FORTENBERRY, Nebraska
GENE GREEN, Texas MICHAEL T. McCAUL, Texas
LYNN WOOLSEY, CaliforniaAs TED POE, Texas
of 3/12/09 deg. BOB INGLIS, South Carolina
SHEILA JACKSON LEE, Texas GUS BILIRAKIS, Florida
BARBARA LEE, California
SHELLEY BERKLEY, Nevada
JOSEPH CROWLEY, New York
MIKE ROSS, Arkansas
BRAD MILLER, North Carolina
DAVID SCOTT, Georgia
JIM COSTA, California
KEITH ELLISON, Minnesota
GABRIELLE GIFFORDS, Arizona
RON KLEIN, Florida
Richard J. Kessler, Staff Director
Yleem Poblete, Republican Staff Director
------
Subcommittee on Terrorism, Nonproliferation and Trade
BRAD SHERMAN, California, Chairman
GERALD E. CONNOLLY, Virginia EDWARD R. ROYCE, California
DAVID SCOTT, Georgia TED POE, Texas
DIANE E. WATSON, California DONALD A. MANZULLO, Illinois
MICHAEL E. McMAHON, New York JOHN BOOZMAN, Arkansas
SHEILA JACKSON LEE, Texas J. GRESHAM BARRETT, South Carolina
RON KLEIN, Florida
Don MacDonald, Subcommittee Staff Director
John Brodtke, Subcommittee Professional Staff Member
Tom Sheehy, Republican Professional Staff Member
Isidro Mariscal, Subcommittee Staff Associate
C O N T E N T S
----------
Page
WITNESSES
Mr. Pierre Chao, Senior Associate, Center for Strategic and
International Studies.......................................... 17
Larry M. Wortzel, Ph.D., Vice Chairman, U.S.-China Economic and
Security Review Commission..................................... 26
Ms. Patricia Cooper, President, Satellite Industry Association... 37
LETTERS, STATEMENTS, ETC., SUBMITTED FOR THE HEARING
The Honorable Edward R. Royce, a Representative in Congress from
the State of California: Prepared statement.................... 5
The Honorable Gerald E. Connolly, a Representative in Congress
from the State of Virginia: Prepared statement................. 9
The Honorable Donald A. Manzullo, a Representative in Congress
from the State of Illinois: Prepared statement................. 11
The Honorable Brad Sherman, a Representative in Congress from the
State of California, and Chairman, Subcommittee on Terrorism,
Nonproliferation and Trade: Article from the New York Times by
William J. Broad, ``For U.S. Satellite Makers, a No-Cost
Bailout Bid''.................................................. 13
Mr. Pierre Chao: Prepared statement.............................. 20
Larry M. Wortzel, Ph.D.: Prepared statement...................... 28
Ms. Patricia Cooper: Prepared statement.......................... 40
APPENDIX
Hearing notice................................................... 70
Hearing minutes.................................................. 71
Frank Vargo, Vice President, International Economic Affairs, on
behalf of the National Association of Manufacturers: Statement. 72
Aerospace Industries Association: Letter addressed to the
Honorable Howard L. Berman, a Representative in Congress from
the State of California, and Chairman, Committee on Foreign
Affairs, and statement......................................... 76
EXPORT CONTROLS ON SATELLITE TECHNOLOGY
----------
THURSDAY, APRIL 2, 2009
House of Representatives,
Subcommittee on Terrorism,
Nonproliferation and Trade,
Committee on Foreign Affairs,
Washington, DC.
The subcommittee met, pursuant to notice, at 1:05 p.m., in
room 2175, Rayburn House Office Building, Hon. Brad Sherman
(chairman of the subcommittee) presiding.
Mr. Sherman. Folks, maybe we could sit down and start the
hearing.
As a preliminary matter, two organizations have requested
inclusion of written statements for the record of this hearing.
They are the National Association of Manufacturers and the
Aerospace Industries Association. Without objection, those
statements will be made part of the record.
I know our witnesses will deliver oral testimony. They are
also invited to present what I expect will be longer written
testimony and to append to their testimony whatever materials
they would like.
With that, I should note that we are the only country that
controls satellite exports as if they were armaments. Critics
of this policy question whether it is an appropriate way to
deal with national security. It is important to remind us of
what I think our witnesses well know, and that is in the 1990s
we experimented briefly with controlling satellites not as
munitions under State Department jurisdiction, but rather as
dual-use items under Commerce Department jurisdiction. Soon
after that change was made, there was a breach of security in
which the Chinese military was provided with sensitive
information after a failed launch of a United States-built
satellite. The response was to reclassify satellites as
munitions.
This is what we tend to do in Congress. When a horse
escapes a barn, after that we close the barn door, and we tend
to close only the barn door that that horse escaped from, not
concerning ourselves with any other barn doors. Keep in mind,
those involved in the 1990s incident provided information
because they had a financial stake in the future success of the
Chinese launch program.
Well, we certainly have not prevented American companies
with any technological knowledge from having such a stake. We
have just prohibited them from having a stake as owners of the
satellite or builders of the satellite. It continues to be
legal for American companies to insure a satellite being
launched on a Chinese-launched vehicle, or sell derivatives
based on the success or failure of the Chinese launch program,
or take any other action that might tempt them to be rooting
for and perhaps adding to the success of the Chinese launch
program.
Most people aware of our restrictions on satellite exports
would assume that it is to protect the content of the
satellite, to prevent people from looking inside the box. There
are ways to prevent countries from looking inside the box
without treating the satellite itself as a munition.
We have in effect an embargo on U.S. satellites, or
satellites containing U.S. components, from being launched with
Chinese rockets because we have a law against the export of
munitions to China. What we ought to have is an overall system
that balances our interests first in protecting our satellite
technology and then in protecting our technology for launch
applications from going to the wrong places.
This can be done in the case of the contents of the
satellite through an appropriate monitoring system, monitoring
until launch. And with regard to the launch technology, we
either have to trust people with a financial interest in the
success of the Chinese launch system not to reveal information
because it is sensitive; and, frankly, the big headlines of the
1990s by themselves may have closed that door. I don't think
anyone in the future could say, ``Oops, I slipped,'' and avoid
prosecution should they repeat pretty much the same fact
pattern we saw in the early nineties.
But we can, if we wish, go to the point of saying no U.S.
company that has any technological capacity, whether it is an
insurance company, whether it is an investment bank selling
derivatives, whether it is a company that has contracted to own
the satellite only after it is launched, whether it is a
communications firm that has a favorable contract to use the
satellite, whatever, that no company can have a stake in the
success of a Chinese launch.
Now, the space industry has made credible arguments that
the International Traffic in Arms Regulations, known as ITAR,
has hurt business and the space industrial base. This claim is
echoed in private at least by the Intelligence Community who
sometimes find it more and more difficult to source satellite-
related equipment domestically.
ITAR has hurt the industry to some degree. Part of the
perceived harm arises from the fact that the use of controlled
American parts or technology in a product means that American
laws follow that entire product. This has hurt second- and
third-tier suppliers.
Europeans and other buyers would just rather avoid U.S.
regulations. They therefore have focused on an ITAR-free
movement. European satellite maker Thales Alenia is now
promoting satellites and satellite components that are ``ITAR
free.'' What does ITAR free mean? It means the product has been
put together, carefully discriminating against U.S. suppliers.
I would wonder whether the United States military should,
except when absolutely necessary, do business with a company
that has announced a policy of discriminating against U.S.
suppliers whenever it can. Perhaps we should discriminate
against that supplier whenever we can. This is especially true
when the discrimination against the U.S. suppliers not only
hurts us economically and violates the spirit of free trade,
but is also specifically designed to thwart U.S. foreign
policy.
Now, at the core of this problem is that the Chinese have
the Long March rocket, not a big winner in terms of
reliability, but a big winner in terms of cost. This Long March
rocket technology is the result of Chinese Government
subsidies, and one clear response for us is to simply subsidize
our own launch capacity, keep those jobs, that technology, and
the national security aspects all in the United States; that is
to say, the national security knowledge in the United States.
So we do have, I think, a need to legislate. One way is to
kick this back to the executive branch and allow satellites to
be on the munitions list or not on the munitions list, subject
to the same administrative process as other similar goods. We
have to remember, though, that the last time this happened we
saw it explode in the headlines. So I look forward to getting
new ideas about how to balance our economic interests in a
thriving economic space industry, with our national security
interest in a way that is logical, that prevents the Chinese
and others from knowing what is inside the satellite, and
prevents U.S. persons from having an incentive to provide
technical knowledge to the Chinese or others who should not
receive it.
Now I want to turn this over for an opening statement to a
gentleman who has demonstrated his patience by watching me go
well over the 5-minute limit, our ranking member, Mr. Royce.
Mr. Royce. Thank you, Mr. Chairman. Thank you also for
calling this hearing today. I think you are continuing the work
on export controls that this subcommittee began in the last
Congress.
This effort, I think we should note, spurred the previous
administration into some reform, but more is needed and I look
forward to exploring how satellite technology might be better
handled.
Many are warning that the U.S. export control system is
broken, that it is a relic from a past economic and business
era. Numerous GAO reports have concluded this. We will hear
today that satellite export controls needlessly target items
that are readily available anyway on the world market, that
they unduly restrict international cooperation, and that they
frustrate access to needed foreign technology.
Several other countries are making impressive technological
breakthroughs. France, for example, Russia, China, and others
have built and they have orbited satellites using their own
launch capabilities. The playing field for this $120-billion-a-
year industry clearly is more crowded and it is more
competitive than it has ever been before, and our export
control system has poorly responded.
The economic impacts of export controls are tough to
measure. The Pentagon, though, has found that satellite export
controls have hurt U.S. aerospace companies, their business,
and long-term ability to innovate in those businesses.
Several factors are at play, but it is fair to ask if
Congress' toughening of satellite licensing 10 years ago has
played a role in reducing American leadership in satellite
communications. Our economic competitiveness is tied to our
national security. Simply put, we will not remain a military
superpower without a world-class technology base, including
satellites.
A top U.S. military official recently testified to Congress
that U.S. export controls are hurting the space industrial
base, threatening national security. His view should carry
considerable weight.
Any system, especially one devised to counter the former
Soviet Union, requires constant reform. No doubt a bureaucratic
culture is a poor match for a world of ever rapidly evolving
technology. The tendency in a bureaucracy is to play it safe,
but bureaucratic safety does not promote national security if
it is stifling innovation.
We will hear about the licensing system's shortcomings,
including delays, redundancies, inconsistencies and static
control lists. Many of these are valid charges. So let's hear
from our witnesses on the reform proposals. But we should keep
in mind that while the growing complexity of satellite
technology and production does complicate regulation,
complexity in and of itself does not argue for liberalization.
China is central to this debate.
As one witness will testify, China's strategic intentions
and proliferation record and the PLA's rapid growth and
potential to improve its missile force through international
cooperation factored into the decision to further restrict
satellite exports. So that witness is right on that point.
Today China's satellites direct a kill weapon, a
sophisticated missile, targeted at our naval fleet.
Unfortunately, our allies are eager, only too eager, to provide
China with advanced satellite technology. My concern is that
the State and Commerce Departments, frankly, are naive about
China.
Misguided faith in the validated end-user program is one
example. Chinese spying is pervasive. We knew that here a year
ago. The whole world knows it today. Chinese spying is
pervasive. Export control reforms should be made with a very
clear-eyed view of Chinese capabilities and intentions.
Mr. Chairman, satellites are essential to our national
defense. So I look forward to working with you, beginning
today, to find the way to control this critical technology that
maximizes our security.
Thank you.
[The prepared statement of Mr. Royce follows:]
[GRAPHIC(S)] [NOT AVAILABLE IN TIFF FORMAT]
[GRAPHIC(S)] [NOT AVAILABLE IN TIFF FORMAT]
Mr. Sherman. Thank you, Mr. Royce, and thank you for
pointing out that this hearing builds on prior hearings and
that those prior hearings, I think, have been successful in
getting the State Department to move more quickly on these
export applications. But I think we have more to do if we are
going to strike the right balance and help our economy.
I want to acknowledge former Senator Warner of Virginia who
is here with us today and thank him for his attendance. We have
a member of the full committee who is not a member of the
subcommittee but, given his interest, probably should be,
completing our full Southern California panel, Dana
Rohrabacher, who I know wants to make a brief opening
statement.
Mr. Rohrabacher. I got that ``brief'' part there.
Mr. Chairman, first of all I am a member of the Foreign
Affairs Committee and have been for 18 years now. But let me
also note that I am a senior member of the Science Committee
and served as chairman of the Space Subcommittee of Science for
8 years, so I know about this issue, I have followed it, I take
it very seriously. So let's be frank. Let's not beat around the
bush about what we are really talking about here.
If you don't want export control reform to focus on China--
if you do want to focus on China, that is fine--but if you
don't want us to focus on China and you want to focus on how we
can reform export controls generally, then take China right off
the table, right off the bat.
So any reform that is going to be really effective and that
we have a chance of succeeding has got to be a two-tiered
approach. It is as simple as that. That has been something that
the industry has been unwilling to accept and to take
seriously. Because what is happening in China and the threat
that China poses is something that we cannot ignore, yet that
should not be the controlling factor of how we regulate high-
tech and especially our policies dealing with satellites and in
our dealings with all the other countries of the world.
Last week the heads of the world's largest satellite
operators said that they want to launch their satellites on
Chinese rockets. They want to do that because it is cheaper. In
fact, every time these satellite operators are given the chance
to discuss ITAR reforms, they always tell us that they want
permission to launch on the Long March rocket. It doesn't take
a rocket scientist to deduce that the leading edge of reform
efforts in terms of ITAR, then, is actually an effort to permit
satellites to be launched on Chinese military rockets.
Is that what the debate is really all about? Because you
can count on me to be working with all of you to try to make
sure that we decrease the regulations on America's ability and
other people's ability to sell our technology to other
countries.
But let's be serious and talk about China. It is somewhat
offensive for me to hear the SES whose holding company, I might
add, is in Luxembourg, or Telsat, a Canadian company, or
Eutelsat, which is French, of course, and then Intelsat, which,
of course, pays its taxes in Bermuda, it is kind of disturbing
to hear all of these people lecture us about how we are trying
to save jobs in the United States by letting foreign companies
take advantage of cut-rate military launches.
First of all, these people aren't concerned about jobs in
the United States. But what about the jobs in the United
States? Don't they count? What about the people who work in our
launch industry? They should be part of the equation when we
are talking about this.
Now, as a Republican and a believer in free markets, I do
not begrudge satellite operators who are making millions of
dollars of profit, I don't begrudge them that profit. But the
fact is that we should not be compromising the security, long-
term security interests of our country for that short-term
profit, and that is why we have to focus on China.
Benjamin Franklin is quoted as saying, ``Sir, please don't
burn down my barn to cook your eggs.'' Well, we have Eutel
Satellite basically asking us to endanger our national security
in order to fatten profits. And Eutelsat, as I say, is making a
profit.
So let's take a look at what policies we should have about
China and let us not forget that the reason why there are the
restrictions on China that we have got is because China remains
a vicious dictatorship. It is the same Chinese regime today
that massacred the reform movement in China at Tiananmen
Square, and that is why these restrictions were put on in the
first place.
So I would suggest that those who are very serious about
trying to make sure that we pay attention to the cumbersome
restrictions that ITAR puts on high-tech companies, I suggest
let's talk about setting up a two-tier system where they are
freed from those restrictions and have a realistic policy
toward China.
Thank you very much, Mr. Chairman.
Mr. Chairman, if I could indulge you, I notice that the
administration is not represented here today, and I have a
series of questions that I would like to submit for the record
that we would like the administration to answer in terms of
this issue.
Mr. Sherman. They will, without objection, be made part of
the record.
Whether those who are not here have an obligation to
answer, I leave to the Parliamentarian, but certainly I would
urge you to send those to the administration in the form of a
letter, and often the administration takes seriously the
obligation to respond to such letters.
We now have been joined by Congressman Connolly of
Virginia, who will not only be making an opening statement now,
but he will be chairing these hearings at 2 o'clock until about
2:15 when I have to go vote in the Financial Services
Committee.
The gentleman from Virginia is recognized.
Mr. Connolly. I thank the distinguished chairman, and thank
you for holding today's hearing. I also want to join in
welcoming my friend, the former senior Senator from Virginia,
John Warner. I am delighted to see Senator Warner here today.
I believe the subject of this hearing highlights once again
the law of unintended consequences. Here we have a case in
which a previous Congress, well-intentioned as it might have
been, imposed tighter export restrictions on the commercial
communications satellite industry in the interests of
protecting national security based on accusations of improper
technology-sharing with China.
I appreciate and support the need to safeguard the
propriety of our military technologies. However, the practical
effect of the International Traffic in Arms Regulations appears
to have been to stifle innovation and America's competitive
edge in the global satellite marketplace.
The U.S. share of worldwide satellite manufacturing revenue
has fallen by one-third since these restrictions became law. A
DoD survey showed the industry attributes more than $.5 billion
in annual lost revenue due to administrative problems and the
changes in regulation. According to the industry, the
technology beaming the deliberations of this legislative body
to television sets back home is now more regulated than those
industries developing new weapons.
During the last decade, competitors in other nations
stepped in to fill the void left by the shrinking U.S.
commercial satellite industry. While their technology may not
be quite on par with American production, it comes with none of
the restrictions in selling to unfriendly nations. So while we
succeeded in preventing American companies from inadvertently
providing technology to China or other restricted nations, we
also helped fuel our global competitors, some of whom do not
share our concerns for supplying unfriendly regimes.
As if this dynamic were not enough to warrant a fresh
review from the new administration, we are now hearing from
leaders within the defense and intelligence agencies who
believe the American satellite industry has been so weakened
that it is now threatening the sustainability of the very
security we are trying to protect.
Mr. Chairman, this is a sobering reminder that good
intentions are not enough. Whether it is the overly rigid
parameters of No Child Left Behind, the lack of regulation for
derivatives and no-fault swaps--which I was just talking about
in the Government Reform and Oversight Committee--or the
oversight of commercial satellites, it seems to me that it is
incumbent upon those of us writing the laws to ensure they are
more than the enshrinement of good intentions. They must be
focused on efficacy.
In this particular case I would say we are overdue for
revisiting this export policy at the start of a new
administration, and our upcoming review of the State Department
budget provides just such an opportunity. I hope today's
hearing will be the start of that important discussion, and I
thank you for holding it.
[The prepared statement of Mr. Connolly follows:]
[GRAPHIC(S)] [NOT AVAILABLE IN TIFF FORMAT]
Mr. Sherman. I thank the gentleman from Virginia.
I am about to recognize our witnesses. I will ask them,
kind of in reference to the comments of Mr. Rohrabacher, if
they can weave into their opening statements whether there is a
way to achieve the jobs objective if we completely shut out
China, but otherwise make changes; and, second, whether we are
talking here not just about opportunities for the companies,
but try to tell us whether we are creating U.S. jobs rather
than just profits for U.S. companies.
Without objection, we will enter into the record the
opening statement submitted by Mr. Manzullo, who is a member of
this subcommittee, and also a copy of today's New York Times
article on the subject of these hearings.
[The prepared statement of Mr. Manzullo follows:]
[GRAPHIC(S)] [NOT AVAILABLE IN TIFF FORMAT]
[GRAPHIC(S)] [NOT AVAILABLE IN TIFF FORMAT]
[The article referred to follows:]Article, New
York Times deg.
[GRAPHIC(S)] [NOT AVAILABLE IN TIFF FORMAT]
[GRAPHIC(S)] [NOT AVAILABLE IN TIFF FORMAT]
[GRAPHIC(S)] [NOT AVAILABLE IN TIFF FORMAT]
[GRAPHIC(S)] [NOT AVAILABLE IN TIFF FORMAT]
Mr. Sherman. With that, let us welcome our first witness,
Pierre Chao, Senior Associate with the International Security
Program of the Center for Strategic and International Studies.
Mr. Chao was a co-chair of the working group on the health of
the U.S. space industrial base and the impact of export
controls.
Mr. Chao.
STATEMENT OF MR. PIERRE CHAO, SENIOR ASSOCIATE, CENTER FOR
STRATEGIC AND INTERNATIONAL STUDIES
Mr. Chao. Mr. Chairman, Mr. Royce, members of the
subcommittee, thank you for inviting me to testify before you.
If I can have my written testimony and a copy of that study
included for the record, I would be grateful.
I was asked to talk about this study that we undertook in
2007-2008. A lot of the conclusions and findings I am hearing
quoted, so from that perspective that is a good thing. At the
time I was a full-time employee of the Center for Strategic
International Studies. I am now a non-resident senior associate
at CSIS.
The study started in response to mounting concerns on the
part of the National Security Space Community about the health
of its industrial base and the rumblings that space-related
export controls were causing problems within the industry. We
put together a working group that we thought was very well
balanced, that represented all the different constituencies,
because there are multiple viewpoints. So we made sure we had
on that working group people from the Defense Department,
people from the State Department, people from large companies
and small companies, people with congressional experience,
people from the new space community.
We were also able to leverage some outstanding data
analysis generated by the Bureau of Industry and Security. It
was a survey done of the industry, the first time anybody had
done it, and the fact that your CEO would go to jail if they
didn't answer it made sure we had a 100 percent response rate.
So we had a lot of good data related to it.
We also approached the problem with a couple of key
principles: First, leadership in space is critically important
to U.S. national security.
Two, there are deep interdependencies between the defense
space, intelligence space, civil space and commercial space
communities. Weakness in one represents a weakness in all,
because we share the same industrial base.
Third, it is important to have a strong industrial base.
Four, a prudent export control policy is important and
necessary.
Finally, we also looked at this whole issue through the
lens of national security. It was very clear in that 1999
legislation, the intent of the Congress was very clear. It said
that national security trumps economics in this case, so
therefore we examined everything from a national security lens
to see are we meeting the goals we wanted.
So what were some of our findings? One, the overall health
of the industry is good. We put quotes around the word ``good''
because there is a certain amount of fragility to it. There is
a lot of capacity, not enough work. And we did recognize some
very noticeable weaknesses in the second and third tier of the
industries, where there is the beginnings of single points of
failure which should be of concern.
Two, the U.S. space industrial base has returned to being
very dependent and tied to the defense market. Where once upon
a time it was more broadly based, now 60 percent of the
revenues are related to defense, 90-95 percent are related to
U.S. Government. We are arsenalizing the industry.
Philosophically you can make a policy decision and say that is
the way I want to do it, but there is a price we have to pay
for that. And we have to be honest about the price in order to
keep it as part of an arsenal, or we let it complete more
broadly in the global marketplace and diversify and broaden its
competitiveness.
Third set of findings. Space capabilities continue to
proliferate globally. Mr. Chairman, you talked about that. And
we are rapidly losing the ability to control that
proliferation. Many of the countries that have gained
capability in space got it from the Russians or others.
So from that perspective, the intent of the Space Export
Control System has not prevented the rise of these other
powers. It may have slowed them down, it may have increased the
cost of achieving those capabilities, but it has certainly not
stopped the arrival of other players.
In fact, in some of the more striking findings they found
that the Export Control Regime had a perverse--to use your
words--a perverse unintended consequence of encouraging others
to develop indigenous capabilities, when they told us they
would have been more than happy to buy American equipment
because it is far better; but because of the friction in the
system, they couldn't rely on American components. So we were
very much struck by that.
Another set of findings related to the fact that the export
control regime makes it very difficult to engage in cooperation
with our close allies, in some cases contrary to what the U.S.
national space policy is, which says to encourage international
cooperation. Again, there is a friction in place.
Then the last set of findings we found is that regardless
of what study you look at--and I don't care which one you
find--the U.S. satellite industry has been losing global market
share over the last couple of years. And in particular, the
biggest burden has landed on the second and third tier of the
industry that don't have the resources of the big guys to wind
their way through the export control system; that really rely
on being able to participate in the global marketplace in order
to generate the profits to invest back in plants and research
and development.
So we came up with a series of recommendations and I would
like to highlight a couple of key ones.
One, it is time for the administration and the Congress to
sort of review and reconcile the strategic intent of these
goals.
Two, take the technologies and identify the components that
you want to restrict for China, or for anybody else, because
that is what we want to get at, rather than putting the entire
satellite on it, which turned out to be an extremely blunt
instrument, because once you put a satellite on the munitions
list, every component down to the simplest bolt becomes a
munition. So let's stop what we want to stop going out, which
is the critical technology componentry, allow the overall
satellite to be moved back, and if someone doesn't want to put
critical technologies on it, they don't have to and they can
sell it, and we are still protecting technology while
generating jobs in the grand scheme of things.
You need an annual review. This committee has talked about
that in prior reform. Why? Because the technology changes quite
a bit.
Finally, there are other amendments or changes that you can
do in terms of time of licenses, et cetera, that you have
referred to, and other reform legislation that you actually--
because you have a piece of legislation related to the space
industry--insert related to this topic.
So, I thank you for allowing me to present our study and
thank you for taking up this very important topic, and I look
forward to your questions.
Mr. Sherman. I thank you for that presentation.
[The prepared statement of Mr. Chao
follows:]Pierre Chao--note: new Word copy submitted
with transcript but compared to original; no change deg.
[GRAPHIC(S)] [NOT AVAILABLE IN TIFF FORMAT]
[GRAPHIC(S)] [NOT AVAILABLE IN TIFF FORMAT]
[GRAPHIC(S)] [NOT AVAILABLE IN TIFF FORMAT]
[GRAPHIC(S)] [NOT AVAILABLE IN TIFF FORMAT]
[GRAPHIC(S)] [NOT AVAILABLE IN TIFF FORMAT]
[GRAPHIC(S)] [NOT AVAILABLE IN TIFF FORMAT]
Mr. Sherman. I would note that the reason Congress put
satellites on the munitions list had, believe it or not,
nothing to do with the component of the satellite and
everything to do with preventing any U.S. entity from having an
interest in the success of the program. So it wouldn't really
matter whether it was great technology or poor technology that
was inside the satellite. If you bought the rationale for the
law we passed in the nineties, you would maintain it.
With that, let us go to Dr. Larry Wortzel, vice chairman of
the U.S.-China Economic and Security Review Commission. He is a
retired U.S. Army colonel with extensive experience in
technological security and counterintelligence. He served two
tours of duty as a military attache at the American Embassy in
China.
STATEMENT OF LARRY M. WORTZEL, PH.D., VICE CHAIRMAN, U.S.-CHINA
ECONOMIC AND SECURITY REVIEW COMMISSION
Mr. Wortzel. Thank you, Mr. Chairman. Chairman Sherman,
Ranking Member Royce, satellites form a really major part of
military command, control, communications, information
gathering and targeting systems or C4ISR systems. And I am
going to draw from some of the conclusions in the annual
reports of the U.S.-China Economic and Security Review
Commission, and I will provide you some of my own views in
discussing how satellite exports bear on the strength of the
Chinese People's Liberation Army, or the PLA.
Now, the Strom Thurmond National Defense Authorization Act
for Fiscal Year 1999 turned control over satellite export
licensing to the State Department under the Arms Export Control
Act. Factors driving Congress to make this change were concerns
about the rapid growth of the PLA, China's strategic
intentions, potential threats to the United States, and the
potential for proliferation of weapons and delivery systems by
China.
Congress also expressed concerns that cooperation with
China in space and missiles could improve accuracy in Chinese
missile programs, assist with the development of multiple
independently targeted reentry vehicles, and assist with the
development of submarine-launched ballistic missiles.
I see no reason to change the decision to have satellite
exports remain on the munitions list. Satellites are now an
integral part of China's military architecture. They are used
to support intelligence collection, control forces, direct
precision missile strikes, and for data transfers that improve
combat effectiveness.
The PLA has research that suggests using ballistic missiles
with maneuvering reentry vehicles to attack U.S. aircraft
carrier battle groups. A sensor architecture based on
satellites would guide such attacks. Right now, the PLA has
only two tracking and data relay satellites in orbit. That is
not enough to give them a real time global intelligence
collection capability, but is it is more than adequate to
support their plans to target American aircraft carrier battle
groups with both hypersonic cruise missiles and those
maneuvering ballistic missile warheads.
Now, given the way that satellite programs are being used
in China, exports of dual-use technologies that would improve
China's remote sensing satellite capabilities still require
careful control. Our Commission's 2006 annual report concluded
that China has recognized the effectiveness of force
multipliers like C4ISR and it is enhancing its own capabilities
to make its military a more formidable fighting force. These
improvements depend directly on satellites.
In 2007, the Commission's annual report concluded that
China has developed an advanced anti-satellite program that
consists of an array of weapons that could destroy or
incapacitate an enemy's satellites.
My own research shows that China's military strategists see
the United States as the most likely potential adversary. A
research paper that I did for the American Enterprise Institute
documents that PLA strategists contemplate maneuvering
satellites in space, among other measures, as a means to
degrade an adversary's C4ISR programs.
Mr. Chairman, I ask that copies of my research be made part
of the record.
Mr. Sherman. Without objection, so ordered.
[The information referred to is not reprinted here but is
available in committee records.]
Mr. Wortzel. Although China has not successfully tested a
submarine-launched ballistic missile, it has fielded two new
ballistic missile submarines. A decade ago the House expressed
concern that satellite cooperation with China could improve its
submarine-launched ballistic missile program.
I also recommend examining more closely how the United
States controls the dual-use satellite-related technology.
China is working with Iran on space and satellite programs,
plus other countries.
Last week, Dr. Eugene Arthurs, who is CEO of the
International Society for Optical Engineering, told our
Commission that technologies used in satellites, such as high-
powered chips that support lasers, can be part of a space-based
weapons system.
I urge you to keep satellite export controls in the
Department of State and also to look into implementing some of
the findings of the ``Beyond Fortress America'' report related
to ensuring that export control processes are more timely,
distinguish among technologies, and that regulations are
updated to account for advances in technology and development.
I would note in response to Mr. Rohrabacher's concerns that
in Fiscal Year 2000, the Congress, despite where satellite
controls were placed, decided they wanted to move forward and
push satellite and space cooperation with Russia, and through
executive decisions were able to do that, regardless of where
the system was administered.
Thank you very much for the opportunity to be here and
testify.
Mr. Sherman. Thank you.
[The prepared statement of Mr. Wortzel
follows:]Larry Wortzel deg.
[GRAPHIC(S)] [NOT AVAILABLE IN TIFF FORMAT]
[GRAPHIC(S)] [NOT AVAILABLE IN TIFF FORMAT]
[GRAPHIC(S)] [NOT AVAILABLE IN TIFF FORMAT]
[GRAPHIC(S)] [NOT AVAILABLE IN TIFF FORMAT]
[GRAPHIC(S)] [NOT AVAILABLE IN TIFF FORMAT]
[GRAPHIC(S)] [NOT AVAILABLE IN TIFF FORMAT]
[GRAPHIC(S)] [NOT AVAILABLE IN TIFF FORMAT]
[GRAPHIC(S)] [NOT AVAILABLE IN TIFF FORMAT]
[GRAPHIC(S)] [NOT AVAILABLE IN TIFF FORMAT]
Mr. Sherman. Our third witness is Ms. Patricia Cooper, the
President of the Satellite Industry Association, a Washington,
DC-based trade association, representing global satellite
operators, service providers, manufacturers and launch service
providers. Ms. Cooper has spent more than 17 years working in
the satellite industry and in government.
Please proceed.
STATEMENT OF MS. PATRICIA COOPER, PRESIDENT, SATELLITE INDUSTRY
ASSOCIATION
Ms. Cooper. Thank you, Mr. Chairman, Mr. Royce, members of
the subcommittee, Mr. Rohrabacher. Thank you for inviting me to
testify today on the critical issue of U.S. satellite export
controls.
As president of the Satellite Industry Association, I speak
here as the unified voice of leading satellite manufacturers,
launch providers, satellite operators and service providers.
While the satellite industry is by no means monolithic, SIA
speaks when the industry has a common view on policy,
regulatory and legislative issues that affect its business. We
hold such a common view on U.S. export policies for satellites
and space-related products.
The commercial satellite industry endorses strong, sensible
and effective export controls which prevent the most advanced
technologies from falling into the hands of our adversaries.
But we believe the time is right for Congress to review its
decision of more than 10 years ago to mandate by legislation
that exports of all satellites and related technologies be
controlled by the State Department and licensed pursuant to
ITAR.
Notwithstanding their original intent, SIA believes that
the current rules governing satellite exports have resulted in
overly broad regulation that disadvantages U.S. spacecraft and
component manufacturers in the global marketplace without
necessarily having accomplished their desired intent. The
broader U.S. space industry has also been impacted, raising
concerns about the health of the underlying space industrial
base that supports the defense, intelligence and civil space
communities.
Satellites are the only commodities included on the U.S.
munitions list by congressional mandate versus regulation. As a
result, the executive branch wields limited discretion
authority over satellite exports. SIA questions fundamentally
whether commercial satellite technology merits this
extraordinary and unique position of legislative oversight
compared with all other sensitive technologies in the USML.
SIA is also concerned about the U.S. satellite
manufacturing sector's ongoing competitiveness. Until recently,
most satellites manufactured anywhere in the world required the
inclusion of U.S. componentry or subsystems regulated under the
ITAR. In other words, virtually all satellites had some measure
of U.S. export control, no matter where they were made, so the
added time, cost and uncertainity stemming from ITAR compliance
fell in some measure on every manufacturer.
This is no longer the case. In the past few years, European
manufacturers have developed the capability to produce the
requisite parts and components for a spacecraft without any
U.S. content. One European manufacturer, as mentioned by the
chairman, Thales Alenia Space, has actually begun to market an
ITAR-free satellite.
Because European countries do not regulate satellites as
munitions as does the United States, these ITAR-free satellites
are traded as commercial dual-use products under far less
stringent export controls. We know of at least six such ITAR-
free satellites sold by Thales to date, initially to Chinese
and Hong Kong customers, and more recently to Indonesian,
Egyptian and European satellite operators.
U.S. export policy now has joined price, quality and
technical capabilities as a factor when customers consider
buying U.S.-made satellites. Whether for real or perceived
reasons, many prospective international satellite customers
maintain the belief that U.S. export controls are
unpredictable, excessively stringent and time-consuming.
As a result, U.S. companies face an added constraint in
winning international business. Our efficiency and
competitiveness directly affects our ability to retain and grow
the quarter of a million high-quality, high-paying satellite
jobs now within the United States.
Addressing this challenge requires action on two fronts.
First, redouble the State Department's ongoing efforts to make
the ITAR licensing process more efficient, timely and
predictable.
Second, SIA encourages Congress to adopt legislation that
would return the authority to set export licensing policy for
satellites to the executive branch where it resides for all
critical technologies on the USML. Restoring executive
authority for satellite export policy will allow for expert
review of individual satellite technologies, ensuring that the
USML focuses exclusively on items that merit control, those
products that are critical to our Nation's security or
competitiveness.
The current satellite chapter remains largely untouched
from 10 years ago, including items that may have been cutting
edge in the late 1990s but today have limited military or
technological sensitivity. Many are now widely available from
non-U.S. sources. Careful review and update of all satellite-
related USML chapters should be an immediate priority.
Finally, SIA believes that the imperative to review and
revise overall United States policy on satellite exports is
distinct from concerns regarding the launch of such technology
on Chinese launch vehicles. Rigorous safeguards govern the
export of any United States spacecraft or related technology
for launch from China.
Since 1999, no communications satellite or related
technologies have been launched on Chinese vehicles, nor have
there been reports of such permissions being sought. We urge
that any consideration of this complex and country-specific
issue not impede Congress from timely action and assessment of
the appropriateness and effectiveness of its blanket mandate to
regulate virtually all satellite technology under the ITAR.
The satellite industry remains committed to U.S. export
policies that safeguard sensitive technology, but we urge
Congress and the administration to consider legislation that
supports U.S. satellite exports and the jobs dependent on them
by enabling the executive branch to determine the appropriate
licensing treatment for exports of U.S. commercial satellites.
It is our belief that the reform of these policies will
result in a healthier satellite sector, reinforcing the
American industrial position in the global marketplace and at
home, and safeguarding both jobs and critical space technology
for the Nation.
On behalf of the members of the Satellite Industry
Association, I again wish to thank you for the opportunity to
testify and look forward to your questions.
[The prepared statement of Ms. Cooper
follows:]Patricia Cooper deg.
[GRAPHIC(S)] [NOT AVAILABLE IN TIFF FORMAT]
[GRAPHIC(S)] [NOT AVAILABLE IN TIFF FORMAT]
[GRAPHIC(S)] [NOT AVAILABLE IN TIFF FORMAT]
[GRAPHIC(S)] [NOT AVAILABLE IN TIFF FORMAT]
[GRAPHIC(S)] [NOT AVAILABLE IN TIFF FORMAT]
[GRAPHIC(S)] [NOT AVAILABLE IN TIFF FORMAT]
[GRAPHIC(S)] [NOT AVAILABLE IN TIFF FORMAT]
[GRAPHIC(S)] [NOT AVAILABLE IN TIFF FORMAT]
[GRAPHIC(S)] [NOT AVAILABLE IN TIFF FORMAT]
Mr. Sherman. Thank you. And if we are going to go forward,
we are probably going to have to have another hearing before we
do legislation where we will have a chance to hear from the
administration, particularly the incredibly qualified,
knowledgeable and gifted Ellen Tauscher, who currently serves
with us but will be the relevant Under Secretary should the
Senate do the logical thing, which they should do quickly, and
that is confirm her.
Ms. Cooper, what if I let Dana write one section of the
bill, because I know what he would write--don't let the Chinese
do anything--and I let you write the rest of the bill. Your
testimony said, well, don't let the ``country specific'' issues
prevent a good general policy. So you get to write the good
general policy, and he gets to write the one policy that says
the Chinese don't get involved.
Does that bill mean more jobs and a stronger satellite
industrial base for the United States, or does letting Dana
write that one section eviscerate the good that the bill would
do?
Ms. Cooper. Mr. Chairman, we believe it will retain U.S.
jobs and potentially add new jobs. The global satellite market
is more than----
Mr. Sherman. So that is even if we exclude China from
everything?
Ms. Cooper. The global satellite market is more than just
China.
Mr. Sherman. So we could have Dana write the stuff on China
and otherwise allow the administration to decide how to treat
satellite and satellite technology, and that would go a long
way toward achieving the job objectives and the industrial base
objectives we are trying to achieve?
Ms. Cooper. I believe that your question about whether that
will aid the industry, yes, I believe it will. There are plenty
of non-U.S. customers that are concerned about the ITAR system
when purchasing components or when considering purchasing an
overall----
Mr. Sherman. And these are customers that are not going to
use China to do the launch?
Ms. Cooper. If it includes United States technology, it
won't be launched on a Chinese vehicle under current law. I
will note that U.S. satellite operators and manufacturers are
disadvantaged when they are constrained from access to the same
launch vehicles their competitors are.
Mr. Sherman. I didn't say you could write the whole law. He
gets one section.
Ms. Cooper. I do think that is an important point. But at
this point, the Satellite Industry Association is not asking
for changes in the Chinese policy.
Mr. Sherman. Okay.
Dr. Wortzel, you spoke about how important it was that
China, and perhaps others, not get an advancement in their
satellite technology. To what extent would we achieve your
purposes if we allowed the launch vehicle, the Chinese launch
vehicles, to be used, but we had, say, a colonel accompany the
satellite, you know, with 10 American armed guards and
whatever, to make sure that nobody looked inside it, and assume
we were effective in telling American companies not to give
launch technology or propulsion technology to the Chinese?
Would that achieve our purposes?
Mr. Wortzel. Thanks for that question, Mr. Chairman. I
think it would achieve part of the purpose. A very good Air
Force colonel who is a friend of mine was actually out there on
both of those launches trying to do that.
I think it is important to realize the Chinese satellite
launchers and Great Wall Industries didn't crack that satellite
open to try to get a look at technology. Now, there are other
concerns about what they might develop in terms of fairings and
warheads. The failure in those two cases, the allegations
against Hughes and Loral, were the failures of two American
engineers. So I think if you strengthen oversight----
Mr. Sherman. So any American engineer going with the
satellite would have to be mute?
Mr. Wortzel. Certainly they would have to be extremely
careful.
Mr. Sherman. Or just don't talk.
Mr. Wortzel. But if you increased the penalties for
unauthorized disclosures of controlled information and really
put a couple of people in jail and fined them, that helps.
Mr. Sherman. It is not so much to increase the penalties.
To say, ``What happened in that case was inadvertence,'' was a
defense. Now, it would be hard just in light of history to use
that defense again. We could go further and say for this
industry, inadvertence is not a defense, at least in dealing
with China.
Mr. Wortzel. Not with the history of what has gone on. But
I think Mr. Chao made one point with four parts in his
testimony, when he talked about looking at satellites in terms
of their defense purposes, their intelligence purposes, their
civil application or their commercial application.
When you begin to look at this, and I really like this
Beyond Fortress America approach to updating and changing how
we handle a broken export control system, but if you look at
those things, you could perhaps begin to parse out technology
in satellites or the uses of satellites that really are
inherently military or intelligence related, and others that
are truly commercial.
Mr. Sherman. Is there any evidence that China or anyone
else has gotten any information about satellite technology, as
opposed to propulsion and launch technology, through any
inadvertence of a United States company?
Mr. Wortzel. The Chinese have stolen such information in
cyber attacks that I frankly don't know what is gone.
Mr. Sherman. Let me refine the question. As a result of
their capacity to launch satellites, have they gotten any
information about what is inside either a European or American
satellite that they weren't supposed to get, and speak only of
what is in the public domain. Don't tell me anything
classified.
Mr. Wortzel. Sir, I know of no instance where they violated
the integrity of a satellite.
Mr. Sherman. I am sure they have plenty of intelligence
operatives trying to hack their way into Ms. Cooper's clients,
scurry around the outside perimeter or sneak inside, but
nothing we do here is going to affect that.
Now, Ms. Cooper, I am told that the economics are usually
that the satellite is very valuable compared to the launch
costs, and yet Newsweek reports that people are willing to pay
a 5 or 10 percent premium for an ITAR-free satellite so they
can use the Long March rocket, which is a 20 percent discount
compared to an American rocket.
I am not a rocket scientist. I am an accountant. You do the
math, and it looks like these companies not only are
undercutting what should be joint Western foreign policy, but
they are costing themselves money; because paying even 5
percent more for the satellite to get a 20 percent discount on
the rocket--in most cases that means you are paying more.
Is the launch vehicle usually only 10 or 20 percent of the
cost of the satellite?
Ms. Cooper. It depends on the kind of satellite. Satellites
are somewhere between $200 million and $500 million, and the
launch in most Western or non-Chinese launch vehicles, as a
ballpark, is around $80 million. The Chinese launch vehicles,
from our understanding, are around $40 million.
Mr. Sherman. So Newsweek may have it wrong, in that the
discount by using the Chinese launch vehicle may be as much as
50 percent as compared to using a Western vehicle.
Mr. Chao or Dr. Wortzel, do you agree generally with those
numbers, that a Western launch vehicle is going to be $80
million, the Chinese about $40 million?
Ms. Cooper. In general, that is what we understand. I will
say----
Mr. Sherman. I am asking the other two witnesses whether
they have an understanding that clashes with that.
Mr. Wortzel. Well, I will tell you, based on what we have
learned at the U.S.-China Economic and Security Review
Commission, I have looked at the subsidized launch services----
Mr. Sherman. I am only looking at this from the standpoint
of the owner of the satellite. They don't really care whether
the Chinese are efficient or subsidized.
Mr. Wortzel. They just want to save money. It makes a lot
of sense.
Mr. Sherman. Right. And I am saying you save about $40
million on the launch when you go from the European or United
States launch vehicle to the Chinese?
Mr. Wortzel. That seems to be true.
Mr. Sherman. And to get it ITAR-free, you are going to be
paying another $20 million for the satellite, at least. So the
savings are slight, but the fear is there that--well, Ms.
Cooper, is an ITAR-free satellite selling at a 5- or 10-percent
premium, or is the ITAR-free satellite the same cost as one
that is not ITAR-free?
Ms. Cooper. We understand the ITAR-free satellites are more
expensive. I think that range is about right.
I would note that cost isn't the only consideration when
choosing a launch vehicle generally. It is also availability of
timing. The schedule to try to get to orbit is pretty
important, and that may be a consideration.
Mr. Sherman. So subsidizing our program might be helpful,
both in terms of providing more launch vehicles and providing a
price that reflects what the Chinese are providing.
At this point, the gentleman from Virginia will chair these
hearings as I go vote in Financial Services, and he will be
recognizing the most senior Republican member in the room. You
can chair it from your own desk. This one has nifty things.
Mr. Connolly. It is too soon, Mr. Chairman.
Mr. Connolly [presiding]. Mr. Rohrabacher.
Mr. Rohrabacher. Thank you very much. I am wondering if
back during the late 1930s we would have decided that it was
really cost effective to contract with the Germans to launch
things into space. After all, Hitler had a V-2 rocket, which
was much more cost effective than what the Allies had or
anybody that was friendly to the United States.
Perhaps we should think of that as a comparison here
because perhaps launching something in and of itself doesn't
mean that Hitler would have received the benefit of what was in
the satellite, and, Colonel, we are not talking about what is
in the satellite. We are talking about the relationship that is
established, will it further the ability of an adversary or
potential enemy of the United States if we enter into that
relationship?
And I don't think anyone here would be advocating that we
start use utilizing the V-2 rocket back in 1939 or 1940. That
would have furthered Hitler's efforts because it would have
enabled Hitler to develop that rocket a lot sooner than he did.
What we do know is that the last time we dealt with the
Chinese, and it was almost deja vu all over again when I heard
the chairman talking about we are going to have armed guards
down there and would this make a difference, and the fact is
that I signed on to permitting American satellites to be
launched on Chinese rockets with that very same guarantee.
And the minute the relationship was established, it was--
all the safeguards disappeared and the relationship that was
established, let us remember this, resulted in what?
The Chinese now, the Long March Rocket Company, by the way,
which is a People's Liberation Army-owned company. So we are
talking about the Army of Communist China, of the regime of
Communist China went from a situation where the Long March
rocket was a relatively ineffective and inefficient because it
would blow up all the time. Nine out of ten flights were--they
couldn't have afford to have satellites being launched on it--
went from being the most undependable to the most dependable
rocket launched, right, under that time we were having our
relationship with them.
It went to the point where a Long March rocket before could
only launch one, in the 1 out of 10 times they were successful,
it had the payload of one, and after our relationship the Long
March miraculously could launch three different payloads.
So it wouldn't--one would conclude from that that we
basically had through our relationship permitted a vicious
dictatorship, which still puts religious people in jail, which
allows no freedom of speech, no opposition parties, and still
considers the United States their most likely enemy, that we
actually, in our relationship, permitted them to MIRV their
rockets from their military rockets and improve their stage
separation, which is what their major problem was, from what I
understand, improve their stage separation to the point that
now they have rockets that succeed in launching rather than
fail.
And I might add, they also have gyroscopes. Just
miraculously, gyroscopes used to be huge things like this, and
now they are on chips and about that big. And, miraculously,
the Chinese rockets have the gyroscopes that were developed by
hundreds of millions of dollars of research in the United
States.
So we aren't just looking about, talking about whether we
have, when we are letting the Chinese enter into this
relationship. I am just talking about what they will get by
opening up a satellite, because that is not the worry. But the
relationship will increase the potential of a country, which is
the world's worst human rights abuser, who looks at us as their
most likely potential enemy. And until that changes, we should
have them regulated on a different level than we are regulating
how we deal in the relationships that we establish with Brazil
or England or Italy or any of these other countries like that.
Now, Ms. Cooper, I was very happy to hear that the
satellite industry has recognized that, yes, it would be a good
thing to reform our system even if it did leave out China,
because the rest of the reform package would actually be
beneficial as well.
So am I correct in assuming that we can all work together
now and try to find out what that area of reform is, because I
will let everybody on notice, if we are going to loosen the
controls on this vicious dictatorship and our relationship
there, I will fight that, and I will make sure that people--and
there is a lot of people will agree with that.
However, if we can agree on the rest of the world and make
things better for it, maybe we should do that.
Mr. Connolly. The gentleman's time has expired. If the
panel wants to briefly respond.
Ms. Cooper. Yes, Mr. Rohrabacher, although I have mentioned
that satellite manufacturers and operators are disadvantaged
when they don't have access to the same resources that their
competitors do, we recognize that policy with regards to China
includes a different level of complexity, a different set of
stakeholders, a different set of allies, a different set of
considerations.
As a result, the Satellite Industry Association is not now
seeking change to those unique prohibitions and restrictions on
United States satellite technology being launch from China.
In fact, I would note again the study that Mr. Chao
described that seems to indicate that our export rules are
actually encouraging the development of comparable technology
from European manufacturers, which can then be launched from
Chinese vehicles without the controls comparable to U.S. ITAR
controls.
Thank you.
Mr. Wortzel. Mr. Rohrabacher, I would go a little further
than you. I think you have to look at the fact that the chief
of China's strategic rocket forces, who also is responsible for
some of these satellite launch missiles, has twice visited
Brazil and Argentina on space cooperative programs.
So you really have to be careful about what you loosen and
who is cooperating with whom in space.
I am going to reinforce one of your points by noting that
the House Select Committee on U.S. National Security and
Military/Commercial Concerns with the People's Republic of
China expressed concerns a decade ago that China could improve
its submarine-launched ballistic missile program.
Mr. Rohrabacher. Correct.
Mr. Wortzel. They just put a new submarine base in Hainan
Island, building two new ballistic missile submarines. But they
don't yet have a missile they can launch from it, so we really
don't want to do anything to help them along with that either.
Mr. Connolly. Mr. Chao, briefly.
Mr. Chao. Yes, I want to tease out a thing that you
mentioned that is very important in what you said to the extent
of identifying who, because in many ways I think that is at the
basis of what real export control reform can be about today. We
obsess and focus on the what, when in the reality, the decision
in the end is about the who. And because we focus on the what
versus the who, we are treating good allies and friends like
the U.K. And Australia exactly the same way we are treating the
Chinese, and that is where all the friction is showing up in
the system. If you sort of reverse the lens and focused more on
who, I would suspect you would get--you would find a lot more
flexibility and movement and loosening of the friction in the
system, because it is meaningless to obsess about whether the
Brits are getting bolts for an airplane.
On the other hand, I want to pay close attention to certain
satellite technology or semiconductor technologies or biotech
technologies in terms of who they are flowing to.
Mr. Connolly. Thank you. Let me ask the panel, in 1997,
U.S. companies controlled 65.1 percent of the world satellite
manufacturing market. By 2007 that was down to 41.4 percent. To
what do you attribute the decline?
Ms. Cooper. Some of the decline was for Chinese customers
that United States companies could no longer seek, and I think
some of the additional changes in the demographics, the market
share for U.S. manufacturers, does deg. have to do
with the additional restraints placed on ITAR. I would note,
however, that the market share for U.S. companies, U.S.
satellite manufacturers, has remained very stable at about 40
percent now.
We will be very interested to see statistics in the next
year or so when the contrast is between U.S. ITAR-regulated
satellites and European non-ITAR-regulated satellites. That
contrast hasn't been as clear or apparent in years previous to
the development of an ITAR-free satellite.
Mr. Chao. In our study we tried to unpack that data and get
behind it. There is a clear drop that you can see when you draw
the line. There are lots of factors in it and so people will
just push back and just say you can't blame export controls,
and that is a true statement. The European industry has been
rising at the same time.
But if we didn't find the smoking gun, we at least got a
whiff of gunpowder, is the way I put it, to the extent that in
specific cases you saw customers saying that I will not buy
from America now because of the ITAR. And it is not really the
issue of getting to the technology--in some ways, one of the
answers to Chairman Sherman's question about why would you
take--pay 5 percent more, a lot of it has to do with the timing
and the uncertainty related to the launch.
There is all the lost revenues that if you are late by 60,
90, 180 days that they just cannot stand. And there is that
economic component that is fed into it that I think has
contributed to that market share loss, much to the frustration
of the American industry that provides a fine product. They are
just looking for that predictability and visibility that is
lacking.
Mr. Wortzel. Mr. Chairman, my understanding is that there
has been, not related to China or these export control
restrictions, such a decline in the American space launch
industry that today we don't make our own rocket motors. I
mean, we are using Russian rocket motors.
So I think the source of those differences and the data may
have a lot more to do with the way the technology and the
industry globalized than on export controls.
If you can't make a rocket motor, you are not going to have
much of an independent industry.
Mr. Connolly. One of the things that you both were talking
about was maybe you could, you know, return to some more
sensible kind of export control that would strip out the ITAR-
related things or the things that we now do not consider
sensitive that maybe were considered sensitive, as you
mentioned, Ms. Cooper, in 1999 but no longer are, and
commercialize that and sell it.
The question, I guess, for you is twofold, one is there
really such a bright line that we can recognize strictly
commercial uses versus something else; and what about the whole
issue of dual technology, dual-use technology? Because I would
assume with sophisticated technology, that line gets blurred
more often than not.
Mr. Chao. I think you have hit on the key point, from--and,
again, same thing with Mr. Rohrabacher. If you are watching
everything, you are watching nothing, right, and so the issue
becomes prioritization of resources, technology, et cetera, et
cetera.
We believe there are clear bright lines, and in some of the
initial work that we did you can find them, the bolts, the
commonly available, you know, solar panels, the tubing, the
coolant systems that are commonly available. There is a clear
line.
There is a very clear line on the other side of some very
sensitive things you absolutely do not want anybody to get,
even our closest friends, that you would not.
But by doing that, what it would leave is the resources of
the export control system to then focus on the difficult
questions, and that is where you want to be putting your brain
power and all the intellectual capital rather than trying to
track everything.
So we think you can--what you want to do is get the common
stuff off, the bright line, never ship it away, and then let's
spend our time figuring out the really hard parts.
Ms. Cooper. I would concur with that. I believe that the
current legislative mandate doesn't give the executive branch
the permission or the sense of permission to do that
evaluation. And I expect that the experts in the Department of
Defense, the Intelligence Community, civil space and the State
Department and Commerce Department can come up with a very
clear list of those that should be in and those that ought not
to be in, and there may be a gray area in between that would
merit discussion.
But the current legislative mandate of one-size-fits-all
simply doesn't permit that differentiation.
I would just note that I, too, like the conclusions within
the Fortress America report, and would echo the phrase brought
out by my colleague, Dr. Wortzel, saying distinguish among
technologies. As Mr. Chao said, what?
Mr. Connolly. Dr. Wortzel, and then my time has expired,
Mr. Chairman.
Mr. Wortzel. Sir, I think you can distinguish among some of
the technologies, but I just can't overemphasize the fact that
whether you control it on a munitions list or on a commodities
control list, the export control system is bureaucratic, and
they really make that case very well in this report, that it is
broken.
You have engineers that have never seen a production line
trying to make decisions off a list about what the state of
global production on a technology is. You have government
bureaucrats who mean very well, good counterintelligence guys,
that say we are just not going to do this, that don't know
what's available. So that you really have to look at
improving--government, industry panels that can develop an
appellate process, that can do it rapidly, and that can really
review what is cutting edge technology that matters and what
you can buy at Ace Hardware.
Mr. Sherman [presiding]. The time of the gentleman has
expired.
We will now recognize the gentleman from California.
Mr. Royce. Thank you, Mr. Chairman.
I was going to ask does the State Department regulate and
monitor the use or follow the content of ITAR-licensed
satellites. Do they monitor that? Do you think it is monitored?
Mr. Wortzel. Yes, I believe that they do look at the
content of the satellites, and I think that they do that in
coordination with the Department of Defense and the
intelligence communities, sir.
Mr. Royce. And that is regulated by them.
Mr. Wortzel. They must do that because the satellites are
on the munitions list. They are ITAR controlled.
Mr. Royce. Okay. Because one of the questions that one of
my staff members had was, was it possible to prevent the
military, the Chinese military, from utilizing the services of
ITAR-licensed satellites operated by foreign companies?
Mr. Chao. If it has a U.S. component--one of the other
things that the legislation did and that the regulation has
done, you are--if you are going to go oversees you are required
to actually pay to have somebody follow that satellite along
with it.
Mr. Royce. Pardon?
Mr. Chao. You are actually required to pay somebody to kind
of monitor and follow along that satellite as a satellite as a
service provider in order to safeguard it.
Mr. Royce. I see. Well, let me ask Ms. Cooper a question.
You advocate that we redouble our ongoing efforts to make
the licensing program, the ITAR licensing program, more
efficient and predictable and timely. And I was wondering what
grades you would give the reform efforts made by the late Bush
administration in this.
Ms. Cooper. My members tell me that the licensing time has
improved and that their efforts more recently to improve the
process have borne fruit. I would note that the kinds of
licenses that satellite manufacturers require for trade are
more complex. So they take a little bit longer than some of the
other kinds of export licenses that may not be program licenses
but specific product exchanges.
I think there is probably more streamlining that can be
done for those many licenses that an individual satellite
program requires, as many as six licenses for the transfer of
one spacecraft.
Mr. Royce. Are you suggesting in your testimony here that
the commercial availability of satellite components from non-
U.S. sources is not considered in current reviews of the
munitions list? Give me your view of what is going wrong there
and pull microphone closer to you, if you will.
Ms. Cooper. I don't believe foreign availability is a
consideration at all.
Mr. Royce. Pardon.
Ms. Cooper. I don't believe foreign availability is a
consideration in the current U.S. munitions list.
Mr. Sherman. Excuse me, let me interrupt for a second. I am
going to leave because we have one vote, I will be back.
Diane Watson will chair the hearing as long as she is in
the room. When she is out of the room, the hearing is adjourned
until such time I am back.
Mr. Royce. Let me ask you then, what is your position on
doing business with China? In other words, what does the
industry desire, really, is the question here, and how do you
view China's strategic objectives as they pertain to satellite
technology?
Ms. Cooper. The satellite manufacturers, operators, and
launch providers, haven't done business with China since 1998.
So I don't know what their intentions are to resume that
activity. What we have had is internal discussions of great
vibrancy with respect to our current request, and our current
request is that no change be instituted for the current
prohibitions.
I do think that the competitiveness of satellite
manufacturers and operators is affected when there is a
considerable difference in their availability of resources like
launch vehicles, but we are not asking for changes now.
Mr. Royce. What is the relevance, in your view, if any, to
China's anti-satellite efforts to your policy recommendations?
Is that why the recommendation is no change, or give me your
view. Please pull that microphone closer. The acoustics in here
for me are not very good and I can't hear you.
Ms. Cooper. Okay. The ASAT test has not been a
consideration in that factor, except to add to the conclusion
that any attempt to create a coalition of interests to change
Chinese launch policy would be a different track of policy and
requests, completely different ball of wax.
And so the ASAT test certainly changes the environmental
level of concern, but we feel that the changes that we are
asking for here have an immediacy to them. And we don't see any
change in China policy, anything near and immediate timeframe.
Mr. Royce. Thank you, Ms. Cooper.
My time has expired, Chairwoman.
Ms. Watson [presiding]. Yes. I am going to ask one
question, and then we are going to recess for the chair to come
back, so that we can all go and vote.
I will address this to Ms. Cooper. What measures has the
Defense Department taken to effectively monitor and prevent
unlicensed technology from occurring in the investigation of
satellite launch failures?
Ms. Cooper. For every U.S. satellite that is launched on a
non-U.S. launch, non-NATO vehicle, DoD monitors are required.
And as Mr. Chao mentioned, they are paid for by the satellite
operator. So that is a part of the activity understood in every
non-U.S. launch.
Ms. Watson. Great. I will have other questions, but we will
wait until after the recess. And I would suggest that we will
probably be back around 3 o'clock if the audience and if the
witnesses can wait. Yes, maybe quicker than that. We just have
one vote on the floor.
Thank you very much. We will go into recess now.
[Recess.]
Mr. Sherman [presiding]. We will reconvene the hearing. I
will try to drag out my questioning for this second round long
enough for my colleagues to return. If they don't return, then
we will gavel the hearing down.
Ms. Cooper, these ITAR-free satellites, are they
exclusively using the Long March rocket or are there people
bothering to buy ITAR free and then launching them on American
or French or Russian rockets?
Ms. Cooper. To date, all but one of the ITAR-free
satellites that we are aware of have all been either launched
on the Chinese Long March vehicle or are slated to be launched
on that vehicle, yes.
Mr. Sherman. Do the current rules imposing ITAR prevent
somebody from buying a satellite made in the United States and
launching on a Russian vehicle? If it is classified as a
munition, does that mean it can't go to Moscow?
Ms. Cooper. It is not prohibited from being launched on a
Russian vehicle, no.
Mr. Sherman. Dr. Wortzel, I see you are--how do our laws
with regard to satellites today, listing them as munitions,
what is the practical effect with regard to launching in
Russia?
Mr. Wortzel. That is really part of the regulation and not
the legislation, as I understand it, and it is the way the
regulation is administered by the Department of State and the
Department of Defense and, in fact, as I mentioned earlier,
sir, it was the Fiscal Year 2000 Defense Authorization Act that
specifically encouraged work with Russia on satellites and the
space program. So that was one of the points I tried to make.
Mr. Sherman. And so we don't have a blanket prohibition on
selling munitions to Russia; we do have such a blanket
prohibition on the transfer of munitions in general?
Mr. Wortzel. That is correct. That is because of the
Tiananmen sanctions, post-1989 Tiananmen sanctions.
But the President has waived those in a couple of cases,
and we sold munitions list items to China prior to the Olympics
and during the Olympics.
Mr. Sherman. Let me take a moment to announce that we will
leave the record open for 10 days to accommodate all members
who wish to make submissions and, likewise, those of our
witnesses that wish to make submissions.
Now, this is really a debate over which of two agencies is
going to be handling things. As Dr. Wortzel points out, you can
go to State and get a license to export a munition to China,
and that could very well be a satellite.
The average, and perhaps to some degree as a result of the
hearings in this subcommittee, the average processing time for
a license of a Category 15 item, which includes satellites, has
gone down from 76 days to 23 days.
Ms. Cooper, what is 23 days among friends? Why not just
keep the law the way it is and, if somebody wants an ITAR-laden
satellite to go up on a Chinese rocket, apply for a license?
Ms. Cooper. Well, let me make----
Mr. Sherman. Which I assume would be conditioned on that
mythical colonel that I talked to Dr. Wortzel about
accompanying the satellite. But I am sure you are willing to do
that.
Ms. Cooper. First is perhaps a nuanced clarification, which
is that a launch of United States technology from China is not
actually prohibited.
Mr. Sherman. Yes.
Ms. Cooper. There are requirements that are effectively
prohibitive, a process that is complicated and a high enough
level of complexity that no one has sought it since they have
been imposed. There is not actually a prohibition, to be clear.
And the difference is, perhaps, not 23 days, the difference
is, for technical assistance agreements and the kinds of
authorizations that typically are required for satellite
programs, they do take quite a lot longer.
Mr. Sherman. Why would there need to be technical
assistance to the Chinese just if they are launching the
rocket?
Ms. Cooper. This has nothing to do with China. This is just
the routine authorizations that are required to export
satellite information, marketing data, eventually the design
and materials, to describe it to a customer, the actual export
of a satellite upon launch, if it is being launched from a non-
U.S. location.
Mr. Sherman. So one alternative here is not changing the
law but asking the new under secretary to come in here and
expressing our view that she ought to take what is it, a 17-
step program, and turn it into a 7-step program.
I will ask, first, Mr. Chao, then Dr. Wortzel. If we left
the law the same and redid that 17-step program to something
more practical, could we do something that was both feasible
for the industry and would protect international security? Mr.
Chao.
Mr. Chao. There is yet another subtlety, which is more than
just, you know, the differences between two organizations. It
is two entirely different regimes.
The mere fact that under the ITAR, the instant you declare
something a munition, anything that touches it or is a
component of it also is a munition while on the commerce sort
of dual-use side; you have the ability to designate different
gradations.
Therefore, a chip of certain technology, of teraFLOPs or a
solar panel of certain power can be restricted, while others
are deemed to be commercial.
You have none of that flexibility on the munitions side. So
once designated a munition, it is a munition.
Mr. Sherman. But if we have got this 17-step process which
is burdensome, if we left the law the same and had you and Ms.
Cooper change the 17 steps down to 7 steps, could we achieve
both our national security objectives and our commercial
objectives?
Mr. Chao. If somebody believed you could do that and get it
down to--and the key thing is not the day; 23 days versus 90 or
whatever, is not the real trigger. The trigger is, how does
that compare to a business cycle? So if a request for proposal
has to be answered in 15 days, it doesn't matter if I have got
23 days. I now, under that level, in terms of how rapidly the
export control system responds--if you can get it down to a
reasonable date and with certainty and visibility, the three
things that the industry asks for, people wouldn't be
complaining.
Mr. Sherman. Dr. Wortzel, what if I let you withdraw the 17
steps, would we achieve our objective?
Mr. Wortzel. You must address the complexity of the
approval process for licensing. But to be completely candid, I
am not certain that if you went in for a commodity control
list, dual-use license, and you move satellites there, it would
go that much faster.
I mean, because of the embedded technologies and the use of
the satellite. That is why these distinctions between defense
and technology----
Mr. Sherman. Well, I mean there are two aspects as to
whether it is State or Commerce that is going to control. One
is, and I wouldn't have even thought of this until it happened,
the U.S. company has an incentive to get the rocket off the pad
and that might cause them to slip and provide information.
What most of your testimony is focused on is the technology
inside the satellite. And we have had our mythical colonel. Why
wouldn't Commerce just look at it and say we don't care what is
inside the satellite, because the Chinese are never going to
see what's inside the satellite?
Does that--and then you tell me why we can't let China know
what is inside the satellite. If we have got a colonel with the
satellite, then why doesn't that make State or Commerce or
Congress feel secure?
Mr. Wortzel. Well, I think Mr. Rohrabacher effectively made
that case when he went through the fact that the variability
and the technical assistance provided to China so it could
release two or three satellites in space, move them forward on
multiple independent re-entry vehicles, they don't use farings,
and this comes from a Cox Commission report on their Long March
launch vehicles, but Cox Commission was concerned that they
would learn how to use farings more are effectively.
Mr. Sherman. Farings?
Mr. Wortzel. Farings are things you put over the nose of a
missile, and that is why they can't master a submarine launched
ballistic missile, because they still haven't mastered the
farings that go over it. Mr. Rohrabacher expressed those
concerns properly.
Mr. Sherman. Your answer is noted. Let's say, Ms. Cooper,
your industry was told if you are going to launch on a Chinese
rocket, you can tell the Chinese how much it weighs, you can
send them a clay mockup if they care to know what shape it is,
and aside from that you cannot talk to them, except about
price, date of launch. But you can't tell them that more of the
weight is in the left part of the satellite or the right part
of the satellite, looked at a particular view. And, more
importantly, you can't talk to them about what kind of faring
you are going to have, anything else.
In effect, you just don't let American engineers talk to
the Chinese. You just let accountants talk to the Chinese.
Trust me, they could torture me. They wouldn't learn anything
about their rocket program.
So what if we had a rule that only accountants could talk
to the Chinese? Would that impair the ability of this tenuous
partnership between the United States satellite maker and a
Chinese launch to be effective, or do you have to have the
engineers talk to each other for this to work?
Ms. Cooper. I don't know.
Mr. Sherman. That is a good answer.
Ms. Cooper. The hypothetical sounds good.
Mr. Sherman. Dr. Wortzel, we are asking if you might know.
If we just had a rule that only accountants who know nothing
about rocketry are allowed to talk to the Chinese and, you
know, accountants can talk about, well, when are you going to
put it up.
Mr. Wortzel. You can never find an insurer to underwrite
that satellite launch if you didn't allow some kind of
technical data exchange.
Mr. Sherman. So there has to be technical data exchange for
it to work?
Mr. Wortzel. I believe so. I am not a rocket scientist,
didn't sleep in a Holiday Inn Express, but I am pretty sure, I
am pretty sure there has got to be technical data exchanged.
Mr. Chao. Can I deconstruct the question?
Mr. Sherman. Yes, Mr. Chao, I don't know if you are a
rocket scientist either.
Mr. Chao. I went to MIT, but I wasn't a rocket scientist.
There are two sets of the industry, I think, that we care
about, the satellite manufacturers and most of the questions
you have been asking about relate to the sale of satellites.
But there is an entire other constituency, which is the
manufacturer of the parts, that all of the work around and the
things we are talking about in relation to China and how to
accommodate those concerns is, once again, as long as we are
using the blunt instrument of the ITAR controlling act, does
nothing for those--the parts components guys who are just as
interested in selling their parts into an American satellite as
they are into a European satellite being sold back to an
American, which today they cannot do. Or, they can, but they
find it----
Mr. Sherman. I think you are a little off my question. The
question is, it doesn't matter whether the whole satellite is
made in the United States or whether a component is made in the
United States. Under the regime I was putting forward, nobody
on the Western side of the transaction could talk in
``engineering talk'' to anybody on the Chinese side of the
transaction.
The purpose, from a national security perspective, is to
prevent the Chinese from learning anything about rocketry. The
impediment is that, therefore, those engineers involved with
the satellite on the Western side couldn't share the useful
information.
If that happened, do you have any insight as to whether
that would be practical?
Mr. Chao. I think Dr. Wortzel is right. No insurance
company would insure that satellite launch.
Mr. Sherman. Okay. So as a practical matter.
Mr. Chao. Practical matter.
Mr. Sherman. We want to prevent anybody who knows more
about rocket science than the Chinese do from talking to the
Chinese, and this system is designed to prevent not only
American companies but any European company that is dependent
upon American parts from talking rocket science to the Chinese.
What is interesting is that we have this giant hole, and
that is we are doing nothing to discourage insurance companies
from talking to the Chinese, and the insurance company--I mean,
I could think that sometimes, just maybe, somebody who owns the
satellite is hoping it blows up on the pad, providing the
insurance company is not AIG.
But the insurance company is always rooting for the
satellite to make it into space. And do the insurance companies
know enough about rocketry to be dangerous to our national
security?
Mr. Chao.
Mr. Chao. They--so, again, this is where your point about
the financial interests comes into play. And part of the issue
back in 1999, my understanding, was partly driven by the
insurance company saying you better have those guys figure out
what's going on, because I don't want to blow up--I don't want
to pay----
Mr. Sherman. So the insurance companies may not understand
engineering, and they may not know anything about rocketry, but
they do know what I have just learned here, and that is the
engineers at the satellite company need to talk to the
engineers at the launch company for the launch to be
successful. And once you have engineers talking to each other,
somebody may slip and reveal some engineering information we
don't want revealed.
Dr. Wortzel, I don't know if you had a--you look like you
have an additional comment. I don't know if you do.
Mr. Wortzel. Well, in the Hughes and Loral cases,
apparently the Chinese technicians just weren't getting it. You
know, these were not Americans that were out to do harm to the
United States.
Mr. Sherman. Yes.
Mr. Wortzel. They just realized that this wasn't going to
work unless they told them how to solve a couple of problems.
And that is, again, where Mr. Rohrabacher's problems come.
Mr. Sherman. The natural tendency is for people to root for
their partners and try to be helpful to their partners.
And if you are in--if American companies are in partnership
with China to launch vehicles, it is against human nature--it
is usually successful; 99 times out of 100 the Loral engineer
doesn't reveal any information, but it is against human nature
to say don't help your partner.
Mr. Chao. Your point about barn doors being closed, that
issue was very specifically addressed in the legislation in
terms of--it is called anomaly resolution, right, where it
requires all kinds of additional licensing in order to do that.
The unintended consequence of the licensing related to
anomaly resolution, and the NASA Administrator testified to
this, is on normal, cooperative, Western cooperative civilian
satellites, it becomes so hard to do an anomaly resolution
amongst friends that, again, they are afraid of putting our
components on board scientific missions for a risk that I can't
get a license fast enough if the satellite is about to tumble
out of the sky, where I need an answer in 3 hours, I actually
have to go through a licensing process to be able to talk to
somebody about that.
So it is another case where, once again, we are trying to
stop something, we have caused some unintended consequences in
other places.
Ms. Cooper. If I could.
Mr. Sherman. Yes.
Ms. Cooper. I think Mr. Chao's comment is well founded. If
you look at the percentage of Chinese launches compared to the
overall number of orbital launches from last year, the Chinese
launched 11 and there were 69 orbital missions last year.
There are a number of other commercial transactions and
launch considerations that we are not focusing on here because
we are spending our time talking about China. Not to say we
shouldn't be evaluating that, but I think there is a larger
impact.
Mr. Sherman. Okay, we talked about a bill that you and Dana
would write. I know what is going to be in his part. Dealing
with the non-China universe, what should be the description and
then how do you make sure that any knowledge that we impart to
the French doesn't then go to China?
Ms. Cooper. First, we would return export licensing
authority to the executive branch. We would encourage----
Mr. Sherman. You mean to Commerce. It is in the executive
branch.
Ms. Cooper. The State Department and Defense Department do
not believe that they have got the authority to evaluate the
U.S. munitions list.
Mr. Sherman. Well, yes. In other words, return the
authority to determine which satellites and satellite
components are munitions and which are not.
Ms. Cooper. Correct.
Mr. Sherman. To the executive branch.
Mr. Sherman. Go ahead.
Ms. Cooper. Remove the block.
Mr. Sherman. Right.
Ms. Cooper. Request an immediate and thorough technical
view of the products that are in the U.S. munitions list that
you can focus the controls on those products that are actually
technologically sensitive.
It is not clear at this point. We haven't done that review.
Whether there are technologies that would allow us to have a
non-ITAR satellite, I don't know because we haven't done that
review.
But the products that have no military or technological
sensitivity should be export licensed by Commerce.
Mr. Sherman. If the satellites launched in the 1990s by the
Chinese actually were just pure junk, it wouldn't have
mattered. It is not what was inside the box.
So to say that a widget that is used on a satellite should
be in one list, but a super widget should be on another list,
makes sense if you think the Chinese are going to look in the
box and see how the super widget was made.
Ms. Cooper. But it has an economic impact on the overall
trade, the component manufacturers, subsystems manufacturers
and the practical licensing requirements for prime
manufacturers and launch providers, operators are all subject
to. It narrows the focus to those products that we care about.
Mr. Sherman. Now, let's say you are a U.S. satellite
manufacturer. Does this ITAR rule prevent you from offshoring
the creation of one of the components? Let's say you are a U.S.
satellite manufacturer, you already booked space on a U.S.
rocket. In the past you have done everything in the United
States and so you are not importing or exporting anything.
And now, all of a sudden, somebody comes to you and says,
you know, there is a European company that can make the widget
for it. Does our law have the unintended benefit of making it--
or detriment, depending upon your point of view, from being
able to import this--this United States satellite maker to
import the widget from France or Britain or China or whatever?
Ms. Cooper. I think United States manufacturers do import
certain components from European suppliers.
Mr. Sherman. And the fact that we call it a munition, does
that mean that we in any way restrict imports in a way that we
couldn't if it was a dual-use item.
Mr. Chao. It does. There are a couple of anecdotal
evidences where there was a particular technology developed by
Europeans, who would not give it to us for fear that once they
gave it to us it would then become ITAR controlled and they
couldn't get it back out again.
Mr. Sherman. So this was a case where they had an item for
a satellite, they wanted to send it to the United States for
integration or processing, and then send it back to Europe?
Mr. Chao. Right. And the instant that it touched our shores
on our satellite, and so they said, whoops, no, we would rather
not sell it to you.
Mr. Sherman. I mean, the point of my question is, to what
extent does our current morass of regulations actually protect
U.S. jobs from outsourcing?
Dr. Wortzel, can you, do you see a circumstance in which
this U.S. satellite manufacturer would just as soon not import
one of the components?
Mr. Wortzel. Well, in my view, what has happened to
American manufacturing and industry in general makes your case,
that if you can get it cheaper by offshoring it, and there is
no policy support for maintaining an industrial base of that
type in the United States, they are going to buy it cheaper.
Mr. Sherman. Yes. But what I am asking is, do our
regulations add a lot of red tape to the effort to import a
satellite component from abroad?
Mr. Wortzel. I do not know the answer to that, sir.
Mr. Chao. It does. And in our study, we are also able to
get and quantify the burden on the second and third tier in
order to work your way through the system, costs them about $60
million as a whole. It costs them 2 or 3 percentage points of
profit, which they could have used to hire other people.
Mr. Sherman. Yes. I mean, my question is, are we protecting
American jobs with these regulations by discouraging American
companies from importing components?
Mr. Chao. Not as much as we are damaging them in terms of
exporting, so it is a net loss.
Ms. Cooper. I would agree.
Mr. Sherman. But it is a netting. We lose these exports,
but we prevent certain imports?
Ms. Cooper. I would just like to address the outsourcing
issue. I agree with my colleagues that the ITAR regulatory
regime has actually encouraged manufacturing capability to be
developed offshore.
So, in your terms----
Mr. Sherman. I am aware that these regulations cause a
commercial problem. I am trying to see whether there is a----
Ms. Cooper. But I think those jobs have moved, some jobs
have moved offshore, not because they are cheaper but because
they evade regulation.
And I think we need to be realistic that not all jobs make
sense to be outsourced. In this world, where the technology is
highly complex, and can't be retrieved or repaired once it is
launched 22,000 miles off of the Earth's surface, there is a
great deal of caution and conservatism about the sourcing of
your componentry. This is not a technology where people take a
lot of risks on suppliers.
So the flexibility to move jobs over--up to unknown
supplier sources with limited initial experience is a high
barrier, in my estimation.
Mr. Sherman. Okay. Drawing to a close here, Dr. Wortzel,
let's say we go with this bill, Ms. Cooper writes all the
provisions, Rohrabacher writes the anti-China provision.
Do you see a threat to national security to letting some
imports and exports and launches from Russia, France, et
cetera?
Mr. Wortzel. I think you have to be very careful, as you
draw up such a bill, to look at the multilateral and bilateral
space and satellite cooperation programs that China has, in
some cases, with our allies.
So if your goal is to sort of cordon off China, then you
have to ask, well, what are they doing with Brazil, Argentina,
France, and how does that affect the way you have written the
legislation?
Mr. Sherman. Would you be focused on rocket technology or
satellite component technology?
Mr. Wortzel. I would focus on rocket technology and the
launch aspects of it because, again, they haven't cracked
satellites.
Mr. Rohrabacher took me to task for that statement.
Mr. Sherman. They haven't what?
Mr. Wortzel. They haven't cracked open a satellite to steal
the technology in it.
Mr. Sherman. Okay. But if we are cooperating with Brazil or
France in manufacturing satellites, then the Brazilians and the
French are going to learn something, and you don't have to
crack open a satellite, you just crack open a Frenchman or a
Brazilian.
Mr. Wortzel. That is right. And I think there is always the
danger that some of that information, if they are in a separate
bilateral program with China, is going to get there.
The question is, what is the risk to the national security
if that happens?
Mr. Sherman. So, certainly, any legislation, if it grants
to the executive branch this kind of authority, has got to
require a review of what technology is going to go to our ally
and what controls that ally has to make sure the technology
doesn't go anywhere else.
Mr. Wortzel. Yes, sir, and we regularly license
technologies to allies and place restrictions on the reexports
of data and information.
So, usually, they are pretty good about it.
Mr. Sherman. What about Russia? Does Russia already know as
much about rocketry as they are likely to discover by launching
American satellites?
Mr. Wortzel. My sense from the Fiscal Year 2000 Defense
Authorization Act, where we encouraged all the space
cooperation with Russia, is it is not just that--they are
pretty well advanced, so there is not much to worry about.
But both of us have enough nuclear warheads aimed at each
other that it doesn't make a material difference in the
national security----
Mr. Sherman. So Russia might learn something, but it
doesn't make them materially any more of a menace?
Mr. Wortzel. You are going to get 2,000 warheads one way or
the other.
Mr. Sherman. Mr. Chao. Any comment on that?
Mr. Chao. No. In all the industries, you know, the space
industry has been one of the few that they have been investing
in. And in some cases, because they invested in it, it actually
turns out they have the world-class technology, you know, much
to our chagrin, frankly. Motors, for example, is a good
example.
Mr. Sherman. Ms. Cooper, is there any way to provide tax
incentives or subsidies to the launch industry, which is a
segment of your organization, to get all the--you know, the
jobs and all the national security advantages of beating the
Long March?
Ms. Cooper. I think we would be interested in working with
you on ways to courage U.S. launch capabilities. There are new
entrants to the U.S. launch industry, and I think there is a
great deal of work we can do to try to encourage domestic
launch capabilities and capacity.
Mr. Sherman. Well, one approach is tax credits for those
who use it. Another approach is to say that those in that
particular industry don't have to pay payroll taxes, if the
U.S. taxpayer would do that for them.
One approach is just direct subsidy, and a final approach
that I can think of is that the U.S. Government act as the
launcher, albeit contracting with U.S. companies to make the
rocket.
I hope you pursue those, but I would hope you would also
come up with some other ideas.
It is nice to hear that, yes, there are things that we
could do. So, you are brilliant, figure them out, bring them
back.
Mr. Chao. Subsidized or paid for insurance, too, would----
Mr. Sherman. Yes. Another way to do that is either to pay
for insurance or act as the guarantor, free insurance.
So, I mean obviously, if we get--if the best way to put
something in space is to have the Americans put it in space for
you, we have solved most of these problems.
I think at this point we stand adjourned.
[Whereupon, at 3:05 p.m., the subcommittee was adjourned.]
A P P E N D I X
----------
Material Submitted for the Hearing RecordNotice deg.
[GRAPHIC(S)] [NOT AVAILABLE IN TIFF FORMAT]
Minutes deg.
[GRAPHIC(S)] [NOT AVAILABLE IN TIFF FORMAT]
Statement of Frank Vargo, National
Assoc. of Manufacturers deg.___
[GRAPHIC(S)] [NOT AVAILABLE IN TIFF FORMAT]
[GRAPHIC(S)] [NOT AVAILABLE IN TIFF FORMAT]
[GRAPHIC(S)] [NOT AVAILABLE IN TIFF FORMAT]
[GRAPHIC(S)] [NOT AVAILABLE IN TIFF FORMAT]
Letter and statement from AIA deg.__
[GRAPHIC(S)] [NOT AVAILABLE IN TIFF FORMAT]
[GRAPHIC(S)] [NOT AVAILABLE IN TIFF FORMAT]
[GRAPHIC(S)] [NOT AVAILABLE IN TIFF FORMAT]
|
NEWSLETTER
|
|
Join the GlobalSecurity.org mailing list
|
|
|
