United States General Accounting Office

GAO Testimony

Before the Committee on Commerce, Science, and

Transportation, U.S. Senate

Release on Delivery

Expected at

9:30 a.m., EDT

Wednesday,

September 17, 1998

EXPORT CONTROLS

Change in Licensing

Jurisdiction for Commercial

Communications Satellites

Statement of Katherine V. Schinasi, Associate Director,

Defense Acquisitions Issues, National Security and

International Affairs Division

GAO/T-NSIAD-98-222

Mr. Chairman and Members of the Committee:

I am pleased to be here today to discuss the evolution of export controls

on commercial communications satellites. The allegation that a major U.S.

satellite manufacturer provided China with sensitive technologies that may

have applicability to its missile programs has highlighted how the United

States controls the export of such technology and how this policy has

changed in recent years.

My testimony today is based on our January 1997 report, prepared at the

request of the Chairman, House National Security Committee, on the

military sensitivity of commercial communications satellites and the

implications of the 1996 change in export licensing jurisdiction.1

 I will

discuss (1) key elements in the export control systems of the Departments

of Commerce and State, (2) how export controls for commercial satellites

have evolved over the years, (3) the concerns and issues debated over the

transfer of commercial communications satellites to the export licensing

jurisdiction of the Department of Commerce, and (4) the safeguards that

may be applied to commercial satellite exports. Lastly, I will share some

observations on the current export control system.

Summary The U.S. export control system—comprised of both the Commerce and

State systems—is about managing risk. Exports to some countries involve

less risk than to other countries and exports of some items involve less

risk than others. The planning of a satellite launch with technical

discussions and exchanges of information taking place over several years

involves risk no matter which agency is the licensing authority. Recently,

events have focused concern on the appropriateness of Commerce

jurisdiction over communication satellites. This is a difficult judgment. By

design, Commerce’s system gives greater weight to economic and

commercial concerns, implicitly accepting greater security risks. And by

design, State’s system gives primacy to national security and foreign policy

concerns, lessening—but not eliminating—the risk of damage to U.S.

national security interests.

Background The U.S. export control system for items with military applications is

divided into two regimes. State licenses munitions items, which are

designed, developed, configured, adapted, or modified for military

1

Export Controls: Change in Export Licensing Jurisdiction for Two Sensitive Dual-Use Items

(GAO/NSIAD-97-24, Jan. 14, 1997).

Page 1 GAO/T-NSIAD-98-222
applications, and Commerce licenses most dual-use items, which are items

that have both commercial and military applications. Although the

Commerce licensing system is the primary vehicle to control dual-use

items, some dual-use items—those of such military sensitivity that

stronger control is merited—are controlled under the State system.

Commercial communications satellites are intended to facilitate civil

communication functions through various media, such as voice, data, and

video, but they often carry military data as well. In contrast, military

communications satellites are used exclusively to transfer information

related to national security and have one or more of nine characteristics

that allow the satellites to be used for such purposes as providing real-time

battlefield data and relaying intelligence data for specific military needs. In

addition, the technologies used to integrate a satellite to its launch vehicle

are similar to those used to integrate ballistic missiles to their launch

vehicles.

In March 1996, the executive branch announced a change in licensing

jurisdiction transferring two items—commercial jet engine hot section

technologies and commercial communications satellites—from State to

Commerce. In October and November 1996, Commerce and State

published regulations implementing this change, with Commerce defining

enhanced export controls to apply when licensing these two items.

Key Elements of U.S.

Export Control

System

State and Commerce’s export control systems are based on fundamentally

different premises. The Arms Export Control Act gives the State

Department the authority to use export controls to further national

security and foreign policy interests, without regard to economic or

commercial interests. In contrast, the Commerce Department, as the

overseer of the system created by the Export Administration Act, is

charged with weighing U.S. economic and trade interests along with

national security and foreign policy interests.

Differences in the underlying purposes of the control system are

manifested in the systems’ structure. Key differences reflect

• who participates in licensing decisions,

• scope of controls,

• time frame for the decision,

• coverage by sanctions, and

• requirements for congressional notification.

Page 2 GAO/T-NSIAD-98-222
Participants. Commerce’s process involves five agencies—the

Departments of Commerce, State, Defense, Energy, and the Arms Control

and Disarmament Agency. Other agencies can be asked to review specific

license applications. For most items, Commerce approves the license if

there is no disagreement from reviewing agencies. When there is a

disagreement, the chair of an interagency group known as the Operating

Committee, a Commerce official, makes the initial decision after receiving

input from the reviewing agencies. This decision can be appealed to the

Advisory Committee on Export Policy, a sub-cabinet level group

comprised of officials from the same five agencies, and from there to the

cabinet-level Export Administration Review Board, and then to the

President.

In contrast, the State system commonly involves only Defense and State.

While no formal multi-level review process exists, Defense officials stated

that license applications for commercial communications satellites are

frequently referred to other agencies, such as the Arms Control and

Disarmament Agency, the National Security Agency, and the Defense

Intelligence Agency. Day-to-day licensing decisions are made by the Office

of Defense Trade Controls, but disagreements could be discussed through

organizational levels up to the Secretary of State.

This difference in who makes licensing decisions underscores the weight

the two systems assign to economic and commercial interests relative to

national security concerns. Commerce, as the advocate for commercial

interests, is the focal point for the process and makes the initial

determination. Under State’s system, Commerce is not involved,

underscoring the primacy of national security and foreign policy concerns.

Scope of controls. The two systems also differ in the scope of controls.

Commerce controls items to specific destinations for specific reasons.

Some items are subject to controls targeted to former communist

countries while others are controlled to prevent them from reaching

countries for reasons that include antiterrorism, regional stability, and

nonproliferation. In contrast, munitions items are controlled to all

destinations, and State has broad authority to deny a license; it can deny a

request simply with the explanation that it is against U.S. national security

or foreign policy interests.

Time frames. Commerce’s system is more transparent to the license

applicant than State’s system. Time frames are clearly established, the

Page 3 GAO/T-NSIAD-98-222
review process is more predictable, and more information is shared with

the exporter on the reasons for denials or conditions on the license.

Sanctions. The applicability of sanctions may also differ under the two

export control systems. Commercial communications satellites are subject

to two important types of sanctions: (1) Missile Technology Control

Regime and (2) Tiananmen Square sanctions. Under Missile Technology

sanctions, both State and Commerce are required to deny the export of

identified, missile-related goods and technologies. Communications

satellites are not so-identified but contain components that are identified

as missile-related. When the United States imposed Missile Technology

sanctions on China in 1993, exports of communications satellites

controlled by State were not approved while exports of satellites

controlled by Commerce were permitted.

Under Tiananmen Square sanctions, satellites licensed by State and

Commerce have identical treatment. These sanctions prohibit the export

of satellites for launch from launch vehicles owned by China. However,

the President can waive this prohibition if such a waiver is in the national

interest.

Congressional notification. Exports under State’s system that exceed

certain dollar thresholds (including all satellites) require notification to the

Congress. Licenses for Commerce-controlled items are not subject to

congressional notification, with the exception of items controlled for

antiterrorism. However, the Congress is notified of presidential waivers of

the Tiananmen Square sanctions under both the State and Commerce

systems.

Evolution of Export

Controls for

Commercial Satellites

Export control of commercial communications satellites has been a matter

of contention over the years among U.S. satellite manufacturers and the

agencies involved in their export licensing jurisdiction—the Departments

of Commerce, Defense, State, and the intelligence community. To put their

views in context, I would now like to provide a brief chronology of key

events in the transfer of commercial communications satellites to the

Commerce Control List.2

2

For a chronology and background information on satellite launches from China, see China: Possible

Missile Technology Transfers from U.S. Satellite Export Policy—Background and Chronology, by

Shirley A. Kan, Congressional Research Service, May 20, 1998 (98-485 F).

Page 4 GAO/T-NSIAD-98-222
Origin of Commercial

Space Cooperation With

China

As the demand for satellite launch capabilities grew, U. S. satellite

manufacturers looked abroad to supplement domestic facilities. In 1988,

President Reagan decided to allow China to launch U.S.-origin commercial

satellites. The United States and China signed an agreement in

January 1989 under which China agreed to charge prices for commercial

launch services similar to those charged by other competitors for launch

services and to launch nine U.S.-built satellites through 1994.

Following the June 1989 crackdown by the Chinese government on

peaceful political demonstrations on Tiananmen Square in Beijing,

President Bush imposed export sanctions on China. President Bush

subsequently waived these sanctions for the export of three U.S.-origin

satellites for launch from China. In February 1990, the Congress passed

the Tiananmen Square sanctions law (P.L. 101-246) to suspend certain

programs and activities relating to the Peoples Republic of China. This law

also suspends the export of U.S. satellites for launch from Chinese-owned

vehicles.

First Transfer of Licensing

Jurisdiction

In November 1990, the President ordered the removal of dual-use items

from State’s munitions list unless significant U.S. national security

interests would be jeopardized. This action was designed to bring U.S.

controls in line with the industrial (dual-use) list maintained by the

Coordinating Committee for Multilateral Export Controls, a multilateral

export control arrangement. Commercial communications satellites were

contained on the industrial list. Pursuant to this order, State led an

interagency review, including officials from Defense, Commerce, and

other agencies to determine which dual-use items should be removed from

State’s munitions list and transferred to Commerce’s jurisdiction. The

review was conducted between December 1990 and April 1992. As part of

this review, a working group identified and established performance

parameters for the militarily-sensitive characteristics of communications

satellites. During the review period, industry groups supported moving

commercial communications satellites, ground stations, and associated

technical data to the Commerce Control List.

In October 1992, State issued regulations transferring jurisdiction of some

commercial communications satellites to Commerce. These regulations

also defined what satellites remained under its control by listing nine

militarily sensitive characteristics that, if included in a commercial

communication satellite, warranted their control on State’s munitions list.

(These characteristics are discussed in app. 1.) The regulations noted that

Page 5 GAO/T-NSIAD-98-222
parts, components, accessories, attachments, and associated equipment

(including ground support equipment) remained on the munitions list, but

could be included on a Commerce license application if the equipment was

needed for a specific launch of a commercial communications satellite

controlled by Commerce. After the transfer, Commerce noted that this

limited transfer only partially fulfilled the President’s 1990 directive.

Interagency Groups

Consider Whether to

Transfer Additional

Satellites

Export controls over commercial communications satellites were again

taken up in September 1993. The Trade Promotion Coordinating

Committee, an interagency body composed of representatives from most

government agencies, issued a report in which it committed the

administration to review dual-use items on the munitions list, such as

commercial communications satellites, to expedite moving them to the

Commerce Control List.

Industry continued to support the move of commercial communications

satellites, ground stations, and associated technical data from State to

Commerce control. In April 1995, the Chairman of the President’s Export

Council met with the Secretary of State to discuss issues related to the

jurisdiction of commercial communications satellites and the impact of

sanctions that affected the export to and launch of satellites from China.

Also in April 1995, State formed the Comsat Technical Working Group to

examine export controls over commercial communications satellites and

to recommend whether the militarily sensitive characteristics of satellites

could be more narrowly defined consistent with national security and

intelligence interests. This interagency group included representatives

from State, Defense, the National Security Agency, Commerce, the

National Aeronautics and Space Agency, and the intelligence community.

The interagency group reported its findings in October 1995.

Consistent with the findings of the Comsat Technical Working Group and

with the input from industry through the Defense Trade Advisory Group,

the Secretary of State denied the transfer of commercial communications

satellites to Commerce in October 1995 and approved a plan to narrow,

but not eliminate, State’s jurisdiction over these satellites.

President Transfers

Jurisdiction to Commerce

Unhappy with State’s decision to retain jurisdiction of commercial

communications satellites, Commerce appealed it to the National Security

Council and the President. In March 1996, the President, after additional

Page 6 GAO/T-NSIAD-98-222
interagency meetings on this issue, announced the transfer of export

control authority for all commercial communications satellites from State

to Commerce. A key part of these discussions was the issuance of an

executive order in December 1995 that modified Commerce’s procedures

for processing licenses. This executive order required Commerce to refer

all licenses to State, Defense, Energy, and the Arms Control and

Disarmament Agency. This change addressed a key shortcoming that we

had reported on in several prior reviews.3

In response to the concerns of Defense and State officials about this

transfer, Commerce agreed to add additional controls to exports of

satellites designed to mirror the stronger controls already applied to items

on State’s munitions list. Changes included the establishment of a new

control, the significant item control, for the export of sensitive satellites to

all destinations. The policy objective of this control—consistency with

U.S. national security and foreign policy interests—is broadly stated. The

functioning of the Operating Committee, the interagency group that makes

the initial licensing determination, was also modified. This change

required that the licensing decision for these satellites be made by

majority vote of the five agencies, rather than by the chair of the

Committee. Satellites were also exempted from other provisions governing

the licensing of most items on the Commerce Control List.

In October and November 1996, Commerce and State published changes to

their respective regulations, formally transferring licensing jurisdiction for

commercial communications satellites with militarily sensitive

characteristics from State to Commerce. Additional procedural changes

were implemented through an executive order and a presidential decision

directive issued in October 1996.

Concerns and Issues

Debated in the

Decision

According to Commerce officials, the President’s March 1996 decision

reflected Commerce’s long-held position that all commercial

communications satellites should be under its jurisdiction. Commerce

argued that these satellites are intended for commercial end use and are

therefore not munitions. Commerce maintained that transferring

jurisdiction to the dual-use list would also make U.S. controls consistent

with treatment of these items under multilateral export control regimes.

3

See Export Controls: Some Controls Over Missile-Related Technology Exports to China Are Weak

(GAO/NSIAD-95-82, Apr. 17, 1995) and Export Controls: Concerns Over Stealth-Related Exports

(GAO/NSIAD-95-140, May 10, 1995).

Page 7 GAO/T-NSIAD-98-222
Manufacturers of satellites supported the transfer of commercial

communications satellites to the Commerce Control List. They expressed

concern that, under State’s jurisdiction, the satellites were subject to

Missile Technology sanctions requiring denial of exports and to

congressional notifications. Satellite manufacturers also stated that such

satellites are intended for commercial end use and are therefore not

munitions subject to State’s licensing process. They also believed that the

Commerce process was more responsive to business due to its clearly

established time frames and predictability of the licensing process.

Satellite manufacturers also expressed the view that some of the militarily

sensitive characteristics of communications satellites are no longer unique

to military satellites.

Defense and State point out that the basis for including items on the

munitions list is the sensitivity of the item and whether it has been

specifically designed for military applications, not how the item will be

used. These officials have expressed concern about disclosure of technical

data to integrate the satellite with the launch vehicle because satellite

integration technologies can also be applied to launch vehicles that carry

ballistic missiles to improve the missiles’ performance and reliability. The

process of planning a satellite launch takes several years, and there is

concern that technical discussions between U.S. and foreign

representatives may lead to the transfer of information on militarily

sensitive components. They also expressed concern about the operational

capability that specific characteristics, in particular antijam capability,

crosslinks, and baseband processing, could give a potential adversary.

Defense and State officials said they were particularly concerned about

the technologies to integrate the satellite to the launch vehicle because

this technology can also be applied to launch ballistic missiles to improve

their performance and reliability. Accelerometers, kick motors, separation

mechanisms, and attitude control systems are examples of equipment used

in both satellites and ballistic missiles. According to State, such equipment

and technology merit control for national security reasons.

Safeguards Applied to

Commerce and State

Satellite Exports

No export license application for a satellite launch has been denied under

either the State or Commerce systems. Therefore, the conditions attached

to the license are particularly significant.

Exports of U.S. satellites for launch in China are governed by a

government-to-government agreement addressing technology safeguards.

Page 8 GAO/T-NSIAD-98-222
This agreement establishes the basic authorities for the U.S. government

to institute controls intended to ensure that sensitive technology is not

inadvertently transferred to China. This agreement is one of three

government-to-government agreements with China on satellites. The

others address pricing and liability issues.

During our 1997 review and in recent discussions, officials pointed to two

principal safeguard mechanisms to protect technologies. Safeguard

mechanisms include technology transfer control plans and the presence of

Defense Department monitors during the launch of the satellites.

• Technology transfer control plans are prepared by the exporter and

approved by Defense. The plans outline the internal control procedures

the company will follow to prevent the disclosure of technology except as

authorized for the integration and launch of the satellite. These plans

typically include requirements for the presence of Defense monitors at

technical meetings with Chinese officials as well as procedures to ensure

that Defense reviews and clears the release of any technical data provided

by the company.

• Defense monitors at the launch help ensure that the physical security over

the satellite is maintained and monitor any on-site technical meetings

between the company and Chinese officials. Authority for these monitors

to perform this work in China is granted under the terms of the

government-to-government safeguards agreement.

Additional government control may be exercised on technology transfers

through State’s licensing of technical assistance and technical data. State

technical assistance agreements detail the types of information that can be

provided and give Defense an opportunity to scrutinize the type of

information being considered for export. Technical assistance agreements,

however, are not always required for satellite exports to China. While such

licenses were required for satellites licensed for export by State,

Commerce-licensed satellites do not have a separate technical assistance

licensing requirement.4

4

A Commerce-licensed satellite would also require a State technical assistance license if the technical

discussions exceeded the basic information required to attach the satellite to the rocket, commonly

described as “form, fit, and function” data.

Page 9 GAO/T-NSIAD-98-222
Observations on the

Current Export

Control System

The addition of new controls over satellites transferred to Commerce’s

jurisdiction in 1996 addressed some of the key areas where the Commerce

procedures are less stringent than those at State. There remain, however,

differences in how the export of satellites are controlled under these new

procedures.

• Congressional notification requirements no longer apply, although the

Congress is currently notified because of the Tiananmen waiver process.

• Sanctions do not always apply to items under Commerce’s jurisdiction.

For example, under the 1993 Missile Technology sanctions, sanctions were

not imposed on satellites that included missile-related components.

• Defense’s power to influence the decision-making process has diminished

since the transfer. When under State jurisdiction, State and Defense

officials stated that State would routinely defer to the recommendations of

Defense if national security concerns were raised. Under Commerce

jurisdiction, Defense must now either persuade a majority of other

agencies to agree with its position to stop an export or escalate their

objection to the cabinet-level Export Administration Review Board, an

event that has not occurred in recent years.

• Technical information may not be as clearly controlled under the

Commerce system. Unlike State, Commerce does not require a company to

obtain an export license to market a satellite. Commerce regulations also

do not have a separate export commodity control category for technical

data, leaving it unclear how this information is licensed. Commerce has

informed one large satellite maker that some of this technical data does

not require an individual license.

• The additional controls applied to the militarily sensitive commercial

communications satellites transferred to Commerce’s control in 1996 were

not applied to the satellites transferred in 1992. These satellites are

therefore reviewed under the normal interagency process and are subject

to more limited controls.

Mr. Chairman, this concludes my prepared statement. I would be happy to

respond to any questions you or other Members of the Committee may

have.

Page 10 GAO/T-NSIAD-98-222
Page 11 GAO/T-NSIAD-98-222
Appendix I 

Militarily Sensitive Characteristics

Integrated in Commercial Communications

Satellites

Component or Characteristic Definition

Military Sensitivity of Characteristics

Exceeding Certain Performance Parameters

Antijam capability Antennas and/or antenna systems with the ability

to respond to incoming interference by adaptively

reducing antenna gain in the direction of the

interference.

Ensures that communications remain open during

crises.

Antenna Allows a satellite to receive incoming signals. An antenna aimed at a spot roughly 200 nautical

miles in diameter or less can become a sensitive

radio listening device and is very effective against

ground-based interception efforts.

Crosslinks Provide the capability to transmit data from one

satellite to another without going through a ground

station.

Permit the expansion of regional satellite

communication coverage to global coverage and

provides source-to-destination connectivity that

can span the globe. They are very difficult to

intercept and permit very secure communications.

Baseband processing Allows a satellite to switch from one frequency to

another with an on-board processor.

On-board switching can provide resistance to

jamming of signals.

Encryption devices Scramble signals and data transmitted to and

from a satellite.

Allow telemetry and control of a satellite, which

provide positive control and deny unauthorized

access. Certain encryption capabilities have

significant intelligence features important to the

National Security Agency.

Radiation-hardened devices Provide protection from natural and man-made

radiation environment in space, which can be

harmful to electronic circuits.

Permit a satellite to operate in nuclear war

environments and may enable its electronic

components to survive a nuclear explosion.

Propulsion system Allows rapid changes when the satellite is on orbit. Military maneuvers require that a satellite have the

capability to accelerate faster than a certain

speed to cover new areas of interest.

Pointing accuracy Provides a low probability that a signal will be

intercepted.

High performance pointing capabilities provide

superior intelligence-gathering capabilities.

Kick motors Used to deliver satellites to their proper orbital

slots.

If the motors can be restarted, the satellite can

execute military maneuvers because it can move

to cover new areas.

(707374) Page 12 GAO/T-NSIAD-98-222
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