The Myth of “ITAR-Free”

A launch March 2F during launch
Source: Pixabay
While the United States has historically been both the world leader in space and the leading advocate for free markets and free trade, it has also been one of the only countries in the world to restrict exports of commercial satellites on the basis of arms control.1 Beginning in 1976, the United States has generally regulated commercial satellites as a defense article and, for 34 out of the last 44 years, controlled exports through the United States Department of State’s International Traffic in Arms Regulations (ITAR) on the United States Munitions List (USML). However, during the other ten years, between 1996 and 1998 and from 2014 to the present, commercial satellites have been regulated by the United States Department of Commerce’s Export Administration Regulations (EAR) as a dual-use item on the Commerce Control List (CCL).2 According to both industry leaders and government officials, these regulatory changes have had significant impacts on the global satellite industry.

This paper explores the emergence of ITAR-free satellites in the early 2000’s and evaluates the impacts of ITAR regulations on American satellite manufacturers. Though ITAR-free satellites have become a common example of the unintended consequences of national security regulations, their impact is often overstated. This analysis examines why ITAR-free satellites are such a common refrain, offers alternative explanations for the decision to loosen export controls for commercial satellites in 2014, and makes policy recommendations for a more global approach to studying export regulations moving forward.


While export regulations rarely keep up with the pace of innovation in the space industry, export regulations of commercial satellites have undergone several major shifts. The first change to satellite export controls occurred in 1984, when President Ronald Reagan permitted United States satellite companies to launch on European rockets. Soon after in 1988, legislation was passed to allow for Chinese launches. These restrictions were significantly tightened in 1990 when the United States approved the Tiananmen Square Sanctions Law, which prohibited U.S. built satellites from being launched on Chinese launch vehicles. As a result, every subsequent launch required a presidential waiver stating the launch was in the “national interest of the United States” and satellites were protected by armed guards up until launch.4 In total, China launched nine satellites which were ITAR controlled before the United States officially loosened regulations and transferred commercial satellites to EAR and the Department of Commerce in 1996. Though a presidential waiver was still required for Chinese launches, this removal from ITAR reduced the regulatory burden for satellite manufacturers, made it easier to work with foreign nationals, and marked the first major regulatory shift for commercial satellites.5

Shortly after the regulation change in 1996, the China Great Wall Industry Corporation (CGWIC) suffered a launch vehicle failure while carrying the Intelsat 708 satellite. This was a landmark event for commercial satellite regulations and space relations between the United States and China. The satellite had been manufactured by the American company Space Systems Loral for the American satellite operator Intelsat. Following the launch failure, the insurance brokerage firm J&H Marsh & McLennan required that CGWIC report on the cause of the failure before they would insure any future launches. Only a year before, CGWIC had suffered another launch vehicle failure for the American satellite operator Hughes, which had also been insured by Marsh. CGWIC proceeded by creating an Independent Review Committee and invited participants from Loral, Intelsat, Hughes, Daimler-Benz Aerospace, and retired experts from General Dynamics and British Aerospace. A notable absence from the list: U.S. government officials.6

Under EAR regulations, companies do not require additional licenses for foreign nationals to work on the exported hardware or to exchange information after receiving the initial export license.7 While these companies therefore did not need approval to exchange information for the satellite, data related to the launch vehicle was not covered by the license. After allegedly helping CGQIC determine the cause of both launch failures in separate investigations, Hughes and Loral were heavily fined. Although the violations were primarily related to the launch vehicle and concerns that the information exchanged was inadvertently helping China’s ballistic missile program, several Congressional officials attributed the relaxed export controls for satellites as the cause for the breach.8 The investigation over this incident was later included in the “Cox Report” a major U.S. government investigation at the time that outlined a number of incidents where sensitive technologies had been stolen or illegally transferred to the Chinese government. In 1998, Congress then passed the Strom Thurmond National Defense Authorization Act which returned commercial satellites to ITAR.9 For another 15 years, commercial satellites then remained under ITAR control. The narrative that government overregulation was producing harmful and unintended consequences for the satellite industry first emerged in this period and began the momentum for “ITAR-free” satellites.

The Cost of ITAR

During those 15 years, several government agencies and industry associations analyzed and reported on the negative impact of ITAR regulations. One of the most notable of these reports was published in 2007 and led by the Air Force Research Laboratory with support from the Department of Commerce’s Bureau of Industry and Security. The focus of the assessment was on global marketplace competitiveness, the health of the United States space industry, and the United States export control process. Data from the report was based on a survey of 274 space companies and 202 respondents. The study concluded that ITAR was having a significant impact on United States competitiveness as companies reported that $2.35 billion of foreign sales, which equaled around 1 percent of total U.S. space revenue and 17 percent of U.S. foreign sales at the time, had been lost between 2003 to 2006 due to ITAR license processing problems such as license rejections or restrictions.10 The conclusion of the report stated, “ITAR has either directly or indirectly precipitated the global competition and is a significant impediment to the United States space industry’s ability to market to foreign buyers.”11

There were two primary data points cited in this study to illustrate ITAR’s connection to increased competition in the space industry and more specifically satellite manufacturing. The first was the decline in United States global market share. Between 1996 and 1998, United States companies controlled 63 percent of the global market in satellite manufacturing, whereas from 2002 to 2005, the number had shrunk to 41 percent.13 Based on this decline, the report stated, “ITAR has impacted United States competitiveness by encouraging other nations, in many cases our allies, to develop indigenous space capabilities and industries that now market globally.”14 This spoke to the second, and more politically prominent argument, which was the emergence of ITAR-free satellites. Marketed first in 2002 by the French company Alcatel Space and then by Thales Alenia Space, ITAR-free satellites became not only a marketing tool for European companies, but also a common refrain by industry leaders and government officials in the United States advocating for ITAR reform.

In 2014, the Department of Commerce’s Bureau of Industry and Security published a follow up study based on a survey of over 3,000 companies, of whom 995 were exporters, and focused on the years between 2009 and 2012 (see Figure 1). The study repeated many of the same findings from the previous report and estimated that between $988 million and $2 billion of foreign sales had been lost due to export controls.16 Of those interviewed, 223 respondents stated that United States export regulations had incentivized foreign companies to offer ITAR-free products.

Figure 1: Impacts of U.S. Export Regulations on Space-Related Products and Services

Impact % of Respondents # of Respondents
Avoided the export of space-related products or services subject to ITAR-related controls 25.7% 336
Incentivized non-U.S. organizations to “design-out” or avoid buying U.S. origin space-related products or services 22.5% 257
Incentivized non-U.S. organizations to offer “ITAR-free” space-related products or services 19.7% 223
Avoided the export of space-related products or services subject to EAR–related controls 15.0% 201
Altered space-related R&D expenditures 10.1% 116
Caused the abandonment or alteration of space-related business lines 8.3% 100
Caused the relocation of space-related production/R&D facilities outside the United States due to regulatory burdens 1.9% 23

In August 2009, the Export Control Reform (ECR) initiative began. First sponsored by Secretary of Defense Robert Gates and later incorporated into President Obama’s 2010 National Export Initiative, the ECR reexamined the designation of thousands of dual-use technologies.17 Through these reforms, policymakers were able to successfully lobby for a reversal of the ITAR designation and commercial satellites were once again transferred from ITAR to EAR in the National Defense Authorization Act for Fiscal Year 2013, which took effect in November 2014.18

Hindsight in 2020

While the existing narrative suggests that ITAR-free satellites were a clear reason why reform was needed, a closer examination reveals five main reasons why the ITAR-free example may not be as compelling as policymakers originally believed. The first problem with previous studies is their use of United States market share as the main statistic for measuring the success of ITAR-free satellites. Notably, government reports and academic papers which cite these statistics almost always stop at the year 2008. In the 2014 study for instance, it restated the findings of the 2007 report and compared U.S. market share in 1996-1998 to 2002-2006 rather than include more recent data. What this ignores is that by 2009, five years before the regulatory shift occurred, United States market share was already returning to pre-1999 levels (see Figure 2). In 2013, while stillunder ITAR control, U.S. market share had jumped to 69 percent, higher than ever before. While it is possible that United States market share could have been even higher had ITAR restrictions been removed, looking at market share alone would not tell the same story if these studies had expanded their timeline.

This bar chart shows the percentage of global market share in commercial satellite manufacturing for the US and non-US countries from 1996 to 2018. (ITAR satellite regulation
Source: Satellite Industry Association
Note: Satellite manufacturing revenues only available after 1996 and are recorded in the year the launch was conducted

The second problem with this argument is the frequent comparisons made to pre-1999 in the first place. It’s important to recall that pre-1999, there were only three years since 1976 that commercial satellites had not been controlled by ITAR. As a result, the era of “pre-1999” still primarily consisted of commercial satellites being regulated by ITAR. In addition, satellite manufacturing revenues are always recorded in the year a launch was conducted.19 When revenue is displayed for 2013 for instance, that is actually for satellites that may have been purchased in 2007. Satellite development to launch lead times are often a minimum of three years and sometimes much longer. As a result, many of the statistics which analyze the effects of ITAR and compare to the years between 1996 and 1998 are actually referencing satellites which were originally purchased in the early 1990’s while under ITAR control. Revenue from the first ITAR-free satellite for example was not recorded until the first launch of an Alcatel satellite on a Chinese launch vehicle on April 12, 2005.20

Third, these studies rarely report on the state of the satellite industry when comparing across time periods. A prime example is the early 2000’s, when U.S. market share declined by the largest amount. This was immediately after the regulatory change to ITAR, and therefore a common example of how U.S. market share had been affected by the decision. By leaving out the state of the satellite industry, however, ignores the context of the dot-com bubble burst and the 2001 recession. During this time, several U.S. space companies including Iridium and Globalstar went into bankruptcy, Teledesic cancelled their plans for a large constellation of satellites, and in only two years half a million people in the telecommunications industry in the United States lost their jobs.21 This was a key contributor to the drop in U.S. market share, but was rarely included in studies that examined the impact of export regulations.

Fourth, by the time the regulatory decision was made in 2014 to remove commercial satellites from ITAR, there were almost no ITAR-free satellites being sold. In 2005, Thales Alenia Space bought out Alcatel and by 2013, the company had already scrapped their entire fleet of ITAR-free satellites.22 After an investigation by the State Department, it was also discovered that the Thales Spacebus 4000 satellite, the most profitable ITAR-free satellite, had never been ITAR-free. Several American companies which were suppliers to Thales had simply neglected to get an export control license, such as New York based supplier Aeroflex, and were later fined following the investigation.23

…”by the time the regulatory decision was made in 2014 to remove commercial satellites from ITAR, there were almost no ITAR-free satellites being sold”

Fifth, it was inevitable that the commercial satellite market was going to expand beyond just the United States and Russia. While it may be easy to argue that the decision to make exports stricter sped up that process, it doesn’t thoroughly explain why Europe didn’t invest more in the 1980’s and early 1990’s when ITAR controls were first in place. By the early 2000’s, Europe and China had both advanced their space capabilities and had numerous incentives to do so, such as: national security considerations, technological spillover effects, and employment benefits to the economy.24 In 2000, China first launched BeiDou-1, a test satellite designed as an alternative to Global Positioning System (GPS). Similarly, in 2002, Europe launched their first two Galileo test satellites.25 These tests demonstrated that both Europe and China were furthering their own domestic space industries and competing with the United States irrespective of U.S. export controls.

If ITAR-free was not having a significant impact, it’s important to then briefly examine some of the other motivations for the 2014 regulatory decision. While some Congressional staff members have stated that ITAR-free was the most compelling argument for export reform, there are many other logical reasons why officials in the Department of Commerce, State, and Defense all supported this regulatory change.26

Sequestration & The New Space Era

The first motivation for the regulatory shift in 2014 was the need to support the commercial market while government investments were in decline. The political support that existed following the aftermath of the 2008 Financial Crisis also helps explain why this shift occurred during the Obama rather than Bush administration. In 2013, when sequestration was in full effect across the government, the Department of Defense (DoD) experienced a 37-billion-dollar budget cut.27 This resulted in a 62 percent cut to the DoD’s space budget. While the space budget for defense in 2014 was lower than it had ever been since 1982, commercial satellite revenues were at an all-time high.

In fact, during both spans when commercial satellite regulations were loosened between 1996 to 1999 and 2014 to the present, government investments were experiencing sharp declines while the number of commercial satellites being launched were experiencing record highs (see Figure 3).

This bar chart shows the number of commercial satellites launched by US government space budgets and satellite revenue from 1978 to 2018. (ITAR satellite regulation)
Sources: Aeronautics and Space Report of the President; Satellite Industry Association; Spacecraft Encyclopedia; UCS Satellite Database.
Note: Classified budgets not included; COMSAT revenues only available after 1996

The spikes in the number of commercial satellites launched during this period were primarily driven by large constellations. Between 1997 and 1999, American satellite operator Iridium launched 88 satellites as a part of their first constellation (of the 21 launches in total, 7 were on Chinese launch vehicles).28 In the “new space” era today, these numbers are dramatically increasing. There are now 16 companies internationally with plans to deploy up to 20,000 satellites in the next decade. For a sense of scale, there are currently around 2,200 satellites in operation, many of which have been functioning for 15 years.29 Even though ITAR-free satellites may not have had a strong impact, ITAR regulations and the costs from license processing do limit the commercial market. Based on these findings, the government’s declining investments and the simultaneous expansion of the commercial market therefore offer one alternative explanation for the government’s motivation to ease ITAR regulatory burdens. One of the biggest reasons why this decision was made possible, however, is the same reason why the change hasn’t had a significant impact: China.

China: The Unexpected Hero for Export Reform

During the beginning of the ECR initiative in 2010, Mike Gold, then vice president of D.C. operations at Bigelow Aerospace, noted “[p]olitically, what’s hiding in the background is China… I think you have to completely take China off the table.”31 This was exactly what then occurred. In 1996, when commercial satellites were removed from the USML, they were no longer defined as a defense article and were therefore no longer subject to the same restrictions from the U.S. arms embargo on China. This time, Congress did things differently.

While commercial satellites were officially removed from the USML and transferred to the CCL, the Bureau of Industry and Security created new categories within the CCL known as the “ECCN 500 Series” (Export Control Classification Number) and placed them under the categories referred to as “9×515.” For technologies within the 500 Series, they would still be subject to the rules set out in ITAR § 126.1 which prohibits sales to China, as well as the additional countries listed in Country Group D:5 who are under an arms embargo.32 To summarize what may seem like jargon, even though commercial satellites and satellite components were removed from ITAR, they could still not be sold to China. As a result, the majority of customers who only wanted ITAR-free satellites in order to sell them in China still faced the same obstacle.

In 2016, after the completion of the ECR, Assistant Secretary of Commerce Kevin Wolf confirmed how important this subject was to Congress during the ECR negotiations. Speaking during a panel discussion he remarked, “One of the legal conditions was that, whatever you do in reducing the licensing requirement, the embargo on China and a handful of other countries remains the same. That is, no United States-origin content, regardless of significance, regardless of whether it’s incorporated into a foreign-made item, can go to China or one of the other countries of concern.”33 Congressional Representative Frank Wolf, author of the Wolf Amendment in 2011, which to a great extent has limited NASA’s ability to work with China, also played a key role in ensuring an embargo would remain in place with respect to any regulatory change.34

“…civil space programs are often viewed as a unique opportunity for nations to work together. Yet, export regulations in the space industry often present a different, albeit unromantic picture where cooperation takes the back seat to national security.”

There are many critics of the lack of cooperation between the United States and China in civil space. As a sector heralded for its ability to produce diplomacy between the United States and the Soviet Union during the Cold War, civil space programs are often viewed as a unique opportunity for nations to work together. Yet, export regulations in the space industry often present a different, albeit unromantic picture where cooperation takes the back seat to national security. By prohibiting American satellite manufacturers from doing business with China, the risks of loosening export regulations were dramatically lowered. This, in turn with the decline in military budgets and a booming commercial space sector, provided the opportunity to shift commercial satellite regulations from ITAR to EAR. While ITAR-free satellites in Europe provided a politically popular rallying cry for export reform, the unexpected hero may have been maintaining protectionism against China.

Moving Forward

It is time to move on from the narrative that ITAR-free satellites were pushing the United States out of the global commercial satellite market. The temporary decline in U.S. market share and survey results which showed that American companies were unhappy with the regulations ignores several other developments. In particular, the resurgence of U.S. market share even when commercial satellites were controlled by ITAR, the decline in ITAR-free products prior to 2014, the economic context of the space industry, and the technological progress of worldwide competitors. In addition, six years after commercial satellites were removed from ITAR in 2014, American space companies still cannot do business in China, which was the primary market for ITAR-free satellites.

Based on the findings of this brief, the policy recommendation for moving forward is to increase the amount of research being done on global competition prior to making regulatory changes. One place to start for further research is how much of a difference these regulations have had on slowing down China’s pace of development. Given China’s rapid advances in the space industry, American satellite manufacturers may be losing access to the Chinese market unnecessarily. If the United States were to eliminate the exclusion of China, however, it would have a very different impact in 2020 than it did in the 1990’s, when China’s space program was still in its infancy. As a result, a more thorough evaluation of global competition in the commercial space market is needed to better prepare lawmakers and the satellite industry for the anticipated impact of regulatory changes.

To carry out this research, the new Office of Space Commerce, established in 2018, may be the right government office to take on this responsibility. In the 2007 and 2014 global competitiveness reports published by the Bureau of Industry and Security and the Air Force, global competition was evaluated by examining market share, payloads launched, and surveys of United States companies. While this is valuable information, especially for surveying the attitudes of the private sector, this did not sufficiently inform lawmakers of what the effects would be if the United States lowered its regulatory barriers. With a small budget and staff, Congress would need to allocate additional funding for this research to be possible. As the Office of Space Commerce intends to be a “one-stop-shop” for space in the Department of Commerce and be elevated to a Bureau, however, this new responsibility would a valuable contribution.35 Aerospace

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