• Export Control Reform: A Test Case
  • February 18, 2013
  • Law Firm: Fragomen, Del Rey, Bernsen & Loewy, LLP - San Francisco Office
  • Last month I attended the Information Systems Technical Advisory Committee (ISTAC) meeting in San Diego. ISTAC consists of representatives from the computer, electronics, and telecommunications industry who, among other things, advise the Department of Commerce on the Export Administration Regulations (EAR) Commerce Control List (CCL) and, in particular, Categories 3 (Electronics), 4 (Computers), 5 Part I (Telecommunications) and 5 Part II (Information Security).

    During the public session, one presenter discussed views on how commercial satellite components should be regulated under the EAR. I’ve written about this issue in a blog before and am encouraged that, after a decade of debate and an estimated $21 billion in lost revenue for U.S. manufacturers, Congress has given the authority to the President to remove commercial communication satellites and components from the ITAR’s U.S. Munitions List.

    Now the question is how export controls will be applied to commercial satellite components - especially integrated circuits -- under the new rules. It’s imperative that the new rules be objective, consistent, and avoid, to the extent possible, “space qualified” or “specially designed” terminology that may lead to varying degrees of government interpretation. When a concern about the functionality of a particular part is raised by the government, controls must be established based on technical parameters. CCL Category 3 is a good example of such controls.

    Otherwise, the rules may be inconsistently applied, resulting in over-control and an imbalanced playing field both domestically and internationally. The best example is past history. Manufacturers of satellites and their components have for too long been subjected to inexplicable inconsistencies. Peregrine Semiconductor, a maker of satellite components, offered compelling evidence at the San Diego meeting of how these inconsistencies have hurt business. In a nutshell, the chipmaker explained that its sales for certain specialized semiconductor devices for use in commercial satellites have been substantially complicated and affected because the State Department determined, via a Commodity Jurisdiction ruling, that a commercial dye in a commercial ceramic package is subject to the USML Category XV as an item specifically designed for satellites. European satellite manufacturers, which make up most of the market, prefer to buy from companies not subject to the stringent U.S. export rules out of fear that the U.S. government may step in and halt a project or delay an upcoming launch. This fear, whether real or imagined, has influenced purchasing decisions for the past 14 years.

    Lest anyone think this issue is specific to Peregrine only, think again. Peregrine’s story is but one of many demonstrating the curious nature of government interpretations. These interpretations are costly and, in some cases, devastating for companies trying to compete with foreign producers - especially those in the EU -- who are not regulated in the same manner.

    Those of us who live and breathe all things related to export control are watching closely to see how the government decides to regulate satellites and their components. As part of the Obama Administration’s push for greater export control reform, plenty more technologies and industries subject to the ITAR are next in line for regulatory review. The satellite industry is one test case for what’s likely to follow-and another opportunity to advocate significant, fair, and meaningful change.