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[Senate Hearing 106-866]
[From the U.S. Government Publishing Office]

                                                        S. Hrg. 106-866

                 OVERSIGHT OF SATELLITE EXPORT CONTROLS

=======================================================================

                                HEARING

                               BEFORE THE

                 SUBCOMMITTEE ON INTERNATIONAL ECONOMIC
                   POLICY, EXPORT AND TRADE PROMOTION

                                 OF THE

                     COMMITTEE ON FOREIGN RELATIONS
                          UNITED STATES SENATE

                       ONE HUNDRED SIXTH CONGRESS

                             SECOND SESSION

                               __________

                              JUNE 7, 2000

                               __________

       Printed for the use of the Committee on Foreign Relations

 Available via the World Wide Web: http://www.access.gpo.gov/congress/
                                 senate

                               __________

                    U.S. GOVERNMENT PRINTING OFFICE
68-770                     WASHINGTON : 2001

                     COMMITTEE ON FOREIGN RELATIONS

                 JESSE HELMS, North Carolina, Chairman
RICHARD G. LUGAR, Indiana            JOSEPH R. BIDEN, Jr., Delaware
CHUCK HAGEL, Nebraska                PAUL S. SARBANES, Maryland
GORDON H. SMITH, Oregon              CHRISTOPHER J. DODD, Connecticut
ROD GRAMS, Minnesota                 JOHN F. KERRY, Massachusetts
SAM BROWNBACK, Kansas                RUSSELL D. FEINGOLD, Wisconsin
CRAIG THOMAS, Wyoming                PAUL D. WELLSTONE, Minnesota
JOHN ASHCROFT, Missouri              BARBARA BOXER, California
BILL FRIST, Tennessee                ROBERT G. TORRICELLI, New Jersey
LINCOLN D. CHAFEE, Rhode Island
                   Stephen E. Biegun, Staff Director
                 Edwin K. Hall, Minority Staff Director

                                 ------                                

             SUBCOMMITTEE ON INTERNATIONAL ECONOMIC POLICY,
                       EXPORT AND TRADE PROMOTION

                    CHUCK HAGEL, Nebraska, Chairman
CRAIG THOMAS, Wyoming                PAUL S. SARBANES, Maryland
BILL FRIST, Tennessee                JOHN F. KERRY, Massachusetts
RICHARD G. LUGAR, Indiana            BARBARA BOXER, California

                                  (ii)

  

                            C O N T E N T S

                              ----------                              
                                                                   Page

Association of American Universities, the National Association of 
  State Universities and Land-Grant Colleges, and the Council on 
  Governmental Relations, statement submitted for the record.....    49
Bodner, Hon. James M., Principal Deputy Under Secretary of 
  Defense for Policy, Department of Defense, Washington, DC......    15
    Prepared statement...........................................    18
Holum, Hon. John D., Senior Adviser for Arms Control and 
  International Security, Department of State, Washington, DC....     2
    Prepared statement...........................................     6
Mowry, Clayton, executive director, Satellite Industry 
  Association, Alexandria, VA....................................    33
    Prepared statement...........................................    38
Reinsch, Hon. William A., Under Secretary of Commerce for Export 
  Administration, Department of Commerce, Washington, DC.........     9
    Prepared statement...........................................    13

                                 (iii)

  

 
                 OVERSIGHT OF SATELLITE EXPORT CONTROLS

                              ----------                              

                        WEDNESDAY, JUNE 7, 2000

                           U.S. Senate,    
     Subcommittee on International Economic
                Policy, Export and Trade Promotion,
                            Committee on Foreign Relations,
                                                    Washington, DC.

    The subcommittee met at 2:33 p.m., in room SD-419, Dirksen 
Senate Office Building, Hon. Chuck Hagel (chairman of the 
subcommittee) presiding.
    Present: Senator Hagel.
    Senator Hagel. Good afternoon.
    Today's hearing is this subcommittee's second oversight 
hearing on commercial satellite export controls since the 
Congress transferred responsibility for licensing for 
commercial satellites from the Commerce Department to the State 
Department in March 1999. This hearing will focus on what 
progress has been made in improving the system since our last 
hearing in June 1999.
    On our first panel, we welcome Under Secretary of Commerce 
for Export Administration, the Honorable William A. Reinsch. 
Before coming to the Commerce Department, Secretary Reinsch 
served as a senior legislative assistant to Senator Jay 
Rockefeller and also served on the staff of the late Senator 
John Heinz. Welcome, Secretary Reinsch.
    Our second witness is the Honorable John D. Holum, Senior 
Adviser for Arms Control and International Security Affairs at 
the Department of State. Mr. Holum has been nominated to be 
Under Secretary for Arms Control and International Security 
Affairs. Mr. Holum served as Director of the Arms Control and 
Disarmament Agency from 1993 to 1999, when that Agency merged 
with the State Department. Previous to that, Mr. Holum 
practiced law in Washington, DC, and served on the staff of 
former Senator George McGovern. Welcome, Mr. Holum.
    Mr. Holum. Thank you, Mr. Chairman.
    Senator Hagel. Our third witness is the Honorable James M. 
Bodner, Principal Deputy Under Secretary of Defense for Policy 
and Counselor to the Secretary of Defense. Previously Mr. 
Bodner served as Special Assistant to the Secretary and Deputy 
Secretary of Defense, responsible for coordinating issues and 
projects throughout the Department.
    From 1983 to 1996, Mr. Bodner served as then Senator 
Cohen's legislative assistant for national security, foreign 
affairs, international trade, and science and technology. 
Welcome to you, Secretary Bodner.
    On our second panel, we welcome Mr. Clayton Mowry, 
executive director of the Satellite Industry Association. Prior 
to joining SIA, Mr. Mowry worked as a satellite industry 
analyst and senior international trade specialist for the 
Office of Telecommunications in the Department of Commerce. Mr. 
Mowry served as the International Trade Administration 
Representative to the 1992-1994 U.S.-Russia, U.S.-EU, and U.S.-
China commercial launch services negotiations. Before joining 
the Commerce Department, Mr. Mowry served on congressional 
staffs on both the House and the Senate sides. Welcome to you, 
Mr. Mowry.
    The fiscal year 1999 Defense Authorization Act moved 
jurisdiction over commercial satellites and related items from 
the Commerce Department back to the State Department, where it 
had traditionally resided. This was done out of national 
security concerns. Commercial satellites and their components 
are now controlled on the State Department's Munitions List.
    Through our hearing today, the subcommittee will hear from 
the various Government agencies with current and past 
responsibility for handling commercial satellite exports, as 
well as from the satellite industry itself, as to whether the 
current system is working. Is the current system protecting 
national security and allowing American companies to still do 
business? Is the State Department capable of undertaking this 
difficult and complicated responsibility?
    My understanding is that other colleagues will join us 
during the course of the hearing, and with that, I again 
welcome our distinguished witnesses. The committee is grateful 
for your taking your time to come this afternoon, and I once 
again apologize for having to cancel our hearing a couple of 
weeks ago. But democracy rolled on and we continued to do good 
for the world with insightful and important votes. I feel that 
we will be spared that high burden over the next 2 hours. We 
have had a series of votes already and some, as a matter of 
fact, in the general arena of your responsibilities. And I can 
assure you we all voted right.
    Now, with that, let me ask, by the order of the lineup 
here, Mr. Holum to begin his testimony and thank you for 
coming.

   STATEMENT OF HON. JOHN D. HOLUM, SENIOR ADVISER FOR ARMS 
   CONTROL AND INTERNATIONAL SECURITY, DEPARTMENT OF STATE, 
                         WASHINGTON, DC

    Mr. Holum. Thank you, Mr. Chairman. Thank you for the 
opportunity to provide the subcommittee with the Department of 
State's views today.
    The topic of commercial communications satellite export 
licensing is very important to our national security and 
foreign policy interests. It is also important to our economic 
strength and technological leadership, particularly in an age 
when our security interests and our technological leadership 
are increasingly dependent on the health and innovation of our 
telecommunications and aerospace industries and not, as 
previously, on government funded research and development. So, 
we need export licensing policies and procedures that safeguard 
our security interests, but also ensure that the right things 
get to the right people in a global economy in which 
international competition has become tougher, delivery 
schedules have been compressed, and multinational teaming of 
U.S. companies with foreign firms continues to expand.
    Slightly more than 1 year after the return of comsats to 
State's jurisdiction, as legislatively mandated by Congress, it 
is appropriate to examine how well this change in jurisdiction 
has been implemented and is working in practice. I will get 
right to the main points of what we wish to highlight 
specifically, where we feel we have met the goals we have set 
out to accomplish last year, what issues or problems we have 
identified, and what we are doing to resolve them.
    First, the overarching national security objectives of the 
legislation, which transferred licensing jurisdiction back to 
State, are being met. More than 2,000 export license 
applications have been considered. In each case, as Congress 
mandated, there has been thorough and consistent consideration 
of U.S. national security interests. Export license 
applications are now receiving all of the scrutiny and control 
that is reserved under U.S. law for articles on the United 
States Munitions List. This includes expanded oversight by 
Congress with regard to major exports.
    Second, we are taking full advantage of the additional 
budgetary resources Congress has provided for State's defense 
trade control program. Prior to 1999, the authorized full-time 
complement for our Office of Defense Trade Controls [ODTC] was 
set at 45 employees, divided among licensing, compliance, and 
support functions. The personnel allotment for ODTC has been 
increased by 23 new positions, the lion's share of those being 
deployed in the Arms Licensing Division, which will essentially 
double in size.
    We have already brought on board seven new licensing 
officers and are awaiting security clearances on several 
others. Active recruitment efforts continue toward the goal of 
filling out the ranks by the end of the calendar year.
    Third, we have not only met but significantly bettered in 
most cases the 90 working day goal we established as an average 
time for processing satellite related cases. Many in industry 
expressed concern that license decisions for satellites, under 
the State export licensing system, would be protracted and 
greatly exceed the 90-day average established for Commerce 
licenses. Some predicted the process would take two to three 
times as long.
    In the first 6 months of State's jurisdiction, satellite 
related licenses averaged 70 working days for exports requiring 
interagency review and 18 working days for exports licensed by 
State without review by other agencies. In the most recent 8 
months, the average times have improved to 50 working days for 
interagency reviewed cases and 17 working days for those 
reviewed only by State. This improvement has been due to 
concerted efforts by both State and Defense to deploy more 
personnel. Processing times for State, in particular, will 
continue to improve as new licensing officers are brought on 
board.
    It is worth noting that these figures are true averages 
from start to finish and include cases requiring mandatory 
intelligence community review, Missile Technology Export 
Committee review, and congressional notification. The State 
Department does not stop the clock or discount days while 
waiting for other agency views or additional information from 
companies or because there may be complex policy issues 
involved.
    Fourth, we have fulfilled the commitment we made last year 
to work with the Senate and House committees to expedite cases 
requiring notification to Congress under section 36 of the Arms 
Export Control Act. Thanks to the excellent cooperation we 
received from Congress, these major U.S. satellite exports, 
valued at $3 billion, went smoothly over the past year, some in 
very impressive times when necessary to meet changes in launch 
schedules. For example, space system Loral's Telstar 7 
satellite was notified to Congress in about 32 working days. 
Lockheed Martin's New Skier satellite sale to The Netherlands 
was notified in about 35 working days, Lockheed Martin's NSTAR 
satellite sale to Japan in about 30 days, Hughes' Galaxy IVR 
satellite launched earlier this year from French Guiana 
required 36 days, and Hughes' Panama sat-9 satellite took 20 
working days. A complete list of satellite exports notified to 
Congress since State assumed jurisdiction is annexed to my 
prepared statement.
    Fifth, some manufacturers clearly have experienced problems 
in transition to control under the U.S. Munitions List [USML]. 
This was particularly true for component and system-level 
manufacturers. Many components, parts, and systems specifically 
designed for commercial communication satellites and their 
associated technical data became subject to a requirement for 
an export license for the first time in several years.
    So, no matter what our average processing times were, they 
would always require more time than in the previous environment 
in which no license was required for things like plant visits, 
requests for proposals [RFP's] involving technical data, 
acceptance testing, and the like. The result has been a 
difficult transition for certain U.S. suppliers and frustration 
and delays for their partners abroad, possibly reinforcing a 
tendency in Europe to bias procurement toward other European 
suppliers through such actions as shortened deadlines for U.S. 
companies in responding to RFP's.
    To address these problems, Mr. Chairman, we have designed a 
special regulatory regime for satellite-related exports to U.S. 
allies.
    Before I describe that, I would like to digress briefly to 
caution against exaggerating the impact of these problems in 
terms of lost sales and market share for the U.S. satellite 
industry. I fully understand the opposition of the U.S. 
industry to the control of commercial communications satellites 
on the U.S. Munitions List. The State Department neither sought 
nor welcomed this decision. But I also do not believe it is 
useful to interpret every development in the international 
satellite market solely on the basis of the U.S. Government's 
export licensing policy.
    Mr. Chairman, section 1309(a) of the Foreign Relations 
Authorization Act for Fiscal Years 2000 and 2001 authorized the 
Department to establish a regime for the expeditious export 
licensing of commercial satellites, satellite technologies, and 
their components to U.S. allies. We welcome this mandate which 
is complementary to several initiatives State and Defense have 
developed to deepen defense cooperation in other areas with our 
allies in Europe and Asia.
    The regime we have designed, with invaluable assistance 
from our industry advisory committee, as well as from our 
colleagues at Defense, has several important distinguishing 
features. The main one is the ability to use high volume export 
licenses for components, systems, accessories, and technical 
data, known in the trade as bulk licenses, which will be valid 
for 4 years for multiple shipments to any of the NATO or major 
non-NATO allies on the basis of a preapproved list of foreign 
aerospace firms and satellite projects. The list will be 
scrutinized carefully and then be made a matter of public 
record.
    Another important feature is that it will not be necessary 
to provide in advance the details of purchase orders or 
contracts or retransfer and end-use certificates where 
required. All of this documentation will continue to be 
mandatory, but it will only be required to be furnished to the 
State Department within 15 days following shipment from the 
United States. So, for appropriate products and approved firms, 
instead of submitting an export license application to the 
State Department after receiving a purchase order or signing a 
contract, they will be prepositioned with one or more export 
licenses for a 4-year period that will cover most of their 
business transactions with our allies in Europe and Asia.
    A further feature of the special regime is that, within the 
defined territory of the 19 NATO member countries and the 8 
countries that have been designed major non-NATO allies, 
retransfers of most U.S.-origin components and technical data 
licensed for export under this regime will also be permitted 
without individual written, prior U.S. Government consent for 
the entire approved list of satellite programs and for use by 
one or more approved foreign companies.
    For more sensitive components, such as missile technology 
control regime [MTCR] controlled items, the State Department's 
longstanding controls, including non-transfer and end-use 
certificates, parts control plans, and the like, will continue 
to be required. But a means will be provided by which this 
documentation can be furnished electronically, in most cases 
within 15 days of shipment, again for approved products and 
firms. Restrictions may be imposed on the license in certain 
cases in view of the specific items proposed for export and 
consistent with our missile technology control policies.
    Of course, none of the special procedures will apply should 
the transaction at any stage involve an activity beyond the 
territories of U.S. allies, such as space launches from the 
People's Republic of China or Russia.
    The regulations for the new regime were published in the 
Federal Register on May 26, and they will take effect on July 
1. Between now and then, we will continue to work with industry 
in preparing detailed guidelines that will assist in the 
preparation of license applications. We also plan an industry 
workshop on June 28 to answer questions and discuss all the 
details associated with electronic license submissions, 
electronic reporting, and the use of the new regulations.
    Mr. Chairman, this concludes my remarks, and I look forward 
to address any questions you may have. Thank you.
    [The prepared statement of Mr. Holum follows:]

                Prepared Statement of Hon. John D. Holum

    Mr. Chairman, I thank you for the opportunity to provide the 
Subcommittee with the Department of State's views today on the subject 
of commercial communications satellite export licensing. This matter is 
very important to our national security and foreign policy interests, 
as well as to our economic strength and technological edge. Indeed, in 
today's international security environment these areas--national 
security, leading edge technological development, and healthy 
telecommunications and aerospace industries--are mutually dependent, 
and we need to ensure in our policy development and execution that they 
are mutually supportive.
    Recalling that the State Department neither sought nor welcomed the 
decision of Congress to return control of commercial communications 
satellites to the U.S. Munitions List, we, nevertheless, committed to 
administer this responsibility in accordance with well-established 
policies and practices that characterize the strong control our 
Government has always exercised over the international export or 
transfer of defense articles and services, especially when it comes to 
protecting U.S. national security interests.
    We also said that, within the overall context of U.S. Munitions 
List control and the standards and practices of the International 
Traffic in Arms Regulations (ITAR), we would do our best to ensure that 
legitimate exports to U.S. friends and allies went forward in a timely 
manner by taking certain steps to establish average processing times as 
a goal within a 90 working day period; to expedite major satellite 
exports involving foreign launches in view of the additional 
requirement in law for congressional notification of exports exceeding 
$50 million; and, to deploy additional resources in the State 
Department's Office of Defense Trade Controls in order to meet these 
objectives.
    With about fifteen months experience since commercial 
communications satellites were returned to State Department 
jurisdiction, we are in a good position to provide you with a report on 
where we have met the goals we set out to accomplish, where we have 
identified issues or problems, and what we are doing to resolve them. 
In this regard, the solution to several issues we have identified lies 
in an amendment to our regulations (ITAR) that we will be promulgating 
in the coming days in order to implement section 1309(a) of the Foreign 
Relations Authorization Act for Fiscal Years 2000 and 200l, concerning 
the establishment of a special regime in order to expedite satellite 
related exports to U.S. friends and allies. As I know this is a subject 
of interest to Congress, to our aerospace industry, and to our allies, 
I will also describe the new approach we have developed in some detail 
later in my statement.
    That said, please allow me to touch on several aspects of how we 
view the overall scorecard for export licensing of comsats over the 
past year.

              NATIONAL SECURITY INTERESTS AS TOP PRIORITY

    First, the overarching national security objectives of the 
legislation transferring export licensing jurisdiction back to the 
Department of State effective March 15, 1999, are being met 
consistently. More than two thousand export license applications have 
been considered. There has been thorough and consistent consideration 
of U.S. national security interests in all instances. And, in each case 
considered, priority has been given to our national security interests 
and to our obligations under the Missile Technology Control Regime. 
Commercial communications satellites and related items, associated 
technical data, and all foreign launches of U.S. communications 
satellites licensed by the State Department are now receiving all of 
the scrutiny and control, including expanded congressional oversight, 
that are reserved under U.S. law and regulation for the export of 
articles on the United States Munitions List. This includes the 
expanded controls set forth in detailed provisions of the Strom 
Thurmond National Defense Authorization Act for Fiscal Year 1999.
    On a related point, the Department has also implemented fully the 
Administration's response to recommendations in this area falling under 
our purview that were set forth in the House Select Committee on U.S. 
National Security and Technology Transfer to the People's Republic of 
China (``Cox-Dicks''), such as those related to the control of 
satellite technical data to foreign insurance companies.

                     AUGMENTATION OF DTC RESOURCES

    Second, we are taking full advantage of the additional budgetary 
resources Congress has provided for the administration of our defense 
trade control program. Prior to 1999, the authorized full time 
complement for our Office of Defense Trade Controls was set at 45 
employees, divided among licensing, compliance and support functions. 
The personnel allotment has been increased by 23 new positions, with 
the lion's share of the new slots deployed in the Arms Licensing 
Division. That division, formerly comprised of 14 State Department 
licensing officers, four military officers on detail from the Military 
Departments, and three supervisory officers, will essentially double in 
size.
    We have already brought onboard seven new licensing officers and 
have awaiting security clearances on several others. Active recruitment 
efforts continue to fill the remaining vacancies. In addition, we have 
made some progress in establishing two of the new licensing positions 
at higher grade levels (GS-14) in an attempt to stem the continuing 
loss of experienced personnel to higher-graded jobs at DOD and in the 
defense industry. We are also optimistic about prospects for having 
several additional positions upgraded. But, candidly, this is a problem 
we need to continue to work hard at solving for the long term.

          90 WORKING DAY GOAL FOR AVERAGE PROCESSING TIME MET

    Third, we have not only met, but significantly bettered in most 
cases, the 90 working day goal we established as an average time for 
processing satellite-related cases in the Secretary's report to 
Congress last year concerning our plans for implementation of the NDAA. 
Many expressed the concern that license decisions for satellites under 
the State export licensing system would be protracted and greatly 
exceed the 90-day process established for Commerce licenses. Indeed, 
some predicted the process would take two to three times as long.
    In the first six months we had jurisdiction (March-September 1999), 
an export license for a satellite-related case averaged 70 working days 
(98 calendar days) if it required inter-agency review and 18 working 
days (25 calendar days) if it did not, and could be decided by State, 
alone. Over the past eight months (September 16, 1999-May 10, 2000, 
average processing times have improved to 50 working days (70 calendar 
days) for inter-agency reviewed cases and to 17 working days (24 
calendar days) for those reviewed only by State. This improvement has 
been due to concerted efforts by both State and Defense to deploy more 
personnel. Processing times for State, in particular, will continue to 
improve throughout this year and into 2001 as our expanded licensing 
officer complement becomes fully staffed.

               CONGRESSIONAL NOTIFICATION OF MAJOR SALES

    Fourth, we made a commitment last year to work with the appropriate 
committees of Congress, the Foreign Relations Committee and the House 
International Relations Committee, in order to expedite cases requiring 
notification to Congress under section 36 of the Arms Export Control 
Act before an export license may, by law, be issued. Thanks to the 
excellent cooperation we have received from Congress, not only have we 
been able to expedite these major sales and satellite exports for 
launch abroad, we have succeeded in doing so in several cases in record 
times when necessary to meet urgent launch schedules.
    To date, cases requiring congressional notification account for 
approximately $3 billion in contracts. The details of these cases are 
set forth in a fact sheet annexed to my statement. Notably, although we 
excluded such cases from the 90 working day goal we established last 
year because of the extensive higher level coordination that takes 
place within the Administration and because of the statutory waiting 
periods (15 days for NATO, Australia, New Zealand or Japan; 30 days for 
all others), the cases requiring congressional notification to date 
meet the 90 working day average.

          TRANSITION TO USML CONTROLS FOR COMPONENTS PRODUCERS

    Fifth, while our average processing times were even better than 
expected, and while all of the major satellite exports proceeded 
smoothly through the export licensing and congressional notification 
processes, manufacturers, particularly component and system level 
manufacturers, experienced a number of problems in the transition to 
State Department export licenses. This is because many components, 
parts, and systems specifically designed for commercial communications 
satellites, and their associated technical data, became subject to a 
requirement for an export license for the first time in several years.
    As a result, no matter how promptly we processed these licenses, 
they would always require more time than in the previous environment in 
which no license was required. According to reports from various U.S. 
firms throughout last year, this resulted in some delays or disruptions 
in certain areas, e.g., supply relationships, acceptance testing of 
equipment, plant visits and the like. In response, it may also have 
reinforced, also as reported by U.S. firms, a tendency on the part of 
certain European companies to shorten deadlines provided to U.S. 
suppliers for responding to requests for proposals or requests for 
prices, particularly if the item was available from another European 
company.
    We concluded after some considerable analysis with aerospace 
industry representatives on our federal advisory committee for defense 
trade matters (the Defense Trade Advisory Group) that we needed to 
devise a new licensing vehicle that would provide U.S. manufacturers 
with much greater flexibility to exchange technical data and with more 
speed to fill orders. While doing so, we still have to ensure 
application of the same strict standards and practices of the Arms 
Export Control Act and the International Traffic in Arms Regulations as 
intended by Congress when enacting the NDAA for FY 1999. This is why 
the State Department strongly supported enactment of Section 1309(a) of 
the Foreign Relations Authorization Act for Fiscal Years 2000 and 2001.

           SPECIAL REGIME FOR NATO AND MAJOR NON-NATO ALLIES

    Section 1309(a) of the Foreign Relations Authorization Act for 
Fiscal Years 2000 and 2001 authorized expressly the Department of State 
to establish a regulatory regime for the expeditious export licensing, 
as appropriate, to U.S. allies of commercial satellites, satellite 
technologies, and their components. At the same time, it provides for 
ensuring priority in the evaluation of licenses to ``national security 
and U.S. obligations under the Missile Technology Control Regime.'' The 
Department welcomed this mandate, which provides a clear expression of 
Congress' view that exports to U.S. allies should be expedited 
consistent with our international security interests.
    This mandate is also fully in keeping with a variety of initiatives 
the Administration has been developing to deepen defense cooperation in 
other areas with our allies in Europe and Asia, and to establish 
special channels and procedures in order to expedite exports of defense 
articles and services which advance our common security interests.
    In order to enlist the assistance and expertise of the U.S. 
aerospace industry in implementing this new mandate for satellites, 
State and Defense asked the Defense Trade Advisory Group (a federal 
advisory committee to the State Department) to form a task force of its 
members last January. Since then, the task force has been working with 
experts from State and Defense to design an approach that accomplishes 
the specific objectives of the legislation, taking into account the 
experience gained and issues identified since the transfer of licensing 
jurisdiction to State. The main elements and conceptual framework were 
mapped out during January-March through a series of meetings between 
industry representatives and State and Defense, and the draft proposal 
previewed in April at the Spring conference held in Laguna Beach, 
California of the Society for International Affairs, an association of 
about two hundred defense and aerospace firms that specializes in 
symposia and workshops covering export licensing and compliance.
    I am pleased to report to you that the new regulation implementing 
this new regime was published in the Federal Register on May 26, 2000.
    The new regulatory regime for U.S. allies will focus on priority 
areas identified by industry: (1) the supply of satellite components, 
systems and associated technical data subject to the State Department's 
control, including for off-shore procurement; (2) technical information 
needed to respond to bids, to requests for quotations, plant visits, 
acceptance testing of equipment and the like; and (3) technical data 
for satellite insurance purposes, including for on-orbit anomalies.
    The regime's main feature will be the ability to use high volume 
export licenses for components and technical data (known in the trade 
as ``bulk'' licenses), which will be valid for four years for multiple 
shipments to any of the NATO or major non-NATO allies. Another 
important feature is that it will not be necessary to provide in 
advance the details of purchase orders or contracts or re-transfer and 
end use certificates where they may be required.
    While all of this documentation will continue to be mandatory, it 
will only be required to be furnished to the State Department within 15 
days following shipment from the United States, at which time U.S. 
companies will report the appropriate shipping information and furnish 
electronic images of the required documentation.
    In this regard, the Department decided to implement the satellite 
licensing regime for U.S. allies concurrently with another mandate 
provided by Congress in the same legislation: the requirement for 
reporting by the U.S. defense industry of all U.S. Munitions List 
exports from the United States within 15 days of shipment. State will 
also provide an electronic reporting procedure, including the necessary 
software at no charge, for this purpose.
    Further, within the defined territory of the nineteen NATO member 
countries and the eight countries that have been designated by the 
President as major non-NATO allies of the United States (Australia, New 
Zealand, Japan, Republic of Korea, Israel, Egypt, Jordan, and 
Argentina), re-transfers of most U.S. origin components and technical 
data licensed for export under this regime also would be permitted for 
an approved list of satellite programs involving U.S. allies and for 
use by an approved list of allied aerospace firms, all of which will be 
scrutinized within the USG before they are approved--without requiring 
written prior USG consent in individual cases since preapproval 
operates as an advance consent.
    Both lists will be kept up to date and made publicly available by 
posting on the Website of the Office of Defense Trade Controls, and by 
other means.
    For more sensitive components, such as those MTCR-controlled items 
subject to State's jurisdiction, the State Department's long standing 
controls, including non-transfer and end use certificates, parts 
control plans and the like, licenses will continue to be required. But, 
a means will be provided by which this documentation can be also 
furnished electronically, in most cases within 15 days of shipment, 
provided the transfers are limited to the approved projects and for use 
by approved firms. Restrictions may be imposed on the license in 
certain cases, in view of the specific items proposed for export and 
consistent with our missile technology control policies.
    None of the special procedures will apply should the transaction at 
any stage involve an activity beyond the territories of U.S. allies, 
such as space launches from the People's Republic of China or Russia. 
In those cases, the State Department will continue to require case-by-
case licensing and all of the rigors of existing law and regulation 
through individual licenses.
    By the same measure, although not specifically provided for in the 
authorizing legislation, we will be prepared to include within this 
regime on a case by case basis certain aerospace companies located in 
additional member states of the European Space Agency and the European 
Union, as a number of these companies are closely involved in aerospace 
projects with our firms or those of our NATO allies.
    The regulations will take effect on July 1. Between now and then we 
will be continuing to work with industry through our advisory committee 
and through a workshop, which the Society for International Affairs 
plans for June 28, in order to answer questions and discuss all of the 
details associated with electronic license submission, electronic 
reporting, and other guidelines that should be followed.
    Mr. Chairman, thank you for the opportunity to provide the 
Department of State's views on satellite licensing and export controls. 
As you can see, we share your opinion of the importance of this matter 
for both our national security and our economic prosperity, and we are 
committing the necessary resources to carry out our responsibilities in 
the most efficient and effective manner possible.

    Senator Hagel. Mr. Holum, thank you.
    Secretary Reinsch.

   STATEMENT OF HON. WILLIAM A. REINSCH, UNDER SECRETARY OF 
  COMMERCE FOR EXPORT ADMINISTRATION, DEPARTMENT OF COMMERCE, 
                         WASHINGTON, DC

    Mr. Reinsch. Thank you, Mr. Chairman. It is a pleasure to 
be back. Let me commend you and the committee for keeping track 
and keeping up to speed on a difficult issue. I think it is 
awfully tempting for Congress to make decisions and make 
changes and then never look at them again for a very long time, 
and I think it is commendable that you, in particular, and the 
committee have chosen to keep your eye on this because the 
consequences of what you have done are so significant. It is 
important that you continue to exercise close oversight. So, I 
am happy to be back and I was happy to be back 3 weeks ago as 
well.
    Just speaking on behalf of the administration, let me say 
that we are always delighted when the Senate is voting on 
anything.
    So, if you want to go back and vote some more this 
afternoon, that is fine with us too.
    Since March 17, 1999, when the Congress transferred export 
license jurisdiction for commercial comsats back to the State 
Department, we have engaged in a large scale experiment in 
export control policy that has serious implications for future 
efforts to reform or restructure our controls. I believe the 
outcome of that experiment has not been positive, and it is not 
one that I think the United States should repeat.
    Since the transfer, which this administration opposed, as 
you know, satellite exports have declined 40 percent according 
to Census Bureau export statistics, and the satellite industry 
has told us that the U.S. share of the world market has dropped 
from 73 percent in 1998 to 62 percent in 1999 to 52 percent for 
the last three quarters. The changed controls on satellites 
bears some of the responsibility for this, and we can only 
conclude that a system that works well for arms exports is, 
even with the best intentions in the world, not appropriate for 
commercial exports. This is a fundamental point for export 
controls. Treating exports of commercial items like comsats as 
arms sales does more harm than good to our national security 
and to the high tech industries upon which our military and 
intelligence agencies depend.
    Let me touch briefly on a number of factors which I hope 
you will consider as you contemplate this issue.
    The first is that we are operating in an increasingly 
global economy where commercial cooperation between companies 
in different countries is the norm and where technology flows 
are shaped less by national borders than by the needs of the 
global market. No one nation can remain at the leading edge of 
technology unless it participates in this global market. This 
requires the ability to export.
    Long-term changes in defense spending also shape the 
satellite export control issue. The civil use of space has 
exploded. Ten years ago, DOD and NASA accounted for more than 
half of aerospace sales. Today industry sources say that 
government purchases account for only 35 percent of sales while 
exports account for 40 percent. As the commercial 
telecommunications markets have exploded, companies have come 
to rely on commercial sales, including exports, for the bulk of 
their business. Globally there is overcapacity, and sales to 
DOD or the U.S. domestic market are not enough to maintain a 
strong and leading edge space industry that will stay at the 
cutting edge of technology.
    It may seem contradictory to say that we do more to build 
our strength the more open we are as an economy. However, as 
the Defense Science Board Task Force on Globalization and 
Security recently reported, shutting U.S. companies out of 
markets that are served instead by foreign firms weakens U.S. 
commercial advanced technology sectors upon which U.S. economic 
security and military advantage depend. In the case of 
satellites, the same companies that manufacture the most 
sophisticated satellites are the leading commercial 
communications satellite makers as well.
    The third factor is the difference between the two systems 
that we have under discussion, one for weapons, one for dual 
use. These differences are appropriate. We should treat the 
export of tanks, fighters, or submarines in a more deliberate 
and restrained manner. However, the arms export system can be 
needlessly damaging when applied to commercial items like 
communications satellites. Exports of major weapons systems 
have serious implications for our foreign policy and defense, 
and a process of lengthy deliberation and complex licensing 
requirements is appropriate. However, regulating commercial 
goods as if they were weapons harms our technology lead and the 
industrial base that is the basis for our military strength.
    Two procedural differences are most important. One is the 
scope of controls. Items on State's Munitions List require an 
individual license to any destination, whether that is India or 
the U.K. or whatever. In the case of satellites, many separate 
licenses can be required for a single sale. In some cases, one 
license is required for technical data, another to make a bid, 
a third to actually export hardware, and so on. This has proven 
to be particularly important in the satellite field, as one 
result of the transfer of jurisdiction was that U.S. companies 
now have to obtain licenses for routine exports related to 
satellite launches or manufacturing for Japan and the NATO 
countries that previously could move under license exception. 
The State Department, in cooperation with the Defense 
Department, has put into place a package of reforms to bring 
some flexibility to State's licensing process, which Mr. Holum 
has already described for you in some detail and which I 
suspect Mr. Bodner will address as well in his testimony.
    The second crucial difference is the extraterritorial reach 
of the two systems. Once a munitions item has been exported, 
U.S. approval for any resale or re-export is required. Further, 
any foreign-made item which incorporates a U.S. munitions item, 
no matter how small, is considered to have become a U.S. 
munitions item and also requires a license for any resale or 
re-export. To use an actual example, if DaimlerChrysler 
Aerospace [DASA], uses a piece of plastic film which is on the 
U.S. Munitions List in a satellite it is building in Germany, 
that satellite becomes subject to U.S. controls and a license 
is required from the State Department for any sale. If, on the 
other hand, DASA buys the film from a British firm, the U.K. 
does not consider the film or the satellite a munition and no 
further license from Britain is required. This is a significant 
problem in cases like comsats, since our partners in the 
multilateral regimes consider communications satellites and the 
parts that go in them as dual use items, not munitions. Only 
the U.S. treats these sales as arms exports.
    The obvious response of foreign manufacturers is to avoid 
using U.S. parts and components, and we have seen a trend to 
design out U.S. satellite components that poses grave risks to 
our industry. Several U.S. satellite component suppliers were 
notified by DASA that it has been directed to find European 
suppliers for parts. Other European and Japanese aerospace 
companies, Matra, for example, have made similar public 
statements.
    Another factor is the fact that the commercial satellite 
market has tripled in size since 1992. Increasingly, these 
launches are for foreign satellite operators and international 
consortia. The pace of sales is also much faster. In 1992, it 
took 2 or 3 years to manufacture a satellite. Now it is down to 
1 year in many cases. Today the most important criteria in the 
success of a commercial satellite business are reliability, 
scheduling, and cost in that order. While U.S. firms still 
enjoy a cost advantage, export restrictions can have a 
devastating effect on timeliness and on predictability. It is 
the uncertainty of the process, not just the time of the 
process, that is a critical element.
    An illustration of the scope of this problem is that some 
financial analysts now predict that the jurisdiction change 
will affect the ability of U.S. satellite makers to tap capital 
markets. Other analysts believe that the main effect will be on 
companies' ability to obtain launch insurance, which is often 
critical to securing sales and financing. To have a strong 
space industry, we need our companies to be able to compete in 
the international market for communications satellites, and the 
companies that can best service the international market will 
dominate the space sectors. While the United States was, before 
the transfer of jurisdiction, the unquestioned leader, we have 
seen in the last year the early warning signs of a shift in 
market leadership. Our current export controls on satellites 
have had the unintended consequence of building stronger 
competitors overseas. Losing the lead in satellites to foreign 
producers is not a good outcome for our national security.
    Obviously, any consideration of the jurisdictional issue 
must address the question of illicit technology transfers and 
the security of foreign launches of U.S. satellites. That is 
what the congressional inquiry was all about. This matter has 
been subject to extensive scrutiny and is routinely cited to 
justify the action that Congress took. The specific cases in 
question are under investigation, and it would not be 
appropriate to comment on them, but it is important to note 
that all of them, whether they were licensed by Commerce or 
State, occurred prior to the President's 1996 transfer of the 
remaining jurisdiction to Commerce, and we believe that as part 
of that decision in 1996 and subsequently we have put in place 
procedures sufficient to protect our security. In other words, 
we believe that we have already addressed the problem that 
Congress decided it wanted to fix, we believe incorrectly, in 
1998.
    To sum up, we find ourselves in the paradoxical situation 
where denial or delay of exports under the rubric of national 
security has in the end done more harm than good to our 
Nation's military and economic strength. Industry figures from 
the past 15 months suggest that the changed controls on 
satellite exports hurt the United States more than they hurt 
any intended target. While the Department of State has laudably 
taken action to alleviate problems, the fundamental issue 
remains that it is not practical or desirable to treat 
commercial exports as munitions transfers. The better solution 
is to recognize dual use items for what they are and control 
them through the Commerce procedures that are designed for that 
purpose. In fact, Congressmen Gejdenson and Goodlatte last 
month introduced bipartisan legislation in the House to do 
precisely that.
    The position of this administration has been that the 
United States can achieve a net security gain if it properly 
exploits globalization and commercial trends. Our satellite 
export policy must reflect this, and I think the best way to 
ensure that is to begin the process of considering how best to 
transfer the control of satellite exports back to Commerce 
while ensuring U.S. Government oversight over sensitive 
exports.
    Thank you, Mr. Chairman.
    [The prepared statement of Mr. Reinsch follows:]

             Prepared Statement of Hon. William A. Reinsch

    Thank you for this opportunity to appear before the Committee on an 
important and troubling issue.
    Since March 17, 1999, when the Congress transferred export 
licensing jurisdiction for commercial communications satellites back to 
the Department of State, we have engaged in a large scale experiment in 
export control policy that has serious implications for future efforts 
to reform or restructure our controls. The outcome of this experiment, 
I would say, has not been positive and it is not one I think the U.S. 
should repeat. I applaud the Subcommittee for examining this problem.
    The jurisdictional change affected our foreign relations, our 
national security and a broad range of U.S. industry, from small high 
tech firms to industrial giants, even for sales to allies. Since the 
transfer, which this Administration opposed, satellite exports have 
declined forty percent, from $1.06 billion in 1998 to $637 million in 
1999 according to Census Bureau export statistics, and the satellite 
industry has told us that the U.S. share of the world market has 
dropped from 73% in 1998 to 62% in 1999 and to 52% for the last 3 
quarters. The changed controls on satellites bear some of the 
responsibility for this, and we can only conclude that a system that 
works well for arms exports is, even with the best intentions in the 
world, not appropriate for commercial exports. This is a fundamental 
point for export controls--treating exports of commercial items, like 
communications satellites, as an arms sale does more harm than good to 
our national security and to the high tech industries upon which our 
military and intelligence agencies depend.
    I would like to touch briefly on a number of factors which the 
Committee may wish to consider as it contemplates the satellite 
licensing issue. The first factor is that we are operating in an 
increasingly global economy where commercial cooperation between 
companies in different countries is the norm and where technology flows 
are shaped less by national borders than by the needs of the global 
market. Information, financing, research and development, and 
production are broadly diffused and can be quickly transferred to meet 
market needs. No one nation can remain at the leading edge of 
technology unless it participates in this global market. This requires 
the ability to export.
    More efficient transportation and communication, the 
internationalization of capital flows and the growth of an information-
based economy have transformed national industrial systems into 
components of this larger market. The ability of any one nation to 
prevent the technology transfers that accompany such flows is limited. 
The power of the global market is such that if one source chooses to 
deny an export, absent a broad consensus among our partners, some other 
supplier will meet the demand. To succeed in this market requires 
companies--and nations--to evolve and to adapt practices which 
emphasize speed and the transnational nature of business. Failure to 
adapt means economic decline.
    Long-term changes in defense spending also shape the satellite 
export control issue. At the end of the previous administration, 
agencies with a role in space operations realized that DOD purchases 
would no longer be enough to support the robust satellite industry we 
need to meet our military and intelligence requirements. In contrast, 
the civil use of space has exploded. Ten years ago DOD and NASA 
accounted for more than half of aerospace sales. Today, industry 
sources say that government purchases account for only 35 percent of 
sales, while exports account for 40 percent. As the commercial 
telecommunications markets have exploded, companies have come to rely 
on commercial sales--including exports--for the bulk of their business. 
Globally there is overcapacity, and sales to DOD or the U.S. domestic 
market are not enough to maintain a strong and leading edge space 
industry and to stay at the cutting edge of technology.
    It may seem contradictory to say that we do more to build our 
strength the more open we are as an economy; however, as the Defense 
Science Board Task Force on Globalization and Security recently 
reported, shutting U.S. companies out of markets that are served 
instead by foreign firms weakens U.S. commercial advanced technology 
sectors upon which U.S. economic security and military advantage 
depend. In the case of satellites, the same companies that manufacture 
the most sophisticated military satellites are the leading commercial 
communications satellite makers.
    The third factor that bears on the satellite issue is the 
difference between our two principal export licensing systems--one for 
weapons and one for dual-use industrial products. These differences are 
appropriate; we should treat the export of tanks, fighters or 
submarines in a more deliberate and restrained manner. However, the 
arms export system can be needlessly damaging when applied to 
commercial items like communications satellites. Exports of major 
weapons systems have serious implications for our foreign policy and 
defense, and a process of lengthy deliberation and complex licensing 
requirements is appropriate. However, regulating commercial goods as if 
they were weapons harms our technological lead and the industrial base 
that is the basis for our military strength and economic health.
    There are many procedural differences between the systems which 
have contributed to the problems the satellite industry now faces, but 
two are most important. One is the scope of controls. Items on State's 
Munitions List require an individual license to any destination, 
whether that destination is India or the United Kingdom. In the case of 
satellites, many separate licenses can be required for a single sale. 
In some cases one license is required for technical data, another to 
make a bid, and a third to actually export hardware. If technology is 
transferred, another license is required. Some of these licenses may 
have to be notified to Congress. Commerce regulations allow safe 
transactions to go forward without delay. This has proven to be 
particularly important in the satellite field, as one result of the 
transfer of jurisdiction was that U.S. companies now have to obtain 
licenses for routine exports related to satellite launches or 
manufacturing for Japan and the NATO countries that previously could 
move under license exception. The Department of State, in cooperation 
with the Department of Defense, has put into place a package of reforms 
that bring some flexibility to State's licensing which my colleagues 
can describe in more detail.
    The second crucial difference is the extraterritorial reach of the 
two systems. Once a munitions item has been exported, U.S. approval for 
any resale or reexport is required. Further, any foreign made item 
which incorporates a U.S. munitions item, no matter how small, is 
considered to have become a U.S. munitions item and also requires a 
license for any resale or reexport. To use an actual example, if 
DaimlerChrysler Aerospace (DASA) uses a piece of plastic film which is 
on the U.S. Munitions List in a satellite it is building in Germany, 
that satellite becomes subject to U.S. controls and a license is 
required from the State Department for any sale. If, on the other hand, 
DASA buys the film from a British firm, the U.K. does not consider the 
film or the satellite a munition, and no further license from Britain 
is required. This is a significant problem in cases like communications 
satellites, since our partners in the multilateral regimes consider 
communications satellites and the parts that go in them as dual use 
items, not as munitions. Among all the satellite producer nations in 
the world, only the U.S. treats these sales as arms exports.
    The obvious response of foreign manufacturers is to avoid using 
U.S. parts and components, and we have seen a trend to ``design out'' 
U.S. satellite components that poses grave risks to our industry. 
Several U.S. satellite component suppliers were notified by DASA that 
it has been directed to find European suppliers for parts. Other 
European and Japanese aerospace companies, Matra for example, have made 
similar public statements. Commerce regulations, while they also apply 
to certain high-level re-exports, were modified in the Reagan 
Administration to avoid this broad extraterritorial reach. I expect the 
industry panel can provide you with additional examples of the damage 
caused by the transfer of jurisdiction.
    Another factor is the fact that the commercial satellite market has 
tripled in size since 1992. Increasingly, these launches are for 
foreign satellite operators and international consortia. The pace of 
sales is also much faster. In 1992, it took 2 or 3 years to manufacture 
a satellite. Now, manufacturing time is down to one year in some cases, 
as satellite companies begin to produce ``standard'' models. Recent 
consolidation in Europe's commercial space industry, coupled with the 
history of cooperation on joint projects through the European Space 
Agency, have created a collaborative environment well suited to rapid 
manufacturing, and one of the main advantages that Europeans now have 
is being able to deliver spacecraft on a more timely basis. The ability 
to meet customer demands quickly is particularly important in light of 
the way that the satellite services industry is developing. Today, the 
most important criteria in the success of a commercial satellite 
business are reliability, scheduling and cost--in that order. While 
U.S. firms still enjoy a cost advantage, export restrictions can have a 
devastating effect on timeliness and predictability.
    An illustration of the scope of this problem is that some financial 
analysts now predict that the jurisdiction change will affect the 
ability of U.S. satellite makers to tap capital markets. Other analysts 
believe that the main effect will be on companies' ability to obtain 
launch insurance, which is often critical to securing sales and 
financing. To have a strong space industry, we need our companies to be 
able to compete in the international market for communications 
satellites, and the companies that can best service the international 
market will dominate the space sector. While the U.S. was, before the 
transfer of jurisdiction, the unquestioned leader, we have seen in the 
last year the early warning signs of a shift in market leadership. Our 
current export controls on satellites have had the unintended 
consequence of building stronger competitors overseas. Losing the lead 
in satellites to foreign producers is not a good outcome for national 
security.
    Obviously, any consideration of the jurisdictional issue must 
address the question of illicit technology transfer and the security of 
foreign launches of U.S. satellites. This matter has been subject to 
extensive scrutiny and is routinely cited to justify the transfer. The 
specific cases in question are under investigation, and it would not be 
appropriate to comment on them, but it is important to note that all of 
them--whether they were licensed by Commerce or State--occurred prior 
to the President's 1996 transfer of the remaining jurisdiction to 
Commerce, and we believe that as part of that decision and subsequently 
we have put in place procedures sufficient to protect our security. I 
would also point out that both the Defense and State Departments 
concurred in each of the satellite licenses that the Department of 
Commerce licensed, including all of the conditions of those licenses. 
Further, these agencies would review any licenses we receive in the 
future should jurisdiction be transferred back.
    To sum up, we find ourselves in the paradoxical situation where 
denial or delay of exports under the rubric of national security has, 
in the end, done more harm than good to our nation's military and 
economic strength. Industry figures from the past 15 months suggests 
that the changed controls on satellite exports hurt the U.S. more than 
they hurt any intended target. While the Department of State has 
laudably taken action to alleviate problems, the fundamental issue 
remains that it is not practical or desirable to treat commercial 
export sales as munitions transfers. The better solution, in my view, 
is to recognize dual use items for what they are and control them 
through the Commerce procedures that are designed for that purpose. In 
fact, Congressmen Gejdenson and Goodlatte last month introduced 
legislation in the House to do precisely that.
    Mr. Chairman, I applaud the steps State and Defense have taken to 
streamline the arms licensing process for our closest allies. The 
question for the Committee remains, however, whether it is appropriate 
to treat commercial communications satellites as weapons. One 
alternative is to return jurisdiction to Commerce in a way that 
strengthens our national security and reverses the damage done to our 
satellite industry. Part of any return should be a mandate for proper 
monitoring of satellite campaigns by both Defense monitors and Commerce 
enforcement agents knowledgeable in our regulations, and by better 
educational efforts with U.S. companies to reduce or eliminate the risk 
of technology transfer. A careful examination by experts from DOD, NASA 
and other agencies with satellite expertise to identify critical 
technologies which must be tightly protected is also necessary in this 
regard. The alternative, an export strategy dominated by risk-
avoidance, may do more to damage our security than protect it. The 
position of this Administration has been that the U.S. can achieve a 
net security gain if it properly exploits globalization and 
commercialization trends. Our satellite export policy must reflect 
this, and I think the best way to ensure that is to begin the process 
of considering how best to transfer the control of satellite exports 
back to Commerce while ensuring U.S. Government oversight over 
sensitive exports.

    Senator Hagel. Secretary Reinsch, thank you.
    Secretary Bodner.

   STATEMENT OF HON. JAMES M. BODNER, PRINCIPAL DEPUTY UNDER 
    SECRETARY OF DEFENSE FOR POLICY, DEPARTMENT OF DEFENSE, 
                         WASHINGTON, DC

    Mr. Bodner. Thank you, Mr. Chairman. I appreciate the 
chance to report today on the progress that DOD has been making 
in reforming the processes we use for reviewing satellite 
export licenses to improve national security, and to support 
legitimate satellite cooperation with friends and allies.
    The policy that we pursue is one to restrict the transfer 
of technology to any foreign destination in two sensitive 
areas. The first is detailed design, development, and 
manufacturing technology for satellites, and the second is 
technology that would improve foreign launch vehicles. The 
focus of our policy is to ensure that U.S. technology is not 
transferred in a way that would improve ballistic or other 
missile capabilities where there are significant security 
risks, namely in China and in Russia, for example.
    To implement this policy and the legislative mandates that 
we have been given, we have developed special export controls 
in cooperation with our colleagues at the State Department. 
These controls are embodied in a special section of the 
International Traffic in Arms Regulation [ITAR], which of 
course is the regulations that govern the transfer of arms.
    At the same time, we recognize the desirability of 
continuing robust space cooperation with our close friends and 
allies. Therefore, while we reserve the right to apply these 
special export controls for national security or foreign policy 
reasons to transactions with allies and friends, we think that 
we ought to apply these controls only in selective and very 
narrow circumstances.
    Since the last time DOD testified to this committee back in 
June 1999, we have been working very hard to implement the 
satellite export control provisions that were in the Defense 
Authorization Acts for fiscal years 1999 and 2000. As directed 
by those statutes, the satellite and launch monitoring mission 
is being performed in DOD by our Space Launch Monitoring 
Division of the Defense Threat Reduction Agency [DTRA]. Based 
on the estimate of what we thought would be the workload 
requirement for monitoring and licensing, we authorized a staff 
of 42 people for that organization. At the time of last year's 
hearing, we were just beginning to hire our first full-time new 
staff members. This has proven to be very difficult to do 
because we are facing the same shortage of skilled labor that 
the industry faces.
    At this point we are close to 80 percent of our hiring 
goal, and we think that will be sufficient to meet this year's 
requirement.
    We have also devoted significant time and energy over the 
last year to export control reform, as Mr. Holum referred to. 
Secretary Cohen has identified export control reform as a 
national security imperative for several reasons. First, we 
think it is essential in order to protect critical technology. 
Second, we think it is essential to promote allied 
interoperability, and third, export control reform is essential 
to preserve the health of our defense industrial base. The 
steps we have been taking have been focused on improving our 
processes so that we can perform high quality reviews of export 
license applications in a timely way to meet the needs of 
industry.
    Looking beyond just the satellite arena, to all the export 
munitions licenses that we review, we have reduced the average 
review time over the last year from 45 days down to 17 days. 
Moreover, a year ago, we had a backlog of over 600 cases that 
were more than 60 days old. As of now, that has been 
eliminated, and we hope to maintain that. This has been 
accomplished primarily through changes in our processes and in 
our organization, not through the addition of staff. Now that 
we have reengineered our process and organization, we intend to 
continue to improve the quality and the speed of our reviews by 
adding 35 more licensing officers to DTRA's technology security 
staff, which is about a 50 percent increase in our licensing 
staff.
    We are implementing these reforms with two primary 
objectives. The first is to strengthen the license review 
process in DOD by focusing greater attention on high risk 
export applications and by adding well-trained staff. Currently 
we have far too many low-risk applications that receive 
multiple layers of review, not just by DTRA, but also by the 
military departments and other organizations in DOD. We think 
that we can handle those low-risk cases inside of DTRA, which 
will free up the highly specialized but very limited resources 
in the military departments. This will enable the military 
departments, with their equities and expertise, to focus on 
higher-risk license cases.
    The second objective is that we want to make sure that DOD 
is not a roadblock to the appropriate export of U.S. defense 
goods and services abroad, especially to allies and friends. 
This is very important as we seek to improve interoperability 
and enhance coalition warfare capability, which the Kosovo 
experience showed we have not done enough on.
    In addition to the improved export review procedures that 
we now have in place throughout the Department of Defense, we 
have also made significant strides with regard to satellite and 
space cooperation in particular. Within DTRA, the Space Launch 
Monitoring Division that conducts all of our monitoring efforts 
for space-related export reviews has moved forward and is 
consistent with the law, the Defense Authorization Acts of 1999 
and 2000. We think that we have a synergy between the license 
and the post-license monitoring efforts that will improve 
consistency and also ensure streamlined review, to enhance both 
security and ensure that industry remains competitive. This is 
consistent with the view we bring to this, that industry and 
national security are best served by an approach in which we 
work closely with the U.S. exporter from the very earliest 
stages of contract and license development, all the way through 
the design, the manufacture, and the actual launch. Security 
and the industry both require a consistent approach throughout 
what amounts to a multi-year program life for every satellite 
launch campaign, and we think that having this dedicated team 
approach works best in ensuring security and in ensuring the 
needs of industry.
    Presently there are about 100 satellite and launch vehicle 
programs that are subject to the more rigorous special export 
controls, which is to say those programs that require some form 
of DOD monitoring. Now, that monitoring might range at one end 
from a DOD presence in all technical meetings and at the launch 
site to the other end of the spectrum which would entail a DOD 
review of a company's internal control plan for authorized tech 
transfer. If you like, I can go into more detail about how our 
space launch monitoring system works.
    Let me just emphasize again that the special export 
controls I have discussed we think should only be applied in 
very limited circumstances with a very limited focus when we 
are dealing with friends and allies. We think that the recently 
published changes in regulations that Secretary Holum referred 
to will, in fact, result in an expedited and more focused 
license process for NATO nations, as well as major non-NATO 
allies. So, we support that strongly.
    I would like to reiterate that for DOD our central focus 
remains the task that has been given to us in the law. We are 
putting our principal efforts where we believe the principal 
risks to be, namely China and the former Soviet Union. We have 
designed our monitoring program against those risks and we 
think we have added a significant security element whose 
attention is focused on the program and launch site physical 
security, which is where it should be focused.
    DOD is focused on protecting what we should be and what the 
law requires and doing so in a way that ensures both technology 
security is protected, but also does not unnecessarily add 
bureaucracy or encumber industry. And we are confident that we 
can do better in the future. We have made enough progress in 
the last year to know how to improve. We are adding more 
people. We think we will get better in terms of process times, 
but also in terms of the quality of the reviews we provide.
    With that, Mr. Chairman, I conclude my statement.
    [The prepared statement of Mr. Bodner follows:]

               Prepared Statement of Hon. James M. Bodner

    Mr. Chairman, I would like to thank you for the opportunity to 
report to you today on the significant progress DOD has made in 
reforming satellite export control processes to improve national 
security while supporting legitimate space cooperation with allies and 
friends. I would like to address our policies and then the procedures 
that we have in place to implement those policies.
    It is our policy to restrict the transfer of technology to any 
foreign destination in two sensitive areas: (1) detailed design, 
development and manufacturing technology for satellites; and, (2) 
technology that would improve foreign launch vehicles. A major focus of 
our policy is to ensure that U.S. technology is not transferred that 
would improve ballistic and other missile capabilities in countries 
where there are significant security risks such as China and Russia.
    To implement this policy and various legislative mandates, we have 
developed special export controls in cooperation with our colleagues at 
the Department of State. These controls are embodied in a special 
section of the International Traffic in Arms Regulations.
    We also recognize the desirability of continuing robust space 
cooperation with our close allies and friends. Therefore, while we have 
reserved the right to apply these special export controls for national 
security or foreign policy reasons to transactions with those allies 
and friends, we have been and intend to continue to apply those 
controls in very selective and narrow circumstances.
    Since DOD last testified before your committee in June 1999, we 
have been working hard to implement the satellite export control 
provisions mandated by the Fiscal Year 1999 Strom Thurmond National 
Defense Authorization Act. We have also been incorporating in those 
measures legislative direction contained in the FY 2000 National 
Defense Authorization Act.
    As directed in those statutes, the satellite and launch monitoring 
mission is being performed by a dedicated and trained professional 
cadre in the Space Launch Monitoring Division, which is part of the 
Technology Security Directorate of the Defense Threat Reduction Agency. 
Based on our estimate of the monitoring and license workload the office 
would undertake, a 42-person staff was authorized with a mix of 
military and civilian personnel. At the time of last year's hearing, we 
were just beginning to hire our first new full-time staff members. This 
has proven to be an extraordinary challenge since we face the same 
skilled labor pool shortage encountered on a daily basis by the 
commercial space industry.
    We are close to 80 percent of our hiring goal, which will meet our 
current projection of the number of monitoring days required to meet 
satellite launch program workload this fiscal year (about 2500 
monitoring work days). When we and industry meet later this summer to 
discuss next year's monitoring requirements, we'll be prepared to move 
closer to our full strength, if the market and our security 
requirements warrant.
    As the law requires, we have set exacting standards for both our 
engineering and security staffs--and we are very pleased with the 
results. While our physical and electronic security staff comes largely 
from the government sector, our engineering staff is a mix of highly 
skilled former industry engineers, civilian national security launch 
and satellite engineers, and very experienced former military engineers 
with commercial sector experience.
    We have also devoted significant time and energy over the last year 
to export control reform, which Secretary Cohen has said is a national 
security imperative because it is essential to protecting critical 
technology, promoting allied interoperability, and preserving the 
health of our defense industrial base. The steps that we have taken 
focus on improving our processes so that we are performing quality 
license reviews in a timely way.
    So far, for all munitions licenses reviewed by DOD, we have reduced 
the average review time from 45 days a year ago to 18 days today. A 
year ago, we had a backlog of more than 600 cases more than 60 days 
old, which we have eliminated as of last month. This has been 
accomplished primarily through changes in DOD processes and 
organization for reviewing licenses, not the addition of new staff. Now 
that we have reengineered our process and organization, we intend to 
further improve the quality and speed of our reviews by adding 35 
people to DTRA's technology security staff, increase of about 50 
percent.
    We are implementing these reforms with two primary objectives. 
First, we are seeking to strengthen DOD's export license review process 
by focusing greater attention on high risk exports and by adding 
dedicated staff that will be trained and experienced with export 
controls. Currently, there are many low-risk licenses that are reviewed 
by the Military Departments and other DOD entities. We hope to handle 
these cases in DTRA, which will free up the limited resources in the 
Military Departments to focus on those higher-risk license cases where 
they have military equities and critical expertise. Second, we want to 
ensure that DOD is not a roadblock to the appropriate export of U.S. 
defense goods and services abroad, especially to our valued allies and 
friends. This is very important as we seek to improve interoperability 
and coalition warfighting capabilities with our close allies and 
friends that we found lacking in our Kosovo experience.
    In addition to the improved export review procedures now in place 
throughout the Department, we have also made significant strides in the 
satellite and space area. The DTRA Space Launch Monitoring Division 
that conducts our monitoring effort is now the principal reviewer of 
all space-related export licenses. This synergy between licensing and 
post-license monitoring provides consistency and streamlined review 
that enhances our security and ensures that our industry is 
competitive. This approach is fully consistent with our view that 
industry and national security are best served by an approach in which 
we work closely with the U.S. exporter from the early stages of 
contract and license development through design, manufacturing and 
launch. Our security and our industry requires a consistent approach 
throughout the multi-year life of satellite programs; and we believe 
that our dedicated team approach is focused and streamlined.
    Presently, about 100 satellite and launch vehicle programs, 
involving 37 companies, are subject to the more rigorous ``special 
export controls'' identified in the International Traffic in Arms 
Regulations--controls that require some form of DOD monitoring 
throughout the export and launch process. This can range from a DOD 
presence at all technical meetings and at the launch site to simple DOD 
review of a company's internal control plan for authorized technology 
transfer.
    Let me re-emphasize that special export controls should only be 
applied in very limited circumstances with a very limited focus when 
our allies and friends are involved. In this regard, we believe that 
the recently published change in regulations referred to by Mr. Holum 
will result in an expedited and more focused license process for NATO 
nations and major U.S. allies.
    I want to reiterate that DOD's central focus remains the task given 
to us in the law. We are putting our principal efforts where we believe 
the risks of technology loss are greatest--China and the Former Soviet 
Union. We have designed our monitoring program against these risks, 
adding a significant security element whose attention is focused on 
program and launch site physical security.
    We believe DOD is protecting what we should--and what the law 
requires--in a way that ensures U.S. technology security and does not 
unnecessarily encumber U.S. industry. We are confident that we can 
continue to do better as the process and regulation changes mature. The 
continuing interagency discussions on improved export controls will 
serve the American people well, simultaneously protecting both American 
national and economic security.
    Thank you, Mr. Chairman. I look forward to any questions the 
committee may have.

    Senator Hagel. Secretary Bodner, thank you, and again, to 
each of you, we are grateful for your time.
    As you know, behind you in the next panel will be an 
industry representative, and I suspect he will have questions 
about some of the points in your testimony as to how effective 
the new regulations have been in light of Secretary Reinsch's 
comments about market share losses. I suspect those are real 
numbers. And that might be a good place to start. Mr. Holum, 
you know those numbers. You heard what Secretary Reinsch said. 
What is your explanation for those losses in market share for 
our satellite industry?
    Mr. Holum. Let me preface by repeating what I said in my 
statement that we did not ask for this jurisdiction, but given 
it, we had to take into account the fact that Congress did not 
say you have jurisdiction over commercial satellites. It said 
commercial satellites are ``munitions.'' And that means we are 
required to treat them as munitions. We are trying to make the 
best of a circumstance that Congress mandated that we did not 
ask for and that does have, by virtue of the character of our 
licensing process, definite disadvantages for a commercial 
product. It is not designed for commercial products, as 
Secretary Reinsch said.
    It would also be entirely inefficient and duplicative for 
the State Department to parallel the Commerce Department 
process. If you are going to do something that would have 
agency voting and rigid timetables built into it, then you 
should not have it under a national security oriented munitions 
list. It should be in the Commerce Department.
    That said, I think it is fair to say that we have made the 
very best of a situation that we did not request in trying to 
deal with these licenses in a timely way. You have heard my 
description in my statement about the average licensing times 
for commercial satellites. There are serious problems that I 
hope our reform, with respect to NATO and major non-NATO 
allies, is designed to address and will address and that is the 
fact that Commerce had decontrolled and had the license-free 
treatment for a number of parts, components and related 
technology that were also returned back to the State 
Department. We do not have in the State Department a CCL-99. We 
license everything that is in our jurisdiction. Everything 
requires a license. So that meant a number of things, parts and 
components, went from no license treatment to some license 
treatment, and no matter how fast it is, it is not going to be 
as fast as it was before because then the time was zero. So, I 
think that is the major focus of the problem.
    We have not had a satellite manufacturer come to us and say 
they have lost a sale because of inability to obtain a license, 
other than cases where licenses have explicitly been turned 
down for security reasons related to countries other than NATO 
and non-NATO allies. So, I think the major focus, the major 
source of the problem which we are trying to resolve, is in the 
parts and components area.
    Senator Hagel. Staying on that subject and your comments, 
as well Secretary Bodner's comments about the new expedited 
licensing procedures--does that include complete satellites? 
Can you break that down for me? Are we talking about a complete 
satellite?
    Mr. Holum. No, it does not include complete satellites, and 
there is a specific reason for that. One is that complete 
satellites, by virtue of the size of the contract, invariably 
are more than $50 million, which means they require reporting 
to the Congress and Congress' acceptance of the notification. 
Complete satellites are also not suitable for bulk licensing 
because, by definition again, they are a single product 
exported in a point-to-point transaction, constructed wherever 
they are constructed, shipped to the point of launch, and 
launched into space. So, it is not something that is suitable 
for multiple licenses. It is a single license case.
    In addition, we feel that has been covered. In the initial 
regulations, a number of the controls that applied globally did 
not apply to NATO and non-NATO allies. And then as the record 
demonstrates, in terms of practice, we have been pumping these 
licenses out in a timely fashion. I gave you the list, and 
there is a longer list attached to my statement demonstrating 
how fast complete satellites have been licensed, and I think 
they have been moving expeditiously.
    Senator Hagel. Secretary Reinsch, would you care to comment 
on either of the two questions I posed to Mr. Holum?
    Mr. Reinsch. Sure, Mr. Chairman. I guess I would say two 
things.
    I think he struck the central point. They have been working 
very hard to tweak the system, but as Mr. Holum said, there is 
only so much you can tweak because there are some fundamental 
differences. To steal a phrase from John Hamre, who is not here 
to hit me over the head for stealing it, it is like putting 
lipstick on a dying pig. It makes it look better, but it does 
not solve the fundamental problem. The fundamental problem is 
satellites do not belong over there. We all know that, and 
there are limits as to what they can do.
    I will leave to Mr. Mowry, who is better equipped than I 
am, to discuss the question of what the practical effect has 
been on the industry. I do have with me a three and a half page 
list of media reports about business lost by specific U.S. 
companies over the last 9 months that I would be pleased to 
submit to the committee. It details individual companies that 
have not been able to do business or have lost business or have 
not been offered to bid on contracts in many cases because of 
the licensing process.
    Senator Hagel. Thank you.
    Mr. Bodner. Mr. Chairman, could I add a comment?
    Senator Hagel. Secretary Bodner, yes.
    Mr. Bodner. To the first question you asked Mr. Holum, I 
hear black and white explanations as to why this shift in 
market share. On the one hand, I heard some say that it is 
solely due to export controls and the transfer that took place. 
On the other hand, I hear explanations that are totally 
unrelated to that. I think the situation is mixed.
    In general--not in the satellite arena, but in general--we 
have an export control system which is sclerotic, which is very 
slow. It does not serve national security interests as well as 
it needs to, and national security interests in this arena are 
twofold. One, we need to open a gap with our adversaries by 
denying them things. We need to close the gap with our allies 
by facilitating their getting things, getting technology. Both 
of those are essential national security. The system we have 
tries to do that. It does not do it well enough on either 
objective.
    We have worked tremendously hard at DOD, and the numbers I 
cited indicated some of the progress we made. But I know how 
hard it is to make that progress. It is not simply hiring 
people. That does not do the job. There are genuine process 
changes that are required. We have tried to do that. I think we 
now have an interagency process trying to do that. Export 
controls have contributed to the problem I think that Mr. 
Reinsch described, but they are not solely at issue, and I 
think that we have now in place improvements that will help 
alleviate the degree to which it contributed to the problem.
    I think there are other factors at work, as Mr. Holum 
suggested. One factor--I am not the expert in this--I believe 
is that out of the roughly two dozen contracts over the last 
year for geo-satellites, only a very small number of those were 
actually openly competed. Others were captured, in essence, 
within the European market because they were directed, if you 
will, by the contracting authorities. It is my understanding. I 
do not know the details in precise. Maybe Mr. Mowry can comment 
on that.
    Senator Hagel. Are you suggesting, Mr. Secretary, that the 
Congress should go back in and take a look at the national 
security implications of this with a little more intensity than 
we did before?
    Mr. Bodner. For DOD, as Mr. Holum suggested, we did not 
seek, we did not welcome the change. We could work with the 
system as it was before and ensure that the national security 
was met. We can work with the current system and ensure that 
our aspect in this can be met. DOD can do its job in ensuring 
security. We can work either way with it.
    I do think that the Congress needs to focus more broadly on 
export controls and how to make sure that export controls can 
do both functions: close the gap with our allies, open the gap 
with our adversaries. I do think that there is a misperception 
that the only function of export controls is the latter, 
opening the gap with adversaries by denying them things. We 
have to make sure our export control system facilitates 
cooperation between United States and allied industry and the 
transfer of technology to allies who have to fight with us side 
by side. Both of those are essential to the national security.
    Senator Hagel. Do you believe congressional action is 
needed to accomplish this in more defined ways than maybe we 
have been able to do in the last 2 years or is that a function 
of the three Departments who are working with this, primarily 
your Department?
    Mr. Bodner. Well, again, Secretary Albright and Secretary 
Cohen just announced 2 weeks ago a series of initiatives to try 
to improve the export control process, and we think that they 
will simultaneously assist industry to collaborate with 
European partners and also Australian and Japanese partners and 
improve security at the same time. We specifically designed 
those 17 reforms so they would not require legislation because 
we were not sure we could get legislation. There are additional 
reforms beyond that that no doubt could be sought that would 
require legislation.
    The first thing I would ask is first do no harm. If we 
could work with Congress to make sure we do not have 
legislation to prevent us from taking these 17 reforms, that 
would be very helpful because I do think there are some people 
considering legislation to block those 17 reforms.
    Senator Hagel. Are you familiar with Congressman 
Gejdenson's bill?
    Mr. Bodner. Sir, I am not familiar with the details, no.
    Senator Hagel. Do you know generally what that bill is 
about?
    Mr. Bodner. Is this to return jurisdiction?
    Senator Hagel. Yes.
    Mr. Bodner. Again, I do not think that the administration 
sought the change in jurisdiction. DOD's view is we can live 
with the change. We can live with the current structure. We 
have worked with State to work out better procedures. DOD is 
not pursuing a change in jurisdiction. We can do our job, our 
role, satisfactorily under either arrangement.
    Mr. Reinsch. If I can comment on that, Mr. Chairman.
    Senator Hagel. Yes.
    Mr. Reinsch. The administration does not have a position on 
the bill. It was introduced only last month. It is H.R. 4417, I 
gather. It does have some unusual features that I think would 
probably give us some pause as we go through the details of it. 
But you have heard all three of us say that we did not seek 
and, in fact, opposed the initial transfer, and I think we 
welcome efforts to go back. Whether this particular approach is 
the right one is something we have not addressed yet.
    Senator Hagel. Mr. Holum, would you like to comment?
    And I heard, by the way, very clearly your disclaimers here 
that you did not seek this responsibility.
    Mr. Holum. No. We will do as Secretary Bodner said. We will 
deal with whatever Congress asks of us. My concern is that 
Congress be definitive and durable in its decision one way or 
the other. We have had some internal conversations about what 
would we do if jurisdiction were transferred back, and I think 
the consensus view is that we would have a party.
    But we want clarity in what our mission is. We are doing 
the very best we can and I think we are doing a pretty good job 
of getting licenses dealt with, addressing specific problems, 
consulting closely with industry, trying to resolve concerns, 
but this is a system designed for weapons, for munitions. It is 
not a system designed for commercial products.
    Senator Hagel. And it appears--and I suspect again we will 
hear more directly from our industry representative--that 
commercial products are getting snagged in the underbrush of 
this noble, important effort. Generally would you agree with 
that statement or not?
    Mr. Holum. Well, yes, and in particular, as it applies to--
I think as a matter of objective reality that commercial 
satellites are not munitions--the satellite itself is a 
commercial product. There is a close relationship between the 
satellite and the launch vehicle which is a munition even if it 
is launching a satellite because there is no difference between 
a space launch vehicle and a missile that anybody can rely 
upon.
    But the satellite and most of the related components in my 
view are commercial products objectively. Now, they have been 
defined as munitions for licensing purposes, and that is the 
complication here.
    Now, within that framework, there are great many associated 
parts and components and technical data that, under the 
Commerce structure, required no license. They had gone through 
a Commerce determination that they were not sufficiently 
sensitive to be on a control list. So, they were, in essence, 
decontrolled except for shipment to terrorist countries. Those 
items all require a license under the State system. I have no 
doubt that many of them are purely commercial products. So, 
they are folded up in this transfer of jurisdiction.
    Senator Hagel. Do either of you have a comment on that 
question?
    Mr. Bodner. No.
    Mr. Reinsch. No, I agree.
    Senator Hagel. Let me ask each of you this question. 
Realizing that we are early into this, less than a year and a 
half into it, and that we have burdened the State Department 
with some heavy responsibility, are we in fact any closer to 
accomplishing the objective that we set out with in this 
legislation? Is our national security in better shape today, 
more secure than it was 4 years ago, 3 years ago, and in fact 
is our commercial industry more productive? Are the 
opportunities less prohibitive? So, the obvious objective is 
protecting our national security without harming our industry. 
Are we accomplishing both with this legislation, or are there 
things that we need to come back and do? Mr. Secretary?
    Mr. Reinsch. Well, my view frankly, which I am sure comes 
as no surprise, is that we are worse off for the action that 
Congress has taken. Our security is worse off because the 
industry is worse off. And as I tried to demonstrate in my 
testimony--and Mr. Bodner made exactly the same point--that in 
a world of globalization and in a world where communications 
technologies are integral to military strength and military 
capability, our ability to run faster than our adversaries is 
as important as our ability to hold our adversaries back. 
Export controls do the latter, but if we are strangling our own 
companies at the same time, we are hurting our security--it is 
very simple. They export. They make money. They plow their 
money back into R&D on next generation products.
    If you go out and visit the Hughes High Bay, which is in 
southern California, where they actually make these things, you 
are walking along and you see various satellites underway, and 
then all of a sudden there is this area with all this dark 
plastic sheeting all over it. Well, what is it? It is a 
classified project. These are the same people that are doing 
military work. They are doing classified military work, and 
they are doing commercial satellite work at the same time. If 
we are going to hurt these companies, there is a spillover 
effect that simply cannot be ignored that has a direct impact 
on our security.
    I think we are not only worse off for the action that we 
have taken for that reason. I would contend that what Congress 
did was to step in and attempt to solve a problem which we had 
already solved and which we had already addressed. The 
situations that spun everybody up occurred in 1993, 1994 and 
1995 and the first 2 months of 1996. The President did not take 
the action that Congress reversed until after those actions. He 
made the decision to transfer jurisdiction in March 1996, and 
the reg was not issued until October 1996.
    In the process of issuing those regs, we have done a number 
of other things. We beefed up monitoring. We have regularized 
the process. We had all three agencies reviewing individual 
licenses. We felt that we had a tight process at that time. And 
I think it is not insignificant that the Congress, despite the 
320,000 pages of documents that we provided, and I assume 
comparable amounts that my colleagues provided in this period, 
never came up with any problems in 1997 or 1998 or the latter 
part of 1996. They came up with historical problems that all 
occurred before the transfer of jurisdiction.
    Our view has consistently been that to the extent there was 
a problem, we fixed it, and now Congress has stepped in to fix 
it again, and by doing so has made everything worse.
    Senator Hagel. Well, that is rather clear.
    Mr. Reinsch. I do not mince any words.
    Senator Hagel. Thank you.
    Secretary Bodner.
    Mr. Bodner. Thank you, Mr. Chairman. Let me make three 
points.
    First, with regard to the monitoring that we do, from the 
earliest stages of design of the system all the way through 
launch, our system has gotten better. I do think the 
legislation has helped. The legislation provided for 
reimbursement, for example, of the cost associated with our 
monitoring program. Our monitoring program has gotten more 
disciplined. We got guidance in the legislation for precisely 
what we ought to be doing. And so, I do think congressional 
action has helped on that. I do think national security is 
being served better today than several years ago because our 
program has gotten better.
    I would also note that we have greater transparency into 
the State Department run Munitions List process than we do 
sometimes into the dual use licensing process. In that regard, 
DOD feels more comfortable. We do not think anything is 
slipping through that we are unaware of on that front.
    As I said before, my second point is the impediments inside 
the export control process undoubtedly have contributed to some 
of the market problems, but there are many other factors at 
play. I cited the captured market as part of the problem which 
might explain much of the decline in the number. I also think 
that the bottom has fallen out of the market. I pay attention 
to that more on the launch side than I do on the actual 
satellite side. The market is not what it was several years 
ago. Somehow that, I am sure, has contributed to the problems 
that Mr. Reinsch is identifying. I cannot tell you how much 
they have contributed but that is part of the picture as well.
    Again, I would go back to in general, export controls--not 
on satellites, but in general--to the need for continued focus 
on reform. They have not been performing the job of protecting 
technology as well as they should. And that is something, 
because of the change in business practices, we need to 
continue to focus on. We have to stay ahead of the changes in 
business practice or our existing export control system will 
not keep pace, and we will no longer have the security we need. 
But export controls also need to continue to be reformed to 
ensure that people who we are going to fight side by side with 
are interoperable with us.
    Senator Hagel. I suspect the industry representative, Mr. 
Mowry, will cover some of the area and will be interested in 
your analysis as to why the market has gone to hell. So, thank 
you for your thoughts.
    Mr. Bodner. I acknowledge the limitations of my knowledge, 
sir, on that.
    Senator Hagel. Well, that is why we have Mr. Mowry here. He 
will help us with that, but thank you, Mr. Secretary.
    Mr. Holum.
    Mr. Holum. I would just reinforce maybe a couple of points. 
One is that there is no question about what exports of 
satellites and parts and components and technology are more 
tightly controlled now to China and Russia than they were in 
the past. The monitoring and the licensing requirements are 
also more tightly controlled every place else as part of the 
process. So, you have to make a judgment as to which goal is 
more important. We are, as I said at the beginning in my 
statement, scrutinizing these licenses very closely from a 
national security and foreign policy perspective. They are 
carefully reviewed, and I think there is more of that. We do 
not know in great detail, for example, what was decontrolled by 
Commerce. What we know is we got it all back and everything is 
now ours. So, it certainly is more tightly controlled.
    But I also would reinforce the point that I think it is 
self-defeating to overestimate the effect of the licensing 
system on the market. It is a fact that military aerospace 
exports in 1999 grew to $12.4 billion. Military aircraft sales 
grew to $36 billion. Missile sector sales, again purely 
munitions, grew to $8 billion. All of those are also licensed 
by the Office of Defense Trade Controls. Yet, the licensing did 
not prove to be an impediment.
    Now, certainly the market is different, I grant you, for 
satellites than for munitions. But the munitions licensing 
process cannot be that big a clog. One of the things that Jim 
Bodner referred to I have also seen referred to, and that is 
the fact that a lot of these contracts are linked, are tied; 
they are not competitively bid. Of the ones that were awarded 
in 1999, only seven were in fact competitive. There has been 
shrinkage in the market due to excess transponder capacity in 
geosynchronous orbit. The lingering effects of the Asian 
financial crisis. You could point to a number of things.
    I am only saying it is self-defeating to exaggerate this 
because it gives the competitors the opportunity to argue, 
well, that whole licensing mess in Washington means you better 
go with us when, in fact, we are getting licenses out pretty 
quickly. So, U.S. industry should not be handing its 
competitors a golden award here, a golden argument for going 
with other firms.
    Mr. Reinsch. May I add something, Mr. Chairman?
    Senator Hagel. Yes.
    Mr. Reinsch. I hesitate to do this, but I do have to take 
exception to a couple things my colleague said just to clarify 
the record from my point of view.
    First of all, the Commerce Department does not remove 
things from the control list unilaterally. If we decided that a 
part or component did not need to be controlled, it was because 
the State Department and the Defense Department concurred in it 
and knew about it. It is not an action that we take by 
ourselves.
    Second of all, I have always resisted the implication that 
the Commerce Department control system is somehow not as tight 
as the State Department control system. I suppose one can argue 
that if you have to go through 24 hoops, it is tighter than 
having to go through 2 hoops. But I think that if you look at 
satellites in particular and go back to the history of this, of 
the three, I believe, cases that Congress identified as 
problematic, two of them were licensed by the State Department 
in 1994 and 1996, and one of them was licensed by the Commerce 
Department. We had our problems with this system, and I was 
quite clear in testimony before Congress at the time in 
explaining what our problems were.
    But I do not think it would be correct to infer that the 
Commerce Department is the only agency which had those problems 
and that one system is in some sense tighter than the others. 
Both our testimonies spent considerable time talking about the 
differences between the systems and the difference in their 
focus, and I would prefer to leave it at that rather than 
getting into judgments about which one is tighter.
    Senator Hagel. Secretary Bodner, do you want to say 
anything about this issue?
    Mr. Bodner. Just to clarify a point which has been relevant 
in the satellite arena in the past and the differences between 
the two systems. I think this is what Mr. Holum was referring 
to when he used the word ``decontrol.'' He may not have meant 
decontrol in the sense of taking it off the commodity control 
list so much as in the process of determining whether something 
is subject to controls, Commerce and State operate slightly 
differently. We have good transparency into the State 
Department when they make such a determination, which is called 
a commodity jurisdiction determination. We do not always have 
such good transparency within the dual use system for a 
commodity classification. This is a subject that we have all 
testified to before. We think we should have better 
transparency. So, that is one benefit, a mix of many factors, 
one benefit of the switch over to State. We have confidence 
that when a determination is made as to whether something is 
subject to licensing, we know what is going on.
    Senator Hagel. Secretary Reinsch, you mentioned three 
specific cases: two licensed by the State Department, one by 
the Commerce Department. Are you talking about the Chinese 
cases?
    Mr. Reinsch. Yes. There was the Hughes case, which was 
ours. There was the Loral case, which was State's, and the 
Lockheed Martin case which was also State's.
    Senator Hagel. The infamous cases that began this creative 
journey.
    Mr. Reinsch. Hughes and Loral were the two big ones, yes. 
One of them was ours.
    And I indicated quite clearly in testimony at the time that 
upon further review, we should have handled ours differently. 
We made a mistake and I have acknowledged that. But that was 
one of the cases.
    Mr. Holum. It is important to keep in mind in that context 
that what allegedly happened--and these are still under 
investigation by the Justice Department, so we cannot go into 
much detail, but what is alleged to have happened is something 
required a license, and one was not secured. A launch failure 
investigation, which implied sharing of technical data relating 
to the space launch vehicle, always required a license--did 
while it was under Commerce's jurisdiction, and did while it 
was under State's jurisdiction. You have to have a license to 
help anybody analyze why their rocket did not go up as 
estimated because that deals with something that is clearly a 
munition, was then, is now.
    Senator Hagel. Thank you.
    Let me ask Secretary Bodner and Mr. Holum about a statement 
that Secretary Reinsch made in his testimony. He said: ``Today 
the most important criteria in the success of a commercial 
satellite business are reliability, scheduling, and cost in 
that order.'' Secretary Bodner, do you agree with that?
    Mr. Bodner. I am not sure I am in a position to make a 
decision of which of those factors is most important for any 
given contract decision. I think they are all three important. 
Reliability has many factors to it. The speed of license review 
is one of the important factors associated with it, and that is 
why we are focused on making sure that we have a process which 
is a quality review but an expeditious review. They are all 
important. And we can do better. We are doing better today than 
a year ago, but I think we can do better still.
    Senator Hagel. So, you would not necessarily agree that 
reliability, I think emphatically pointed out by Secretary 
Reinsch, is the most important component in the success of our 
commercial satellite companies.
    Mr. Bodner. I just do not think I am in a position to make 
that judgment.
    Senator Hagel. Thank you.
    Mr. Holum.
    Mr. Holum. It certainly sounds reasonable. From what I know 
anecdotally about the market, reliability is certainly a large 
factor, and there have been some failures that have caused 
competitive, as well as economic problems.
    I also think that timeliness is becoming increasingly a 
concern because of the shrinkage between the time when 
contracts are awarded and satellites need to be launched. This 
used to be a longer-term, 2- or 3-year process. Now it is 
closer to a year, from what I understand, so that the entire 
process needs to be accelerated.
    Mr. Reinsch. That is a very important point, Mr. Chairman. 
I mentioned it in my testimony, but I am glad Mr. Holum 
mentioned it.
    When we were doing this, we had the luxury of taking a long 
time because it took a long time to build the thing, and then 
there was a launch window that was down the road. He is quite 
right. These things are being cranked out much more quickly 
now. The competitive environment has changed a lot. There is a 
lot more pressure on State to move quickly.
    Senator Hagel. A question I have for each of you--and we 
have touched on it, each of you in your own way in your 
testimony, and then during the give and take here--about 
illicit technology transfer and the security of foreign 
launches of U.S. satellites.
    We all understand you can pass all the laws and all the 
regulations, have all the good intentions, but there are some 
out there whose intentions and motivations are not as pure and 
noble as ours.
    So, with the new law, as it is constructed and being 
implemented, are we any closer to getting at the core problem 
of tightening down the illicit transfer of technology than we 
were 3 years ago, 4 years ago when, as Mr. Reinsch points out, 
we had difficulties with the two cases that brought all this 
together? Is it any better? Is it too early to tell? Or is it 
about the same, or is it worse? Mr. Holum.
    Mr. Holum. I was struck by something Bill Reinsch said 
about the fact that this problem was being fixed; it had been 
recognized. It seems to me that the ideal circumstance might 
have been that if Congress had had the full set of hearings 
that it had and then did not legislate because it certainly did 
contribute to raising the consciousness throughout the 
administration. The legislation did result in more routine 
defense monitoring of transactions, launches in sensitive 
locations.
    I recall, in all of those hearings, there was a broader 
concern raised. There were some who argued if you help the 
Chinese improve their space launch capability simply by giving 
them the economic incentive for launches, just by providing 
launches, you help them, through the principle of practice 
makes perfect, improve their missiles. Now, for a variety of 
reasons I do not think that is an accurate conclusion. Their 
space launch vehicles are not likely to be what they end up 
using for missile programs.
    But if that is what you believe, then our position does not 
help because we still believe that it is important to, and that 
we can safely, prevent the transfer of sensitive technology 
while licensing launches of U.S. commercial satellites on 
Chinese or Russian or other countries' launchers.
    But more broadly, I think whether or not Congress had 
legislated, the issue would have been addressed and is being 
addressed in a much more rigorous way.
    Senator Hagel. Thank you.
    Mr. Reinsch. I would second that, Mr. Chairman. I think it 
is better because of the hearings. I think it is not better 
because of the legislation.
    We are not involved in the licensing process now, so I 
cannot comment on the merits of any decision that State has 
made in the intervening period because we do not see the 
applications anymore.
    But I think, in general, the hearings that were held and 
work that we had underway prior to that time, as I said, has 
made the situation tighter now than otherwise.
    It is uniquely a difficult area to maintain controls and to 
successfully monitor because all the incentives, if you will, 
are to have contact and to have exchanges of information. If 
you think about the vulnerable points in a whole launch 
program, the vulnerable points are, first, when the satellite 
arrives--take China--in China and they are bolting it onto the 
rocket. That is a point where there is potential technology 
transfer. If it is launched successfully, it is up there. You 
never see it again and there is not a lot of further technology 
transfer.
    The other big vulnerable point comes in if the satellite 
blows up because then what happens is that the insurance 
companies come in--and each side has an insurance company--and 
they have a great interest in making sure that it was somebody 
else's fault so the other company has to pay. At the same time, 
who is there but a bunch of engineers, and their job is not to 
make things blow up. Their job is to make things work. And so, 
everybody that is part of this equation is motivated to try to 
figure out what happened and how to fix it and to make sure it 
will not happen again. That is what they do. They are 
engineers, they are scientists, and they are insurance 
companies.
    In that environment, it has proved very, very difficult to 
prevent technology transfer from occurring because that is what 
these people do. Frankly, I have some sympathy for an argument 
that Henry Sokolski, with whom I rarely agree on these issues, 
made at the time, which is that with respect to China, if you 
are concerned about this, you really need to make the decision 
up front as to whether you want to do business with them in 
satellites or not, because if you do business with them, there 
is going to be some leakage over time because of the nature of 
the transaction. And you either accept that and do your best to 
minimize it, or if you are troubled by it, you say no launches. 
In retrospect, I almost think that might have been a better way 
to go, to confront that issue head on and say, are we troubled 
by this, in which case let us get out of that business and go 
elsewhere, although that would have had a lot of implications.
    We are doing this a lot better now than we used to, but I 
think there are still these vulnerabilities there. It is 
inevitable in the nature of the transaction.
    Senator Hagel. Secretary Bodner, I know you have a date at 
the White House and need to leave at 3:45.
    Mr. Bodner. You know my schedule better than I do.
    Senator Hagel. Well, we are the all-knowing, omnipotent 
Senators. It is scary and frightening really how much we do not 
know and think we do.
    You have got about 2 minutes before you have to leave. How 
is that? I am letting you off the hook a little bit here. So, 
if you could give me whatever you think is the appropriate 
answer in 2 minutes, you can escape. And I have one more 
question for your colleagues, but we will submit yours in 
writing. Thank you.
    Mr. Bodner. Thank you, Mr. Chairman.
    Let me add a layer of detail beyond what Mr. Reinsch said. 
I do not think it is the case that everyone involved is solely 
focused on making it work, whether it is a launch failure or 
not. We have monitors there. They are there to make sure that 
inappropriate tech transfers do not happen. And I do think that 
things have gotten significantly better. We have a much better 
monitoring system today than we did a couple of years ago, and 
that is partly due to the legislation.
    I say the legislation that affected the monitoring, a 
distinct legislation provision from the one that transferred 
jurisdiction. We used to have temporary duty assignment of 
missile engineers go off and monitor meetings, launch sites, et 
cetera. We now have a dedicated team of people. I think we have 
33 today. We will be up above 40 next year. That is all they 
do, and they monitor these things from cradle to grave. When it 
comes to China and Russia, they attend every technical meeting 
where there might be transfer of tech data. That is certainly 
one of the most vulnerable points. It is not just at the launch 
site or in the case of a failure. It is in the design of the 
system in the first place because some of the most critical 
losses are the tech data that might be lost. So, we have 
definitely gotten better.
    This improved monitoring system we have will be in place 
regardless of where the jurisdiction lies. So, if Congress were 
to change things, we would still have this improved system in 
place.
    Again, we do not advocate changing the jurisdiction. Flux 
in the system can contribute to difficulty in maintaining 
controls here. We have already gone through tremendous flux 
shifting in one direction. If we shift back, we have to accept 
that there will be a period of time in which we are going to 
have a fluid situation where it is going to be hard to control 
again. But we will do what the Congress tells us to do and DOD 
can do its job either way.
    Senator Hagel. Secretary Bodner, thank you. Thank you for 
your service to the country as well. We are grateful.
    If I might, gentlemen, I just have one general question. 
Picking up on your answers to my question on illicit transfer 
of technology and what the real world is about out there, 
connect that with what you have said in the last hour about the 
new competitiveness in this industry and the new products and 
the new players.
    At some point I suspect we could ratchet sales down as 
tightly as we possibly can and go beyond where we are now, but 
it may not make all that big a difference because of the new 
competitive market and the other suppliers who are out there. 
How much is that a factor in your thoughts on this, coming 
from, Secretary Reinsch, your background in this and your past 
responsibilities moving forward, Mr. Holum, to your present 
responsibilities?
    Mr. Reinsch. That is a really good question, Mr. Chairman, 
and it is one that requires a lot of thought. Let me say a 
couple things, but I would also like to reserve the opportunity 
to perhaps get back to you at greater length later after I have 
had a chance to ponder it.
    I think you have touched on the problem that bothers us 
across the board in export controls now. In the 1950's and 
1960's and into the 1970's, the United States was the world's 
leader in most everything that mattered from a military 
standpoint, and export controls was kind of an easy process 
because foreign availability was few and far between, and we 
had to make decisions about what we wanted the other guys to 
get, but we did not have to worry too much about what would 
happen if we said ``no.'' We had to worry about leakage, 
somebody cheating, somebody filling out the form falsely. Every 
administration has had this problem--something that ends up in 
the wrong place.
    But as the years go on, and particularly in the last 
decade, we have been really overwhelmed with the problem that 
you just described, which is that a lot of this technology is 
becoming ubiquitous in many respects, thanks in part to the 
Internet and more rapid means of communication. But if you want 
to look at the big picture, you should look more than anything 
else at the enormous numbers of foreign students that are being 
educated here and are getting their Ph.D.'s in various 
engineering sciences and then going back to their own countries 
and doing good things. As a matter of national policy, we 
believe that is important because they take American ideas with 
them, and they take democracy with them, and they take freedom 
of the press with them. They take a lot of things with them. 
Oftentimes they do not go back. They stay here and they add to 
the great body of knowledge and skill that we have in this 
country that has made us what we are.
    But some of them do go back, and the result is that in all 
the sectors we are talking about, we have got competitors. Talk 
to the phone companies. Talk to Motorola. Talk to the computer 
companies, as we are tomorrow. They are all in town. Talk to 
the software people that you may have met with over the last 
couple of days. There is this undercurrent sort of fear, if you 
will, that runs through a lot of what is going on now that they 
have got competitors that, 10 years ago, 15 years ago, they 
would not have had. That makes our job much more difficult 
because, first of all, it magnifies the economic consequences 
when we say no because there is somebody else out there ready 
to pick up the slack immediately, and it magnifies the security 
risk because those things can go from foreign sources and have 
the same consequences as if they came from the United States.
    It is a fair question to ask in the case of the Chinese, 
how much difference did we really make? I think John's comment 
about practice makes perfect is well taken. That is an argument 
that is worth mentioning, but the Chinese have been launching 
missiles since the 1960's, and they did not do it in the 1960's 
and 1970's with any help from us. Those are capabilities that 
were there.
    I think this is a situation that is only going to grow. I 
do not want to say get worse. It just poses a different set of 
challenges, and we are going to have to deal with them. Most 
people, both parties, bipartisan, have tended to say the way to 
deal with them is by trying to control fewer items better, 
focus in on the narrow range of stuff that really matters, keep 
up with technological change, and above all, do not do things 
that hold your own people back. Make sure that they can run 
faster.
    The fact is, however, that getting agreement on any given 
action within that general set of principles is often 
difficult, and that is what we wrestled with between ourselves 
and the Congress and amongst the three of us on numerous 
occasions.
    Senator Hagel. Thank you.
    Mr. Holum.
    Mr. Holum. I think there are two distinct areas to focus 
on, and Under Secretary Reinsch has addressed very articulately 
the dual use realm.
    Defense is a different item. This is not, as some argue, a 
cold war regime. This is actually a regime that goes back to 
the Neutrality Acts of the 1930's. It has always had a global 
focus. And we control many items in which there is enormous 
competition. Anything that is a munition down to an M-16 rifle, 
any commodity that is in a military inventory and has a 
military purpose and is on the Munitions List needs a license, 
low tech or high tech. We control for foreign availability 
purposes. Even if all the countries in the world are competing 
to send AK-47's into Sierra Leone, we do not think we should do 
that. So, it is a different kind of market.
    At the high end, what I think we need most to do, picking 
up on what Secretary Bodner said earlier, is maintain our edge, 
our superior capability, and that means having a strong 
industrial base. Increasingly, it means having a strong 
multinational industrial base, including facilitating teaming 
arrangements, long duration licenses for major projects with 
our European allies and Japan and Australia. And that is what 
the new structure that Secretary Albright and Secretary Cohen 
announced in Florence a couple of weeks ago is designed to do. 
This is a very far-reaching set of new license capabilities 
that will facilitate precisely the kind of the relationships 
that we need to develop in order to build the best defense 
industrial base that we can in common with our allies, as well 
as in the United States.
    A lot of focus in that discussion has been on the exemption 
idea of exempting preferred allies from ITAR's for the 
government and approved industries. That is important, and I 
think it can serve as an incentive for those countries to 
strengthen their munitions controls to parallel ours. In fact, 
that is a condition in order to grant the exemption.
    But it has sort of taken attention away from the other 16 
reforms that, if used fully, I think will answer a large number 
of the concerns including, incidentally, in the satellite 
industry because these project and product and global licenses 
will also work for satellites as well as other munitions. So, I 
think we are moving to reform the defense trade control realm 
in a pretty significant way that helps not only meet 
competition, but incorporate competition and build a stronger 
multinational base.
    Senator Hagel. Thank you. Gentlemen, you have been generous 
with your time. The committee is grateful. If we have 
additional questions from any of my colleagues, we will submit 
those for the record, but thank you and thanks for what you do 
for our country.
    Mr. Holum. Thank you.
    Mr. Reinsch. Thank you.
    Senator Hagel. Mr. Mowry, welcome. We appreciate your being 
here. You are all set up with water and you appear comfortable. 
You have your testimony. Please begin.

   STATEMENT OF CLAYTON MOWRY, EXECUTIVE DIRECTOR, SATELLITE 
              INDUSTRY ASSOCIATION, ALEXANDRIA, VA

    Mr. Mowry. Thank you, Mr. Chairman. I hope I can live up to 
the lofty expectations that my previous panel has put upon me. 
I will do my level best to answer your queries, and hopefully I 
will have all the answers.
    I would like to thank you for the opportunity to testify 
here today on this important issue of satellite export 
controls. As executive director of the Satellite Industry 
Association [SIA], a private sector organization that 
represents U.S. companies in every aspect of the design, 
manufacture, launch, and in-orbit operation of 
telecommunications satellites, I am concerned about the issue 
of satellite export controls. American satellite companies have 
worked diligently over the past 40 years to establish and 
maintain their leadership position in this critical high 
technology industry. But hard-fought U.S. dominance in 
satellite manufacturing could quickly be lost to European and 
Asian enterprises that are striving to win market share in this 
dynamic of the global telecommunications industry.
    Mr. Chairman, let me begin by saying that the U.S. 
satellite industry holds concern for national security in the 
highest regard. Over the past 4 decades, American satellite 
manufacturers have worked to ensure that U.S. Armed Forces can 
maintain the high ground in outer space that translates to 
superiority on the battlefield. The same American manufacturers 
that supplied telecommunications satellites to the world have 
also designed and built our Nation's military communications, 
observations, and early warning satellites. As such, the 
economic health of the commercial satellite industry directly 
impacts our national security, and I think you heard that from 
all the speakers before.
    While much of our industry's heritage can be attributed to 
the early defense and NASA space initiatives, commercial 
telecommunications satellite technology actually developed in 
parallel with government space programs. Commercial satellites 
have grown over the years from systems used largely to deliver 
basic long-distance telephone service and live international 
news or sports coverage to ones that are now providing services 
in competition with terrestrial telecommunications networks 
like cable television and fiber optic networks.
    Today commercial satellites provide subscription television 
service to nearly 14 million American homes. That is about one 
in eight TV households here in the United States and nearly one 
in five homes in your home State of Nebraska, sir. By next 
year, you can expect to see satellite radio receivers in every 
new American automobile and the advent of two-way, high-speed 
Internet service via satellite to American homes. Congress has 
worked hard to enact legislation over the past several years to 
promote competition and diversity in telecommunications 
services and the satellite companies are now stepping up to 
that challenge.
    Let me say that the commercial satellite industry today is 
a $69 billion a year global industry and about a little less 
than half, about 45 percent, of that revenue is derived from 
satellite services, some of the products I mentioned before 
like direct-to-home television, video programming, and 
connecting Internet service providers around the world. 
Satellite manufacturing and ground equipment together account 
for $32 billion in annual revenue and the commercial launch 
segment that has gotten a lot of attention recently makes up 
the remaining $6 billion, roughly a smaller share of the 
overall marketplace. Nearly half of the revenues, about 45 
percent, are earned by U.S. companies, and the U.S. satellite 
industry has consistently contributed to a positive balance of 
trade and employs over 100,000 highly skilled American 
technicians, engineers, and professionals.
    That is not to say there is not competition in this 
business. There is. In fact, the list of foreign satellite 
manufacturers is long. There are major European industrial 
conglomerates involved in this business. Alcatel is one. 
Astrium is a new company that has formed from the merger of 
several other major European companies like DaimlerChrysler 
Aerospace, Aerospatiale Matra, and BAE. The Japanese have two 
companies that are formidable in Mitsubishi and NEC. And most 
recently we have seen the advent of Russian joint ventures that 
use Western electronics on Russian-built satellite buses, and 
those companies, NPO PM and NPO Lavotchkin, are starting to 
compete in the marketplace.
    Over the past 3 years, the global satellite industry has 
grown by nearly 50 percent. That growth has been driven by the 
explosion in multi-channel video programming and Internet 
services, and in many parts of the world, the only cost 
effective way to provide telecommunications services is via 
satellite. Indonesia is a case in point. Domestic and 
international satellite networks connect 216 million people 
scattered across 17,000 islands in that country. Satellites 
connect Internet service providers, link telephone companies, 
and bring TV news to homes throughout the island archipelago. 
Media accounts indicate that the most recent uprising in East 
Timor--the format for that--that was done over the Internet and 
a lot of that traffic was carried via satellite.
    Yet, licensing for commercial satellite technology on the 
State Department's Munitions List nearly prevented companies 
from providing Y2K upgrades to satellite networks last year, as 
well as launching of a mobile satellite telephone service in 
Indonesia. The sanctions legislation that aimed at halting the 
sale of firearms and other weapons to the Indonesian military 
swept up telecommunications satellites and other products on 
the USML. Ultimately our industry persuaded Congress and the 
administration to carve out commercial satellites from those 
sanctions, allowing U.S. companies to continue the work on the 
software upgrades. But those types of sanctions will reoccur as 
long as satellites remain on the U.S. Munitions List.
    As you know, the National Defense Authorization Act 
transferred jurisdiction for licensing of satellites and 
components and technical data to the State Department on March 
15, 1999. Since that time, U.S. manufacturers of satellites and 
subsystems have encountered delays in receiving export licenses 
and approval for technical assistance agreements.
    A typical telecommunications satellite will require 
multiple technical assistance agreements [TAA's] and export 
licenses from the State Department in order to be sold to an 
international customer. Once those licenses have been 
processed, the State Department must also notify Congress of 
the sale. This was mentioned before. They are products that 
tend to be about $100 million at a pop and require 
congressional notification. And when you add that all together, 
the time it takes to license and notify a satellite system can 
begin to approach the time it takes to build a satellite. We 
have dramatically reduced our times from 2 to 3 years down to 
about a year. So, our market position now is at risk.
    You heard the statistic that Secretary Reinsch mentioned, 
and I will say it again. In 1997, we had about 76 percent of 
the commercial marketplace for satellite orders, and when we 
looked at the date of the transfer, March 15, the last three 
quarters of 1999 and the first quarter of 2000, we had seen the 
market share erode to 52 percent.
    Now, I am not claiming that this significant decrease is 
entirely or directly attributable to the shift in control. But 
one thing is clear: The perception is in international markets 
it is more difficult to buy a commercial satellite from a U.S. 
supplier than from a European supplier. There were high profile 
stories in the Wall Street Journal, the Financial Times, and 
Newsweek that detailed lost contracts over the past 2 years, 
and they added to this perception. And the real life experience 
of U.S. companies that have spoken to me over the past 2 years 
have said it is more difficult to obtain TAA's and to hold 
basic marketing discussions with their customers, and that has 
been a major cause of concern.
    Let me jump ahead a little bit here.
    Fourteen months since the shift in licensing authority, the 
State Department has finally issued new regulations reforming 
its process for the bulk licensing of satellite parts and 
components to NATO and major non-NATO allies. We are grateful 
for the hard work that both the Office of Defense Trade 
Controls and Defense Threat Reduction Agency have put into 
crafting these new regulations. The satellite industry believes 
the new regulations are a positive step forward. We think they 
will help to improve the State Department licensing system and 
allow legitimate commercial sales of parts and components to 
occur in a timely fashion.
    However, we are also concerned that the new regulations 
focus primarily on the export of parts. It is unclear from the 
Federal Register notice--and this is the one that was published 
on May 22, the interim final rule--how licenses for technical 
data for marketing bids, insurance, and on-orbit anomalies will 
be expedited. I look forward to the June 28 briefing that they 
talked about and hearing how these regulations are going to be 
implemented. It is unclear from a four-page notice exactly how 
this process is going to move forward. So, we are eager to see 
that.
    Both the laws and new regulations are aimed at speeding 
trade between allied nations, and rightly so.
    Let me jump ahead again.
    But many of the countries whose satellite operators have 
purchased commercial telecommunications satellites from U.S. 
manufacturers over the last 10 years are not NATO or major non-
NATO allies. These are friendly nations like Brazil, Malaysia, 
Mexico, Philippines, Taiwan, and the UAE. In addition, there 
are five other European nations that are active members of the 
European Space Agency. That is the EU's equivalent of NASA 
roughly. And they are not members of NATO and, therefore, are 
not subject to the expedited approval regulations. So, we are 
concerned there.
    Let me also add that the change in our relationship with 
Canada has caused concern amongst a number of our companies, in 
particular one that had a major contract there. The Canadian 
Government's recent decision to purchase a satellite bus from a 
European company, after waiting 10 months for a U.S. license, 
was a clear signal that we have a problem here. Even more 
troubling are the recent press accounts indicating that 
commercial satellites may not be included in a list of products 
on the U.S. Munitions List that are under negotiation between 
the United States and Canada that will be eligible to receive 
the renewed exemption from State Department licensing. So that 
means Canadians may ultimately be allowed to buy military 
weapons from U.S. suppliers under the exemption but not 
commercial telecommunications satellites.
    The commercial satellite industry should not be forced by 
Government policy into a similar position as our aerospace 
counterparts in the commercial aircraft and space launch 
industries. Lost market share is a difficult thing to regain, 
and the U.S. Government's decision to launch all satellites 
aboard NASA's space shuttle still reverberates amongst our 
domestic launch industry. Since the Challenger tragedy and 
President Reagan's decision to launch commercial satellites on 
board unmanned expendable rockets, Europe has dominated the 
commercial launch marketplace. In fact, over the past decade, 
more than 50 percent of all U.S. satellites have been flown by 
Arianespace, which is a European launch company.
    At the time Congress debated shifting the export licensing 
back to the State Department, it was suggested that the move 
would ultimately help U.S. launch companies regain their lost 
market share. Now Members of Congress, including Representative 
Dave Weldon, who represents the district that includes Cape 
Canaveral and our launch facilities there, realize that just 
the opposite is true. Even a U.S.-built satellite launched on a 
U.S. rocket for a U.S. customer requires an export license from 
the State Department. Why is that? I have asked this question 
countless times and most people do not know the answer. The 
answer is that most of the insurance, 70 percent or better, 
comes from European suppliers, and so you have to get that 
license in order for that launch to take place.
    Mr. Chairman, the rules governing the export licensing 
process for communications satellites will play a major role in 
determining whether our manufacturers can maintain the 
technological edge that serves our national security. Since the 
shift in licensing authority, we have worked diligently to 
improve the State Department licensing process so that it might 
work more efficiently.
    Specifically, our industry has worked to help the State 
Department Office of Defense Trade Controls obtain resources to 
hire and train officers. We worked closely with authorizers, 
appropriators, and the administration to fix the problem. We 
think the efforts are beginning to pay off. We achieved a 50 
percent increase in funding for ODTC in last year's 
appropriations bill. We secured bill language that will allow 
State to increase the GS levels for licensing officers to help 
attract and retain qualified individuals, and we backed 
legislation that will allow State to expedite licenses for NATO 
and major non-NATO allies. We continue to push for $30 million 
in reprogrammed funds that will allow DOD to upgrade their 
computer networks and those of agencies that now must review 
nearly 2,000 additional satellite license applications per 
year.
    This committee can and should make recommendations to 
implement several practices within the existing laws and 
regulations that will allow U.S. satellite manufacturers to 
effectively compete in the worldwide telecommunications market 
while ensuring that adequate safeguards are employed to protect 
our national security. As we at SIA see it, those 
recommendations could include some of the following items.
    First, the State Department should move quickly to 
implement all sections of the laws passed by the Congress to 
create a speedy and transparent licensing process for 
commercial satellites and related equipment. This includes 
fully implementing the so-called Rohrabacher amendment language 
in the Foreign Relations Authorization Act [FRAA] and resolving 
the outstanding issue of how to deal with space-qualified 
components.
    Second, the Defense Department has already undertaken a 
comprehensive internal review of its practices for processing 
and scrutinizing export license applications with an aim toward 
dramatically reducing the time it takes to review licenses for 
commercial products such as satellites. We applaud their 
efforts and we encourage the State Department to mirror their 
processes and time lines to ensure that no one Federal agency 
becomes a bottleneck in this process.
    Third, we encourage the administration to make the 
necessary funds available for the computer upgrades at the 
State Department, Defense Department, and within the 
intelligence community that will allow companies to file 
applications electronically and for Federal agencies to share 
these documents without having to print and transport reams of 
paper between offices throughout the greater Washington 
metropolitan area.
    Fourth, commercial telecommunications satellites must be 
freed from the weapons-related sanctions imposed on countries 
where commercial telecommunications products can still be sold. 
It goes back to the Indonesian example I mentioned. U.S. 
satellite manufacturers must have a level playing field to 
compete with both foreign suppliers of satellites as well as 
makers of terrestrial telecommunications equipment, and both of 
those products are controlled as commercial items.
    Finally, if promised improvements do not yield dramatically 
better results in the near future, Congress should consider 
passing bipartisan legislation that seeks to reclassify 
telecommunications satellites as commercial products for export 
control purposes. Such legislation would help ensure that 
commercial satellite exports are not put at a disadvantage vis-
a-vis foreign satellite manufacturers and other products that 
are licensed as commercial items.
    In closing, I would like to reiterate that the satellite 
industry is committed to ensuring that the Arms Export Control 
Act and its implementing regulations protect the national 
security of the United States. We believe that our national 
security is enhanced by having a healthy and robust satellite 
industry that can compete an equal footing in the international 
marketplace.
    Once again, I would like to thank you for the opportunity 
to testify and would be happy to answer any of your questions.
    [The prepared statement of Mr. Mowry follows:]

                  Prepared Statement of Clayton Mowry

    Mr. Chairman, Members of the Committee: Thank you for the 
opportunity to testify before you today regarding satellite export 
controls.
    As Executive Director of the Satellite Industry Association, a 
private-sector organization representing U.S. companies involved in 
every aspect of the design, manufacture, launch, and in-orbit operation 
of telecommunications satellites, I am concerned about the impact of 
export controls on the commercial satellite industry. American 
satellite companies have worked diligently over the past 40 years to 
establish and maintain their leadership position in this critical high 
technology industry. But hard fought U.S. dominance in satellite 
manufacturing could be quickly lost to European and Asian enterprises 
that are striving to win market share in this dynamic sector of the 
global telecommunications business.
    In order to address this issue today, I have organized my statement 
into four parts. First, I will provide an overview of the commercial 
satellite industry. Second, I will discuss how export controls can 
adversely impact our business. Third, I will talk about what our 
association has been doing to improve the export licensing process. And 
fourth, I will finish my remarks by making recommendations regarding a 
course of action that Congress and the Administration should take to 
address this vexing issue.
    Mr. Chairman, let me begin by saying that the U.S. satellite 
industry holds concern for national security in the highest regard. 
Over the past four decades, American satellite manufacturers have 
worked to ensure that U.S. Armed Forces can maintain the high ground in 
outer space that translates into technological superiority on the 
battlefield. The same American manufacturers that supply 
telecommunications satellites to the world have also designed and built 
our nation's military communications, observation, and early warning 
satellites. As such, the economic health of the commercial satellite 
industry directly impacts our national security.
    While much of our industry's heritage can be attributed to the 
early Defense and NASA space initiatives, commercial telecommunications 
satellite technology actually developed in parallel with government 
space programs. Commercial satellites have grown over the years from 
systems used largely to deliver basic long-distance telephone service 
and live international news or sports television programming, to ones 
that are now providing services in competition with terrestrial 
telecommunications technologies such as cable television and fiber 
optic telephone networks.
    Today, commercial satellites provide subscription television to 
nearly 14 million American homes--that's more than one in eight TV 
households across the country and nearly one in five homes in Senator 
Hagel's home state of Nebraska. By next year, you can expect to see 
satellite radio receivers in every new American automobile and the 
advent of two-way, high-speed Internet service via satellite to 
American homes and offices. Congress has worked hard to enact 
legislation over the past several years to promote competition and 
diversity in telecommunications services and satellite companies are 
now stepping up to the challenge.
    The commercial satellite industry today is a $69 billion-a-year 
global industry. Over $31 billion--nearly 45 percent of the industry's 
revenue--is derived from satellite services such as direct-to-home 
television, video programming distribution, and connecting Internet 
Service Providers around the world. Satellite manufacturing and ground 
equipment together account for over $32 billion in annual revenue with 
commercial launch services making up the remaining $6 billion. Nearly 
half--over 45 percent--of those revenues are being earned by U.S. 
companies. The U.S. satellite industry has consistently contributed to 
a positive balance of trade and employs over 100,000 highly skilled 
American technicians, engineers and professionals.
    Competition in the commercial satellite market is intense. The list 
of foreign satellite manufacturers is long. It includes several major 
European industrial and telecommunications conglomerates--Alcatel, 
Alenia Spazio, and Astrium (Aerospatiale Matra, DaimlerChrysler 
Aerospace and BAE Systems); the Japanese--Mitsubishi and NEC; as well 
as Russian joint ventures using western electronics and power systems 
aboard Russian-made satellite frames--NPO PM and NPO Lavotchkin.
    Over the past three years the global satellite industry has grown 
by nearly 50 percent. That growth is being driven by the explosion in 
multi-channel video programming and Internet services. In many parts of 
the world, the only cost-effective way to provide telecommunications 
services is via satellite. Indonesia is a case in point. Domestic and 
international satellite networks connect 216 million people scattered 
across 17,000 islands in that country. Satellites connect Internet 
Service Providers, link local telephone networks, and bring TV news to 
homes throughout the island archipelago. Media accounts indicate that 
the recent uprising in East Timor was organized largely over the 
Internet--and that the data was carried over satellites.
    Yet licensing commercial satellite technology on the State 
Department's U.S. Munitions List (USML) nearly prevented U.S. companies 
from providing Y2K upgrades to satellite earth stations and launching 
mobile satellite telephone services in Indonesia last year. Sanctions 
legislation aimed at halting the sale of firearms and other weapons to 
the Indonesian military swept up telecommunications satellites and 
other commercial products on the USML. Ultimately, our industry 
persuaded Congress and the Administration to carve out commercial 
satellites from those sanctions--allowing U.S. companies to continue 
their work on software upgrades to satellite earth stations in the 
country and permitting the launch of a new mobile telecommunications 
satellite that is now serving the south east Asian region. But these 
types of sanctions issues will reoccur as long as satellites reside on 
the USML.
    Indonesia is but one example of how placing commercial 
telecommunications satellite technology on a list designed to control 
weapons has had unintended consequences. Let me take a moment to 
quickly outline our other problems.
    As you know, the National Defense Authorization Act for Fiscal Year 
1999 (NDAA) transferred jurisdiction for export licensing of all 
commercial satellites, components and technical data to the State 
Department on March 15, 1999. Since that time, U.S. manufacturers of 
satellites and subsystems have encountered delays in receiving export 
licenses and approvals for Technical Assistance Agreements (TAAs).
    A typical telecommunications satellite will require multiple TAAs 
and export licenses from the State Department in order to be sold to an 
international customer. Once those licenses have been processed, the 
State Department must also notify the Congress of the sale, adding 
still more time for review. When you add it all together, the time it 
takes to license and notify the satellite can begin to approach the 
time it takes to build the satellite. The speed at which U.S. 
manufacturers can deliver a satellite has, heretofore, been a major 
competitive advantage for our companies. But our market position is now 
rapidly eroding.
    Mr. Chairman, the United States' leading edge in the commercial 
satellite manufacturing business can be captured in a single statistic: 
Historically, U.S. manufacturers have built more than two-thirds of the 
world's telecommunications satellites. In fact, in 1997, U.S. companies 
won 76 percent of all announced contracts for internationally-competed 
telecommunications satellites. Similarly, in 1998, America racked up 73 
percent market share. Yet in the past twelve months, U.S. companies' 
share of announced orders dropped to 52 percent.
    We are not claiming that this significant decrease in market share 
is entirely or directly attributable to the shift in satellite export 
licensing from the Commerce Department to the State Department. But one 
thing is clear--the perception today in international markets is that 
it is more difficult to buy a commercial satellite from a U.S. supplier 
than from a European supplier.
    High profile stories in the Wall Street Journal, Financial Times, 
and Newsweek that detailed lost U.S. satellite contracts over the past 
two years have added to this perception. And the real life experience 
of U.S. companies who are now required to obtain TAAs merely to hold 
basic marketing discussions with their customers has been a major cause 
of concern among foreign telecommunications companies accustomed to 
working closely with American suppliers.
    Licensing delays have been particularly troubling for commercial 
satellite exports to countries that are members of the North Atlantic 
Treaty Organization (NATO) and other major non-NATO allies. Both the 
NDAA and last year's Foreign Relations Authorization Act for Fiscal 
Year 2000 (FRAA) included sections specifically seeking expedited 
approval of satellite export licenses for allied nations. Both pieces 
of legislation sought to shorten timelines and improve transparency in 
the processing of satellite export license applications at the State 
Department. The laws also specifically called for expedited approval of 
licenses dealing with launch insurance, on-orbit satellite failures, 
the return of defective parts, and responses to requests for proposals 
(RFPs) from customers in NATO and major non-NATO allied countries.
    Now 14 months since the shift in licensing authority, the State 
Department has finally issued new regulations reforming its processes 
for the ``bulk'' licensing of satellite parts and components exported 
to NATO and major non-NATO allies. We are grateful for the hard work 
that both the Office of Defense Trade Controls (ODTC) and the Defense 
Threat Reduction Agency (DTRA) have put into crafting these new 
regulations. The satellite industry believes the new regulations are a 
positive step forward. We think they will help improve the State 
Department licensing system and allowing legitimate commercial sales of 
parts and components to occur in a timely fashion.
    However, we are also concerned that the new regulations focus 
primarily on the export of parts. It is unclear from the Federal 
Register notice how licenses for technical data for marketing bids, 
insurance, and on-orbit anomalies will be expedited--as required by the 
NDAA and FRAA. These areas must also be dealt with and quickly.
    Both the laws and the new regulations are aimed at speeding trade 
between allied nations, and rightly so. The majority of commercial 
trade in this sector is between countries that are either NATO allies 
or major non-NATO allies. These are nations that present no national 
security threat to the United States. Countries such as Luxembourg, 
Norway, Canada, The Netherlands, Argentina, Spain, Japan, and Australia 
have been longtime buyers of U.S. telecommunications satellites. And 
yet, we've made it increasingly difficult for U.S. companies to sell 
satellites to their legacy customers in those markets. The new State 
Department regulations are a positive step in the right direction, but 
they clearly don't solve all of our problems.
    Many other countries whose satellite operators have purchased 
commercial telecommunications satellites from U.S. manufacturers over 
the last ten years that are not NATO or major non-NATO allies. These 
are friendly nations such as Brazil, Malaysia, Mexico, Philippines, 
Taiwan, and the UAE. In addition, five other European nations that are 
active members of the European Space Agency (the EU's equivalent of 
NASA) are not members of NATO, and therefore are not covered under the 
NDAA and FRAA exemptions. The new regulations do not address commercial 
trade and cooperative programs between U.S. manufacturers and their 
customers in these important countries.
    The change in our relationship with Canada has also caused concern 
for U.S. satellite suppliers. The Canadian Government's recent decision 
to purchase a satellite bus from a European satellite supplier after 
waiting ten months for a U.S. license is a clear signal that we have a 
continuing problem. Even more troubling are recent press accounts 
indicating that commercial satellites may not be included in the list 
of products on the USML under negotiation between the U.S. and Canada 
that will be eligible to receive the renewed ``exemption'' from State 
Department licensing. So Canadians may ultimately be allowed to buy 
military weapons from U.S. suppliers under this exemption, but not 
commercial telecommunications satellites.
    The commercial satellite industry should not be forced by 
government policy into similar dire straits as our aerospace 
counterparts in the commercial aircraft and space launch industries. 
Lost market share is an extraordinarily difficult thing to regain. The 
U.S. Government's decision to launch all satellites aboard the NASA 
Space Shuttle still reverberates among our domestic commercial launch 
service providers. Since the Challenger tragedy and President Reagan's 
decision to launch commercial satellites aboard unmanned expendable 
rockets, Europe has dominated the commercial satellite launch market. 
In fact, over the past decade, more than 50 percent of all U.S.-made 
commercial geostationary satellites were launched from French Guiana, 
by Arianespace--the European launch company.
    At the time Congress debated shifting satellite export licensing 
back to the State Department it was suggested that the move would 
ultimately help U.S. launch companies to regain their lost market 
share. Now Members of Congress including Rep. Dave Weldon, who 
represents the district that includes Cape Canaveral Air Station, 
realize that just the opposite is true. Even a U.S.-built satellite 
launched on a U.S. rocket for a U.S. customer requires an export 
license from the State Department. Why? Because over 70 percent of the 
insurance underwriting that make such launches possible comes from 
European companies.
    Mr. Chairman, the rules governing the export licensing process for 
communications satellites will play a major role in determining whether 
U.S. satellite manufacturers can maintain the technological edge that 
serves our national security. Since the shift in licensing authority we 
have worked diligently to improve the State Department licensing 
process so that it might work more efficiently.
    Specifically, the U.S. satellite industry has worked hard to help 
the State Department Office of Defense Trade Controls obtain the 
necessary resources to hire and train new licensing officers. We have 
worked closely with authorizers, appropriators, and the Administration 
to fix this problem. And our efforts paid off. We achieved a 50 percent 
increase in funding for the ODTC in last year's appropriations bill. We 
secured bill language that would allow State to increase the ``GS'' 
grade levels for licensing officers to help attract and retain 
qualified individuals. We backed legislation that would allow State to 
expedite licenses for NATO and major non-NATO allies. And we continue 
to push for nearly $30 million in reprogrammed funds that would allow 
the Department of Defense to upgrade computer networks for all the 
agencies that must now review the nearly 2,000 additional satellite 
license applications each year.
    The U.S. satellite industry agrees with the President and the 
Congress that the transfer in licensing authority to the State 
Department should have been accompanied by swift changes in the USML 
licensing process that would allow for timely licensing of satellite 
exports while ensuring our national security is not placed in jeopardy. 
Because the shift in authority was not accompanied by clear and 
measurable improvements in the timeliness and transparency of the USML 
licensing process, has had a profound impact on the U.S. satellite 
industry's ability to compete in the global telecommunications 
marketplace of the 21st century.
    This Committee can and should make recommendations to implement 
several practices, within the existing laws and regulations, that would 
allow U.S. satellite manufacturers to effectively compete in the 
worldwide telecommunications market while ensuring that adequate 
safeguards are employed to protect our national security. As we at SIA 
see it, those recommendations could include the following:
    First, the State Department should move quickly to implement all 
sections of the laws passed by the Congress to create a speedy and 
transparent licensing process for commercial satellites and related 
equipment. This includes fully implementing the so-called ``Rohrabacher 
amendent'' language in the FRAA and resolving the outstanding issue of 
how to deal with space-qualified components.
    Second, the Defense Department has already undertaken a 
comprehensive internal review of its practices for processing and 
scrutinizing export license applications with an aim toward 
dramatically reducing the time it takes to review licenses for 
commercial products such as satellites. We applaud their efforts and 
encourage the State Department to mirror their processes and timelines 
to ensure that no one Federal agency becomes the bottleneck in this 
process.
    Third, we encourage the Administration to make the necessary funds 
available for computer upgrades at the State Department, Defense 
Department, and in the Intelligence community that would allow 
companies to file applications electronically and for Federal agencies 
to share these documents without having to print and transport reams of 
paper between offices throughout the greater Washington metropolitan 
area.
    Fourth, commercial telecommunications satellites must be freed from 
weapons-related sanctions imposed on countries where commercial 
telecommunications products can still be sold. U.S. satellite 
manufacturers must have a level playing field to compete with foreign 
suppliers and makers of terrestrial telecommunications equipment.
    Finally, if promised improvements don't yield dramatically better 
results in the near future, the Congress should consider passing bi-
partisan legislation that seeks to reclassify telecommunications 
satellites as commercial products for export control purposes. Such 
legislation would help ensure that commercial satellite exports are not 
put at a disadvantage vis-a-vis foreign satellite manufacturers and 
other domestic suppliers of terrestrial telecommunications equipment--
whose products are licensed as commercial products.
    In closing, I'd like to reiterate that the satellite industry is 
committed to ensuring that the Arms Export Control Act and its 
implementing regulations protect the national security of the Unites 
States. We believe that our national security is enhanced by having a 
healthy and robust commercial satellite industry that can compete on an 
equal footing in the international marketplace.
    Once again, I thank you for the opportunity to testify today and to 
take part in the policy discussion concerning such issues of vital 
importance. I would be happy to answer any questions that the Committee 
might have.

    Senator Hagel. Mr. Mowry, thank you.
    I would like to pick up with some of your testimony as it 
relates to the previous witnesses' concerning market share. You 
covered some of it, especially on page 3 of your testimony. But 
you say--and I quote from your testimony--``Over the past 3 
years, the global satellite industry has grown by nearly 50 
percent.'' The global market is increasing, but it appears our 
share is decreasing. You heard Secretary Bodner's and others' 
explanation for that. Is their explanation on target?
    Mr. Mowry. I would say that a number of things they said 
are quite true. There is some cyclicality in the business. 
There was a slowdown in the Asian market. That had an impact 
really a couple years later because it does take a year or two 
from the order date to the delivery date of the satellites. And 
there were clearly some other larger issues of satellites being 
pulled off the pad because they had some technical difficulties 
and they had to be redone and some launch vehicle failures that 
also limited the overall number of launches that took place and 
the satellites that were delivered to pads and launched into 
orbit.
    That said, it is difficult to look at the cyclicality that 
is somewhat inherent in the business from a year-to-year basis 
and the upward line that is taking place--we are looking at an 
overall growth in the industry over time--and to say that what 
has been happening on our satellite manufacturing side has not 
been affected in some way by the shift in export licensing. It 
is difficult to draw a line and say this license was lost and 
this means x number of dollars outside of the licenses that 
were either denied by the State Department or took a long time, 
and therefore, in the Canadian example, for instance, where the 
Canadian Government, just after 10 months, threw up their hands 
and said we are going to buy from Europe. You can quantify 
those dollar to dollar, and you can draw the direct line to the 
State Department process. But outside of that, it is difficult 
to do.
    So, we put the market share statistics out there basically 
to talk really about the perception in the marketplace, and I 
think the perception is it is harder to buy a satellite from a 
U.S. company. And that is a problem for our companies. 
Secretary Holum mentioned that maybe we do not want to say that 
because it does provide our foreign competitors with a good 
example, and if the perception is a reality in this 
marketplace, that means our companies are not going to maybe 
win all the contracts that they could. But we have to talk 
about the problems that face our industry and we have to talk 
about the regulatory issues that we are encountering. I do not 
think you would hear the industry yelling as loudly as it has 
been if there were not real problems here.
    Senator Hagel. I assume if over the last 3 years the global 
satellite industry has grown by nearly 50 percent, as you 
state, it is a result of a considerable increase in demand. Is 
that right?
    Mr. Mowry. That is absolutely true, and it is driven by the 
demand for telecommunications services. As we all know, the 
Internet is growing rapidly. We have got a multi-channel 
television universe now that is 200, 300, 400 channels and is 
growing more rapidly. And all that needs to be carried, 
particularly internationally--not only here in the U.S., but 
internationally--via satellite. So, we tend to be a smaller 
part of the global telecommunications business, about 5 percent 
of all the traffic out there. But that traffic, particularly on 
the data side and the Internet world, is increasing quite 
rapidly, and so we are seeing quite a bit of growth in the 
services end of the business.
    Senator Hagel. And you are saying that the new growth, as 
you laid out directly and clearly in your testimony, is being 
inhibited by these new regulations and the new legislation that 
now is being implemented as law. Is that correct?
    Mr. Mowry. That is correct. As I say, it is difficult to 
quantify specifically the impact on some of the contracts. We 
can say overall that it has had a chilling effect on the 
industry. It has certainly slowed down the delivery of a lot of 
these products, and it is taking longer.
    A lot of these companies, as I mentioned before, 
particularly the parts suppliers, are not used to dealing in 
the environment where they had to go get multiple licenses from 
the State Department. They were smaller companies. They did not 
have staffs of three or four or five people here in Washington 
just to baby sit a license through the process. So, we had some 
very small companies calling me from Buffalo, New York and 
Kansas and other places where you do not expect to have big 
aerospace companies. These were small companies. They were 
saying, how do we deal with this? How do we go about getting a 
license through this process? How do we go about competing 
against a French company or a German company that can respond 
to an RFP within 30 days or 60 days when it takes us 60 days 
just to get the license from the State Department to be able to 
respond to that request? So, that is the type of examples that 
we have been seeing.
    Senator Hagel. So, those most vulnerable are the little 
guys.
    Mr. Mowry. Absolutely. I think, by and large, we have not 
had Hughes come to me and say, we lost the sale because of the 
State Department licensing process. It just has not happened. 
There have been instances--and there still are satellites out 
today--that they have not reached a decision on, and so I do 
not know if those are counted in the averages that the 
Secretary mentioned or not. I am not quite clear as to what is 
all being involved in those 50-day and 70-day averages that he 
mentioned.
    I would like to add, though, that those are working days 
and not actual days and there is somewhat of a difference 
there. You get a 60-day RFP, it is not a 60-working day RFP, it 
is a 60-day RFP. Clearly the companies are struggling to get 
the license quickly enough to reply to those requests and 
submit bids.
    Senator Hagel. So, you would take some issue with Mr. 
Holum's analysis of how quickly these licenses are being pumped 
out. He was quite specific about the effectiveness of the State 
Department's ability to get those licenses out in a rather 
timely way, implying that he did not necessarily believe that 
there was anybody being hurt or losing business.
    Mr. Mowry. As I say, I do not think the major companies 
involved here have lost specific contracts outside of those 
where the licenses were denied. But I do not know that I would 
say that the process is working so well that there are no 
problems out there. There continue to be some problems. They 
have dramatically improved the process. We are hearing fewer 
complaints from industry. In fact, a number of the folks in 
industry are saying they are really working hard at this. The 
folks that are involved at the State Department are really 
doing their jobs quite well.
    We are not out here to beat up on State or anybody else. We 
think they were really underfunded and under-resourced when 
this transfer took place, and that is why we fought very hard 
to get them the funding that they needed. But we still think 
there is room for improvement in that process and that they 
continue to reduce those times and get closer to what would be 
a commercially acceptable timeframe for processing those 
applications.
    Senator Hagel. And you do not believe generally it is quite 
there yet.
    Mr. Mowry. No. Overall it is getting there. We think it is 
getting close, but from time to time, we still hear of 
difficulties and there are some last-minute fire drills that 
still do take place. But by and large, we are getting our 
licenses and we are still able to do business.
    Senator Hagel. Mr. Reinsch mentioned that he had, I think, 
three pages of companies--I believe he said this or implied 
this--that had lost contracts or lost business as a result of 
the time problems and the lag and the complications of the 
licensing process. Are you familiar with the list that he is 
talking about? He has entered it or will enter it for the 
record.
    Mr. Mowry. I have not seen the specific list. I know there 
have been a number of press reports out there. I mention a 
couple in my testimony as well from Financial Times and Space 
News and the trade publications, as well as national 
publications. Newsweek had a story that outlined several of the 
problems like Radarsat was one that I mentioned with Canada. 
So, there have been a lot of instances, and they have been well 
publicized where U.S. companies have lost business.
    Senator Hagel. Your organization does not keep an inventory 
or a list of those companies who have had problems?
    Mr. Mowry. We have a press file of all those clippings and 
all those accounts, but the companies do not always share every 
lost sale with me for competitive reasons. We are a trade 
association and we do not try to get into their individual 
contracts and where they may or may not have won a bid or been 
able to reply to a request on an individual license.
    Senator Hagel. Mr. Holum mentioned that the expedited 
procedures for NATO and our other allies, or some of our 
allies--and he listed them in his testimony, and you are 
familiar with all of them--is going to vastly improve the 
situation. I asked him a question, and he talked about parts of 
satellites. And I asked the question about complete satellites, 
and you heard his answer. Do you agree with what he said as to 
why complete satellites are not listed?
    Mr. Mowry. I agree partially with what he said. I think 
they are trying to reform the larger process for completed 
satellites, and they are trying to expedite particularly the 
congressional notification provisions that take place. By and 
large, they are working to speed that up. But also I think on 
the completed satellite side we could see some faster 
processing. There are clearly some ways to improve that process 
I think.
    Whatever is done on the completed satellite side, we would 
like to see it done in a way that ensures that all the launch 
companies are treated in the same way, that it does not benefit 
one supplier over another in terms of delivery of a satellite 
for a launch because that could impact the launch marketplace. 
But we think there are some things that could be done to help 
process completed satellites.
    Senator Hagel. Well, it seems to me--and I am quickly out 
of my depth here--that if competition is developing as rapidly 
as it is within this expanded market with this kind of demand, 
then complete satellite sales are a very big part of this and 
are a critical dynamic in dealing with the competitiveness part 
of this. I am a little surprised that we are not focusing more 
on the complete satellite issue. Am I overstating it?
    Mr. Mowry. It is clearly important. When you come down to 
it, you have a $100 million piece of equipment that might be 
sitting on the ground completed ready to go to launch and you 
are waiting on a notification or you are waiting on a license. 
Every month that that spacecraft is not in orbit the company 
could be losing upwards of $10 million from transponder related 
revenue. They have got to go out to the capital markets, raise 
the money. Time is money, and clearly getting those licenses in 
a timely fashion is important to the companies, particularly to 
the prime contractors, as well as their customers. These are 
companies like NBC and CNN and they are waiting for that bird 
to get up.
    Senator Hagel. And they need a complete satellite.
    Mr. Mowry. They need a complete satellite. Absolutely, and 
that is important to our industry. There is no doubt.
    Senator Hagel. And so the market drives this like anything.
    Mr. Mowry. Absolutely.
    Senator Hagel. You mention in your testimony here--you said 
rather plainly--``but our market position is now rapidly 
eroding.'' I assume everything you said points to your comment 
here. That is a tough statement. But yet, I do not get a sense 
of urgency from you that these licenses are all that big a 
problem yet. They are working them through, I think you said. 
If your market is eroding as deliberately as you have stated 
here, what are you doing to deal with that? And I suspect there 
is always going to be, as you live in this real world, some 
kind of regulation, some kind of government entity that is 
going to deal with these kind of things. So, if your market is 
eroding, what are you doing about it?
    Mr. Mowry. Well, the companies are trying vigorously to 
compete. As I said, there is rapid consolidation in Europe. 
They are getting better. Their companies are pulling together 
to try to compete against our contractors. Our companies are 
trying to reduce the cycle times, improve the lifetime of the 
satellite, how many transponders, its power, its capabilities. 
Obviously, they have devoted considerable staff and resources 
to export licensing now. They have got a lot of people that 
baby sit these things all the way through. They pay for all the 
monitoring that is done by DTRA and DOD, so they put a lot of 
resources into those efforts. And they are trying to make sure 
that the process that we live with today--and this is our 
reality. We know we are at the State Department, that we are 
going to try to make that be the best process that we can have 
and that we can do our business.
    It has been a difficult 2 years for the satellite industry. 
I think overall, if you talk to the companies, they will tell 
you that the market has not been quite as robust as they would 
like to see. We have had, as I said, some issues with satellite 
failures. But we think the market is going to come back. I 
think overall the market for these types of high speed data 
satellites that connect Internet service are going to be 
important.
    And our companies are going to have to get better and 
continue to work to compete against consolidating European 
companies that are going to be formidable suppliers of these 
satellites. If you look at other industry examples like Airbus 
and like Ariane where the Europeans stepped up and they made a 
major concerted effort to compete against the United States in 
these critical parts of the aerospace industry, they captured 
considerable market share. We obviously would like to see our 
market position within the satellite----
    Senator Hagel. Well, is that due to the over-restrictive 
regulatory process that we have?
    Mr. Mowry. I would say partially. Clearly the Europeans 
license their satellites as dual use commercial products, and 
we license ours as weapons. And that is a fundamental 
difference. They do not have the same types of restrictions in 
terms of the types of technical data transfer that we have, 
particularly with customers that are within the European Union, 
which represent quite a few of our satellite buyers. So, we 
have got that to deal with and we are going to try to deal with 
it the best we can.
    Senator Hagel. Do you believe what happened in March of 
last year was a mistake?
    Mr. Mowry. I would have to say yes. We have always said 
that commercial communications satellites should be treated as 
commercial products and not as weapons. The problem was 
satellite launches in China and the failure investigations. The 
answer was dealing with all telecommunications satellite 
exports to the entire world. It was a very blunt instrument to 
try to fix what seemed to be a specific problem. So, we support 
the goal of trying to license satellites ultimately as 
commercial products, and we think that is the way we are going 
to be able to compete both against foreign suppliers and 
terrestrial providers of telecommunications equipment.
    Senator Hagel. You spent some time in your testimony 
talking about Canada. Again, quoting from your testimony, ``So, 
Canadians may ultimately be allowed to buy military weapons 
from U.S. suppliers under this exemption,'' the previous 
exemption that we referred to and laid out, ``but not 
commercial telecommunications satellites.'' Explain a little 
bit more about that and what your industry is doing about this 
problem.
    Mr. Mowry. I think this issue--and I am not the expert in 
the Canadian exemption, but for a very long time, Canada was 
exempted from a lot of the licensing requirements for all kinds 
of products that were on the Munitions List, commercial 
satellites and military products as well. That exemption was 
withdrawn by the administration. I think it was about a year 
and a half ago, and now they are in negotiations to try to 
restore that exemption. There were a few announcements earlier 
in the spring about work and negotiations between the 
administration and the Canadian Government to restore that 
exemption. But there have been some press articles, most 
recently in Space News and Defense News, that have said that 
administration officials may not be considering including 
satellites as part of that exemption. So, if the exemption is 
restored, it would allow sales of military products that are on 
the Munitions List to basically be free and clear of a lot of 
the licensing requirements, but satellites would still be 
burdened with a number of the licensing requirements that come 
with being on the Munitions List.
    And it is a stark example because of the Radarsat contract 
that was lost and the 10-month delay that it took in trying to 
get that contract through. It was a contract for the satellite 
bus and not for the electronics and components inside the 
satellite. So, it was one where I think the U.S. company that 
was involved in it was quite troubled in losing the contract to 
a European company when it felt like it was not something that 
should have been controlled. It is Canada, and they think that 
we should be able to do business there.
    Senator Hagel. If we would rearrange the deck chairs again 
and move it all back to Commerce and go back to where we were, 
does that help, hurt, or make any difference? I suspect we all 
accept that we are going to continue to have an agency--
certainly DOD will always be a piece of this--to regulate, 
oversee, and process sales of this kind of technology.
    How do you do it better, realizing that any time there is a 
shift there is going to be a period of working through the 
glitches, as the State Department is doing? How do you make it 
better? Does it make any difference whether we go back, change 
it, or let this settle in at the State Department, let them get 
proficient, let them hire up, and hopefully get to a point 
where they know what they are doing with it? I do not mean that 
in a derogatory way. Any agency with this kind of burden put on 
them all of a sudden is going to take time to get to where they 
need to be. I think we all accept that. So, what do you think?
    Mr. Mowry. To answer the first part of your question, it 
would help if we were licensed as commercial products because 
clearly we would not run into the weapons related sanctions 
issue that I mentioned. Clearly there would be countries that 
we are trying to sell to that are not NATO or major non-NATO 
allies, which we would like to have an expedited process for. 
So, in those two specific instances, it would be better to be 
licensed as a commercial product than as a weapons item.
    That said, obviously the State Department is working very 
hard to improve their process and we are going to try to work 
under that framework until the time that Congress decides that 
it is time to treat us as commercial products again. Until that 
time, we are going to do our level best to improve the State 
process, help them get the resources they need to do their job, 
and the companies are going to continue to work with the State 
Department folks to make sure that we can get these things 
through and be able to compete. We are hopeful. This is a good 
sign. It took them 14 months to get the regulations out, but we 
are hoping that once they get the thing in practice, that it is 
going to work better. According to the people I have talked to 
in the business, this should clear the decks of something like 
70 percent of the problems that they see out there, these bulk 
licenses.
    Senator Hagel. Your people think that?
    Mr. Mowry. Yes, our people, our companies. The licensing 
officers that work for a number of our major contractors have 
told me that roughly 70 percent of the application problems 
that they have deal specifically with these bulk licensing type 
of issues where you have to keep going back time after time to 
get licenses for a specific part or item. That obviously 
protracts the entire process of licensing the commercial 
satellite itself. The idea is, as State gets better at dealing 
with those bulk licenses, they can focus on the completed 
satellites and that those will be able to move through even 
faster. That is our hope.
    Senator Hagel. What do you think of the Gejdenson bill?
    Mr. Mowry. We support the goals of the Gejdenson bill. As I 
said before, I think we would like to be treated as a 
commercial telecommunications product and not as a weapon. 
There are specifics of that legislation that we are still 
looking at, and I even heard today from a couple of folks I 
talked to here that there may be some specific issues in the 
way the bill is written that we may want to look at. But 
overall, we support the goals of that legislation.
    Senator Hagel. Is there anything else you want to add?
    Mr. Mowry. I would just say that our industry--I cannot 
underline this point enough--is trying to compete in a global 
telecommunications marketplace, and that is a marketplace that 
moves very rapidly. In fact, you are seeing technology and the 
speed of technology change very quickly, much like in the 
computer industry, not quite the application of more is law, 
but we are seeing cycle times reduced. We are seeing a very 
competitive market from our European suppliers and from our 
Asian markets that are suppliers. We want to make sure that the 
satellite industry can compete both against the terrestrial 
guys, the fiber guys, the cable guys, the wireless guys. Those 
are our competitors. We see it in spectrum areas. We see it in 
licensing areas as well against our foreign satellite 
manufacturers. So, we are just asking for a level playing field 
really with those types of entities. We are treated 
differently, and as such, it makes it more difficult for 
satellite companies to really have commercial products that 
serve a retail consumer marketplace in the world.
    Senator Hagel. Mr. Mowry, thank you. I am grateful that you 
would take time to come before this committee. Your testimony 
and questions and answers have been important.
    Mr. Mowry. Thank you, Mr. Chairman.
    Senator Hagel. You helped us. We may keep the record open 
for a couple of days in case my colleagues wish to ask 
questions. But thank you.
    [Whereupon, at 4:33 p.m., the subcommittee was adjourned.]
                              ----------                              

             Additional Statement Submitted for the Record

    Prepared Statement of Association of American Universities, the 
National Association of State Universities and Land-Grant Colleges, and 
                 the Council on Governmental Relations

    Thank you for the opportunity to submit testimony to the Senate 
Foreign Relations Committee. This testimony is submitted on behalf of 
the Association of American Universities (AAU), the National 
Association of State Universities and Land-Grant Colleges (NASULGC), 
and the Council on Governmental Relations (COGR). These three 
associations represent most of the major research universities affected 
by the International Traffic in Arms Regulation (ITAR).
    As you know, Public Law 105-261 transferred responsibility for 
export licensing of all space satellite technology from the Department 
of Commerce to the Department of State. Neither department requested 
this transfer nor wanted it. As a result of the transfer, virtually all 
information related to scientific satellites, including all related 
components, software, parts, and materials, are designated significant 
military equipment (SME) and are thus covered by the tightly-controlled 
Munitions List, regardless of whether the underlying hardware is 
actually SME. Consequently, a non-citizen's participation in research 
and development of a scientific apparatus that involves or relates to a 
satellite (such as a gravity measurement device to be placed in earth 
orbit) may be, under ITAR, a ``deemed export'' requiring an export 
license from the Department of State before the data may be shared with 
a foreign collaborator or fellow researcher. This is so even when the 
technology and data utilized are already in the public domain, as is 
the case with most university-based research.
    Both the ITAR and the Department of Commerce's Export 
Administration Regulation (EAR) have existed for a number of years and 
serve a valid national purpose. The Department of Commerce, through the 
EAR, has devoted significant coverage to fundamental research. The 
freedom to communicate research techniques and results within the 
academic community is essential to the synergy and vitality of the 
research enterprise. Together with competition and peer review, this 
broad and open communication constitutes a fundamental element of the 
research enterprise and the development of intellectual capital. 
Ultimately, this intellectual capital feeds industry and leads to 
further innovation. Restriction of scientific communication is costly 
and can inhibit continued advancement.
    Over the last twenty years, open academic research has come to be 
recognized as ``fundamental research'' not subject to export controls 
or to special restrictions in federal contracts. Former president 
Ronald Reagan, in National Security Decision Directive (NSDD) 189, 
stated, ``It is the policy of this Administration that, to the maximum 
extent possible, the products of fundamental research remain 
unrestricted.'' Similarly, the statement that accompanied NSDD 189 
stated, ``Our goal is to maintain the free and open exchange of 
unclassified research so necessary to a free society and an expanding 
economy.'' The policy, still in effect, was expressly intended to 
forestall the imposition of special controls on fundamental research, 
particularly that conducted in universities.
    The definition of ``fundamental research'' is critical given this 
position. NSDD 189, which established the term as a policy concept, 
defined it as ``basic and applied research in science and engineering, 
the results of which are published and shared broadly within the 
scientific community as distinguished from proprietary research from 
industrial development, design, production, and product utilization, 
the results of which are ordinarily restricted for proprietary or 
national security reasons.'' Moreover, the definition of technical data 
does not include information concerning general scientific, 
mathematical or engineering principles commonly taught in schools, 
colleges and universities or information in the public domain. But for 
this exclusion, universities would need an export license for each 
foreign student matriculated, each foreign researcher invited, and each 
collaboration with a foreign institution.
    The success of university research in general and of collaborative 
research programs in particular owes much to unfettered participation 
by persons of all nationalities. In addition to considerable expertise, 
they often bring state-of-the-art technology and research funds. Of 
course, a legitimate need to protect national security also exists, but 
as NSDD 189 suggests, classification--rather than export controls--is 
the appropriate vehicle for controlling federally funded research if 
national security is an issue. The adverse impact universities are 
feeling here is generally in the realm of unclassified, non-weapons-
related research that is pulled into ITAR only because it is space-
based or relates to space technology.
    ITAR's impact on university research has been substantial. The 
following are examples of the difficulties universities have 
encountered over the last year and a half.

     Government projects hampered when university researchers 
are afraid to travel overseas to assist collaborating institutions: A 
major NASA-funded, international space exploration project included the 
participation of a foreign university, funded by the foreign 
government, to fabricate a piece of instrumentation that would be 
shipped to the U.S. and integrated into the scientific payload. The 
European partner was falling behind schedule, which would cost NASA $1 
million per month for each month of delay. However, the NASA project 
officer hesitated to authorize the U.S. scientist to go overseas and 
get the collaborator back on track, and the university was unable to 
assure the researcher that, under the newly-applicable ITAR, such 
travel and discussions did not require an export license. Given the 
jail terms and fines leveled against researchers personally even for 
inadvertent violations of ITAR, university researchers are 
understandably unwilling to take chances.
     Government Requests for Proposals (RFPs) suggest that an 
ITAR license may be required before discussing a proposed project with 
foreign collaborators: While it is clear that international funding and 
contribution to space missions is necessary, the NASA SMEX Mission of 
Opportunity Q&A for Proposals that require such foreign support then 
advises that the university may need a license prior to even discussing 
the project with the intended collaborators.
     Inventions developed by foreign students cannot be 
developed or marketed: A Turkish national graduate student developed a 
new hybrid rocket fuel that the university is in the process of 
patenting. A commercial sponsor wanted to fund further testing of the 
fuel, but insisted that information that they relate to the student 
would need an ITAR license. It would be unrealistic to expect further 
work on the invention be limited to U.S. citizens, or to seek ITAR 
licenses for such university work.
     Commercial defense contractor to issue Stop Work Order 
because a key person was a Canadian citizen: The university contract 
contained no restrictions on publication or foreign nationals; the 
project was to test devices to grow cells in space designed for the 
International Space Station. Upon learning that one of the key 
personnel (for whom prior approval was required to replace) was not a 
citizen, the defense contractor informed the university that the person 
must stop work. The defense contractor has subsequently suggested that 
a Technology Transfer Control Plan can be developed to authorize the 
person to work; however, this is not acceptable to the university 
because it is impossible to anticipate what foreign nationals may 
participate, in a funded or unfunded capacity, in the future.
     Expert project personnel precluded from further 
contribution: A Chinese national post-doc wrote software for the NASA 
funded Gravity Probe-B project, which was sent to NASA for their 
review. NASA stamped the report and software ``ITAR-controlled'' and 
insisted that the individual who wrote it now needed an ITAR license to 
read their comments on the work.
    In such a restrictive environment the message being sent throughout 
the global science community is to avoid involvement of U.S. industry 
in foreign scientific collaboration on space missions. This unwelcome 
message has the effect of restricting the involvement of the United 
States in foreign and joint science projects. As a global technology 
leader, the U.S. cannot afford the negative consequences on industry or 
on the advancement of the science.
    The changes announced on May 26 by the Department of State are 
certainly welcome, but are unlikely to have much impact on 
universities. The regulations are specifically designed to improve U.S. 
cooperation with allies and are geared more toward easing industry's 
problems than addressing the academic community's concerns.
    For example, the Streamlined Licensing for COMSAT Components/
Technical Data provision (proposal 14) applies only where all parties 
involved are NATO countries. Many of universities collaborate closely 
with the European Space Agency (ESA). In working with ESA, two problems 
emerge. First, universities are not conducting ``sales'' of items. 
Second, of the fourteen members of the ESA, five are not members of 
NATO. These include Austria, Finland, Ireland, Sweden, and Switzerland. 
Therefore, under the new regime, universities will still be regulated 
by ITAR and required to obtain export licenses.
    At best, the Major Program License (proposal 1) under which a 
university might become a subcontractor, would require a continued 
scrutiny of the research being done to maintain it within the initially 
approved license parameters, which is not compatible with the open 
inquiry of fundamental research. Such required monitoring would likely 
have a chilling effect on the research performed. In addition, 
collaborators on a fundamental research project are often not all known 
and identifiable at the beginning of the project; they may be 
determined only as the direction and/or needs of the research project 
evolve, or they may change as researchers move from one institution to 
another.
    The Administration is to be commended for trying to address 
industry's problems, but additional consideration should be given to 
universities' needs as well. The following options may be of use in 
trying to resolve this situation:

     Clarify that the fundamental research exemption in the 
ITAR is the same as under the Export regulations.

  --The fundamental research exemption in ITAR should operate in the 
        same manner as it does in the EAR and should exclude from ITAR 
        export controls U.S. university-based research, scientific and 
        experimental satellites and related technical data.

  --Universities need not register or secure export licenses when the 
        activity qualifies under the ITAR public domain and fundamental 
        research exemption.

  --Universities may rely upon the Q&A section of the EAR, at 15 CFR 
        Part 734, as similarly applicable to ITAR.

     Make explicit that prime contractors who accept controls 
on access by foreign nationals and EAR or ITAR licensing requirements 
should not flow down such requirements to university and laboratory 
subcontractors when the subcontract activity qualifies as fundamental 
research.
     Urge that a system be created wherein Major Program 
Licensees are not limited to subcontractors and collaborators 
identified at the beginning of a project, but will also have the 
flexibility to include additional subcontractors as needed, in keeping 
with the current practices of fundamental research.
     Recognize that universities cannot operate like defense 
contractors; support the open, fundamental research environment, and 
limit the use of closed meetings, non-disclosure agreements, and other 
security controls when involving University-based researchers in 
federally supported projects.
     Clarify that ``Defense Services'' and ``Defense Articles'' 
are distinct from the education and fundamental research activities 
conducted by universities and that universities need not secure State 
approval for Technical Assistance Agreements when the activity 
qualifies as public domain under ITAR.
     The best result would be to return jurisdiction for 
university aeronautical and space-based fundamental research programs 
and their related satellite to the Department of Commerce, provided 
that the satellite or related item is intended for basic or applied 
research in science and engineering and that the resulting information 
is published and shared broadly within the scientific community.

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