Export controls and the space sector
Export controls are a set of laws and procedures that regulate, and sometimes deny, the transfer of military and dual-use items (goods, services, and technologies) to foreign entities. The US government imposes certain restrictions and licensing requirements on such transfers to ensure that exports of certain items, including software and technical data, are consistent with its foreign and defense policies and international obligations. Dual-use items are goods and technologies that may have both civilian and military applications.
Most space products, technologies, and services are considered either military or dual-use items. Sometimes, it is not immediately obvious that an item has military applications. For example, at one point the Playstation gaming console was considered dual-use technology. As a result, a space company might not even be aware that its product, technology, or service are considered dual-use and therefore regulated as if they are military items. Space companies should therefore carefully evaluate the potential alternative applications of their products and technologies. In addition, the destination, end-user, and end-use are also critical and must be well verified. Moreover, export controls impose restrictions and require prior permission on the hiring of employees and contractors that are not US citizens or holders of a green card.
A deviation from the export control rules exposes a company and its managers to punitive measures – up to 1 million $ in fines and 10 years in prison per violation (and one transaction may constitute more than one violation), even if it was innocent, a result of the managers not being aware to these obligations. It is therefore imperative that a space company ensures its conformity with the export control rules, to prevent controlled items from falling into the wrong hands and to avoid the consequences of violation of those rules. This is a preventable risk that every company needs to identify and guards against.
Multilateral and US export controls regimes
At the international level, there are several multilateral regimes limiting the proliferation, use, and even possession of certain weapons and technologies. These include; the Treaty on the Non-proliferation of Nuclear Weapons aimed at preventing the spread of nuclear weapons and technology; the Chemical Weapons Convention and the Biological and Toxin Weapons Convention that prohibits the development, production, stockpiling, and use of chemical weapons and bacteriological (biological) and toxin weapons and mandates their destruction; the Wassenaar Arrangement limiting the export of conventional arms and dual-use goods and technologies; and the Missile Technology Control Regime (MTCR) aimed at limiting the proliferation of missiles and missile technology. The MTCR also applies to rocket launchers, used to launch satellites and place them in orbit, as they are essentially missiles. The US participates in multilateral export control regimes and there are federal rules that implement those regimes. Yet, the various US export control mechanisms are much stricter than the multilateral regimes and it is these mechanisms that US companies are directly bound by.
There are no less than five export control mechanisms within the US, enforced by different federal agencies and a single item may fall under one or more of them. The most important export control mechanisms in the US are the International Traffic in Arms Regulations (ITAR) that include the implementation of the MTCR, and the Export Administration Regulations (EAR). These regulations contain an extensive list of restricted items. ITAR are enforced by a division of the State Department, while the EAR are enforced by a division of the Department of Commerce. The third major mechanism is the economic and trade sanctions enforced by the Department of Treasury.
Do you need a permit or license?
Export authorization includes determination of jurisdiction, item classification, license determination, and customer screening process. When determining which Agency can exercise jurisdiction over the transaction, the first step is to review the US Munition List (USML), which includes for example all rocket launchers, even small ones, and the Commerce Control List (CCL), which includes for example all satellites. Items that fall under the USML must be licensed according to ITAR while items that fall under the CCL may require a license according to the EAR, depending on the destination, end-user and end-use. License requests go through a rigorous review process, including review by other interested U.S. government agencies, such as NASA, the Department of Defense, the intelligence community, the State Department, and the Department of Energy.
In addition to the above processes, space companies must examine the Treasury Department’s list of embargos and sanctions to ensure that their customer and destination are not on the list. Space companies should therefore adopt a rigorous know-your-customer (KYC) policy and be able to identify red flags such as orders for items that are inconsistent with the customer’s needs or a customer declining installation/testing when it is normally provided by the seller. The Consolidated Screening List is a great tool for background checks on clients. These are the main mechanisms relevant to space startups. Another important mechanism relates to nuclear energy, which may not be relevant to most space startups.
Confused? You are not alone. A 2009 review of the US export control system ordered by President Obama concluded that the system is overly complicated and recommended a reform including the creation of a Single Licensing Agency (SLA). An interagency working group established in 2016 initiated the Single Trade Application and Reporting System (STARS). However, the single agency was never established, and the STARS initiative is mainly a website that links back to the different Departments that each continue to administer the rules separately as before.
Obtaining a permit or license
The State Department’s Directorate Defense Trade Controls (DDTC) and the Department of Commerce’s Bureau of Industry and Security (BIS) have programs to help determine the appropriate jurisdiction and classify an item. A company may use the commodity jurisdiction procedure and the BIS’s self-classification system to verify if an item falls under the Munition List or the CCL, respectively.
While information and tools are available even online, compliance with the export control rules could be complicated and time-consuming, and rather expensive. Large companies and research institutions have special departments to oversee export control compliance. Startups often lack the resources to maintain a similar in-house compliance team and are therefore at risk. Bright Lights USA, a small New Jersey company, was fined US$ 400,000 after the company, without a license, sent some drawings of minor spare parts like rubber stoppers and seal assemblies to foreign suppliers it wanted them to produce, unaware that the disclosure of those drawings violated ITAR. Darling Industries of Tucson, Arizona was charged with violation of ITAR on the basis that it did not appoint a qualified Empowered Official to oversee ITAR obligations, relied on staff’s persona knowledge or customer’s information, and that supplied a Canadian aerospace company with products, technical data, and services without obtaining a license.
However, a startup usually has a limited number of products and it exports to a limited number of foreign end-users. This limited international exposure simplifies compliance tasks, and a startup therefore may not need a dedicated compliance team. Instead, it is imperative for entrepreneurs to be aware of the compliance obligations and know which export control compliance obligations may be triggered in the course of their business development. A startup may choose to designate a staff person to undergo proper training and create a scalable compliance program that grows with the company. It may also choose
to hire a lawyer to support an in-house compliance person or to handle the compliance process altogether.
Raising awareness
Compliance with US export control rules is important for national security as well as for preventing punitive sanctions that may even lead to termination of business. While large companies have an export controls department, space startups with no legal advisers versed with the five different mechanisms are at risk of violating the rules. If you have any international element in your space startups, you should educate yourself and your senior management, contact the relevant agencies, or seek the advice of a professional.
