[House Hearing, 111 Congress]
[From the U.S. Government Publishing Office]


 
                EXPORT CONTROLS ON SATELLITE TECHNOLOGY

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

                                HEARING

                               BEFORE THE

         SUBCOMMITTEE ON TERRORISM, NONPROLIFERATION AND TRADE

                                 OF THE

                      COMMITTEE ON FOREIGN AFFAIRS
                        HOUSE OF REPRESENTATIVES

                     ONE HUNDRED ELEVENTH CONGRESS

                             FIRST SESSION

                               __________

                             APRIL 2, 2009

                               __________

                           Serial No. 111-14

                               __________

        Printed for the use of the Committee on Foreign Affairs


 Available via the World Wide Web: http://www.foreignaffairs.house.gov/

                                 ______

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                      COMMITTEE ON FOREIGN AFFAIRS

                 HOWARD L. BERMAN, California, Chairman
GARY L. ACKERMAN, New York           ILEANA ROS-LEHTINEN, Florida
ENI F.H. FALEOMAVAEGA, American      CHRISTOPHER H. SMITH, New Jersey
    Samoa                            DAN BURTON, Indiana
DONALD M. PAYNE, New Jersey          ELTON GALLEGLY, California
BRAD SHERMAN, California             DANA ROHRABACHER, California
ROBERT WEXLER, Florida               DONALD A. MANZULLO, Illinois
ELIOT L. ENGEL, New York             EDWARD R. ROYCE, California
BILL DELAHUNT, Massachusetts         RON PAUL, Texas
GREGORY W. MEEKS, New York           JEFF FLAKE, Arizona
DIANE E. WATSON, California          MIKE PENCE, Indiana
RUSS CARNAHAN, Missouri              JOE WILSON, South Carolina
ALBIO SIRES, New Jersey              JOHN BOOZMAN, Arkansas
GERALD E. CONNOLLY, Virginia         J. GRESHAM BARRETT, South Carolina
MICHAEL E. McMAHON, New York         CONNIE MACK, Florida
JOHN S. TANNER, Tennessee            JEFF FORTENBERRY, Nebraska
GENE GREEN, Texas                    MICHAEL T. McCAUL, Texas
LYNN WOOLSEY, CaliforniaAs  TED POE, Texas
    of 3/12/09 deg.                  BOB INGLIS, South Carolina
SHEILA JACKSON LEE, Texas            GUS BILIRAKIS, Florida
BARBARA LEE, California
SHELLEY BERKLEY, Nevada
JOSEPH CROWLEY, New York
MIKE ROSS, Arkansas
BRAD MILLER, North Carolina
DAVID SCOTT, Georgia
JIM COSTA, California
KEITH ELLISON, Minnesota
GABRIELLE GIFFORDS, Arizona
RON KLEIN, Florida
                   Richard J. Kessler, Staff Director
                Yleem Poblete, Republican Staff Director
                                 ------                                

         Subcommittee on Terrorism, Nonproliferation and Trade

                   BRAD SHERMAN, California, Chairman
GERALD E. CONNOLLY, Virginia         EDWARD R. ROYCE, California
DAVID SCOTT, Georgia                 TED POE, Texas
DIANE E. WATSON, California          DONALD A. MANZULLO, Illinois
MICHAEL E. McMAHON, New York         JOHN BOOZMAN, Arkansas
SHEILA JACKSON LEE, Texas            J. GRESHAM BARRETT, South Carolina
RON KLEIN, Florida
               Don MacDonald, Subcommittee Staff Director
          John Brodtke, Subcommittee Professional Staff Member
            Tom Sheehy, Republican Professional Staff Member
             Isidro Mariscal, Subcommittee Staff Associate


                            C O N T E N T S

                              ----------                              
                                                                   Page

                               WITNESSES

Mr. Pierre Chao, Senior Associate, Center for Strategic and 
  International Studies..........................................    17
Larry M. Wortzel, Ph.D., Vice Chairman, U.S.-China Economic and 
  Security Review Commission.....................................    26
Ms. Patricia Cooper, President, Satellite Industry Association...    37

          LETTERS, STATEMENTS, ETC., SUBMITTED FOR THE HEARING

The Honorable Edward R. Royce, a Representative in Congress from 
  the State of California: Prepared statement....................     5
The Honorable Gerald E. Connolly, a Representative in Congress 
  from the State of Virginia: Prepared statement.................     9
The Honorable Donald A. Manzullo, a Representative in Congress 
  from the State of Illinois: Prepared statement.................    11
The Honorable Brad Sherman, a Representative in Congress from the 
  State of California, and Chairman, Subcommittee on Terrorism, 
  Nonproliferation and Trade: Article from the New York Times by 
  William J. Broad, ``For U.S. Satellite Makers, a No-Cost 
  Bailout Bid''..................................................    13
Mr. Pierre Chao: Prepared statement..............................    20
Larry M. Wortzel, Ph.D.: Prepared statement......................    28
Ms. Patricia Cooper: Prepared statement..........................    40

                                APPENDIX

Hearing notice...................................................    70
Hearing minutes..................................................    71
Frank Vargo, Vice President, International Economic Affairs, on 
  behalf of the National Association of Manufacturers: Statement.    72
Aerospace Industries Association: Letter addressed to the 
  Honorable Howard L. Berman, a Representative in Congress from 
  the State of California, and Chairman, Committee on Foreign 
  Affairs, and statement.........................................    76


                EXPORT CONTROLS ON SATELLITE TECHNOLOGY

                              ----------                              


                        THURSDAY, APRIL 2, 2009

              House of Representatives,    
                     Subcommittee on Terrorism,    
                            Nonproliferation and Trade,    
                              Committee on Foreign Affairs,
                                                    Washington, DC.
    The subcommittee met, pursuant to notice, at 1:05 p.m., in 
room 2175, Rayburn House Office Building, Hon. Brad Sherman 
(chairman of the subcommittee) presiding.
    Mr. Sherman. Folks, maybe we could sit down and start the 
hearing.
    As a preliminary matter, two organizations have requested 
inclusion of written statements for the record of this hearing. 
They are the National Association of Manufacturers and the 
Aerospace Industries Association. Without objection, those 
statements will be made part of the record.
    I know our witnesses will deliver oral testimony. They are 
also invited to present what I expect will be longer written 
testimony and to append to their testimony whatever materials 
they would like.
    With that, I should note that we are the only country that 
controls satellite exports as if they were armaments. Critics 
of this policy question whether it is an appropriate way to 
deal with national security. It is important to remind us of 
what I think our witnesses well know, and that is in the 1990s 
we experimented briefly with controlling satellites not as 
munitions under State Department jurisdiction, but rather as 
dual-use items under Commerce Department jurisdiction. Soon 
after that change was made, there was a breach of security in 
which the Chinese military was provided with sensitive 
information after a failed launch of a United States-built 
satellite. The response was to reclassify satellites as 
munitions.
    This is what we tend to do in Congress. When a horse 
escapes a barn, after that we close the barn door, and we tend 
to close only the barn door that that horse escaped from, not 
concerning ourselves with any other barn doors. Keep in mind, 
those involved in the 1990s incident provided information 
because they had a financial stake in the future success of the 
Chinese launch program.
    Well, we certainly have not prevented American companies 
with any technological knowledge from having such a stake. We 
have just prohibited them from having a stake as owners of the 
satellite or builders of the satellite. It continues to be 
legal for American companies to insure a satellite being 
launched on a Chinese-launched vehicle, or sell derivatives 
based on the success or failure of the Chinese launch program, 
or take any other action that might tempt them to be rooting 
for and perhaps adding to the success of the Chinese launch 
program.
    Most people aware of our restrictions on satellite exports 
would assume that it is to protect the content of the 
satellite, to prevent people from looking inside the box. There 
are ways to prevent countries from looking inside the box 
without treating the satellite itself as a munition.
    We have in effect an embargo on U.S. satellites, or 
satellites containing U.S. components, from being launched with 
Chinese rockets because we have a law against the export of 
munitions to China. What we ought to have is an overall system 
that balances our interests first in protecting our satellite 
technology and then in protecting our technology for launch 
applications from going to the wrong places.
    This can be done in the case of the contents of the 
satellite through an appropriate monitoring system, monitoring 
until launch. And with regard to the launch technology, we 
either have to trust people with a financial interest in the 
success of the Chinese launch system not to reveal information 
because it is sensitive; and, frankly, the big headlines of the 
1990s by themselves may have closed that door. I don't think 
anyone in the future could say, ``Oops, I slipped,'' and avoid 
prosecution should they repeat pretty much the same fact 
pattern we saw in the early nineties.
    But we can, if we wish, go to the point of saying no U.S. 
company that has any technological capacity, whether it is an 
insurance company, whether it is an investment bank selling 
derivatives, whether it is a company that has contracted to own 
the satellite only after it is launched, whether it is a 
communications firm that has a favorable contract to use the 
satellite, whatever, that no company can have a stake in the 
success of a Chinese launch.
    Now, the space industry has made credible arguments that 
the International Traffic in Arms Regulations, known as ITAR, 
has hurt business and the space industrial base. This claim is 
echoed in private at least by the Intelligence Community who 
sometimes find it more and more difficult to source satellite-
related equipment domestically.
    ITAR has hurt the industry to some degree. Part of the 
perceived harm arises from the fact that the use of controlled 
American parts or technology in a product means that American 
laws follow that entire product. This has hurt second- and 
third-tier suppliers.
    Europeans and other buyers would just rather avoid U.S. 
regulations. They therefore have focused on an ITAR-free 
movement. European satellite maker Thales Alenia is now 
promoting satellites and satellite components that are ``ITAR 
free.'' What does ITAR free mean? It means the product has been 
put together, carefully discriminating against U.S. suppliers.
    I would wonder whether the United States military should, 
except when absolutely necessary, do business with a company 
that has announced a policy of discriminating against U.S. 
suppliers whenever it can. Perhaps we should discriminate 
against that supplier whenever we can. This is especially true 
when the discrimination against the U.S. suppliers not only 
hurts us economically and violates the spirit of free trade, 
but is also specifically designed to thwart U.S. foreign 
policy.
    Now, at the core of this problem is that the Chinese have 
the Long March rocket, not a big winner in terms of 
reliability, but a big winner in terms of cost. This Long March 
rocket technology is the result of Chinese Government 
subsidies, and one clear response for us is to simply subsidize 
our own launch capacity, keep those jobs, that technology, and 
the national security aspects all in the United States; that is 
to say, the national security knowledge in the United States.
    So we do have, I think, a need to legislate. One way is to 
kick this back to the executive branch and allow satellites to 
be on the munitions list or not on the munitions list, subject 
to the same administrative process as other similar goods. We 
have to remember, though, that the last time this happened we 
saw it explode in the headlines. So I look forward to getting 
new ideas about how to balance our economic interests in a 
thriving economic space industry, with our national security 
interest in a way that is logical, that prevents the Chinese 
and others from knowing what is inside the satellite, and 
prevents U.S. persons from having an incentive to provide 
technical knowledge to the Chinese or others who should not 
receive it.
    Now I want to turn this over for an opening statement to a 
gentleman who has demonstrated his patience by watching me go 
well over the 5-minute limit, our ranking member, Mr. Royce.
    Mr. Royce. Thank you, Mr. Chairman. Thank you also for 
calling this hearing today. I think you are continuing the work 
on export controls that this subcommittee began in the last 
Congress.
    This effort, I think we should note, spurred the previous 
administration into some reform, but more is needed and I look 
forward to exploring how satellite technology might be better 
handled.
    Many are warning that the U.S. export control system is 
broken, that it is a relic from a past economic and business 
era. Numerous GAO reports have concluded this. We will hear 
today that satellite export controls needlessly target items 
that are readily available anyway on the world market, that 
they unduly restrict international cooperation, and that they 
frustrate access to needed foreign technology.
    Several other countries are making impressive technological 
breakthroughs. France, for example, Russia, China, and others 
have built and they have orbited satellites using their own 
launch capabilities. The playing field for this $120-billion-a-
year industry clearly is more crowded and it is more 
competitive than it has ever been before, and our export 
control system has poorly responded.
    The economic impacts of export controls are tough to 
measure. The Pentagon, though, has found that satellite export 
controls have hurt U.S. aerospace companies, their business, 
and long-term ability to innovate in those businesses.
    Several factors are at play, but it is fair to ask if 
Congress' toughening of satellite licensing 10 years ago has 
played a role in reducing American leadership in satellite 
communications. Our economic competitiveness is tied to our 
national security. Simply put, we will not remain a military 
superpower without a world-class technology base, including 
satellites.
    A top U.S. military official recently testified to Congress 
that U.S. export controls are hurting the space industrial 
base, threatening national security. His view should carry 
considerable weight.
    Any system, especially one devised to counter the former 
Soviet Union, requires constant reform. No doubt a bureaucratic 
culture is a poor match for a world of ever rapidly evolving 
technology. The tendency in a bureaucracy is to play it safe, 
but bureaucratic safety does not promote national security if 
it is stifling innovation.
    We will hear about the licensing system's shortcomings, 
including delays, redundancies, inconsistencies and static 
control lists. Many of these are valid charges. So let's hear 
from our witnesses on the reform proposals. But we should keep 
in mind that while the growing complexity of satellite 
technology and production does complicate regulation, 
complexity in and of itself does not argue for liberalization. 
China is central to this debate.
    As one witness will testify, China's strategic intentions 
and proliferation record and the PLA's rapid growth and 
potential to improve its missile force through international 
cooperation factored into the decision to further restrict 
satellite exports. So that witness is right on that point.
    Today China's satellites direct a kill weapon, a 
sophisticated missile, targeted at our naval fleet. 
Unfortunately, our allies are eager, only too eager, to provide 
China with advanced satellite technology. My concern is that 
the State and Commerce Departments, frankly, are naive about 
China.
    Misguided faith in the validated end-user program is one 
example. Chinese spying is pervasive. We knew that here a year 
ago. The whole world knows it today. Chinese spying is 
pervasive. Export control reforms should be made with a very 
clear-eyed view of Chinese capabilities and intentions.
    Mr. Chairman, satellites are essential to our national 
defense. So I look forward to working with you, beginning 
today, to find the way to control this critical technology that 
maximizes our security.
    Thank you.
    [The prepared statement of Mr. Royce follows:]

    
    
    
    

    Mr. Sherman. Thank you, Mr. Royce, and thank you for 
pointing out that this hearing builds on prior hearings and 
that those prior hearings, I think, have been successful in 
getting the State Department to move more quickly on these 
export applications. But I think we have more to do if we are 
going to strike the right balance and help our economy.
    I want to acknowledge former Senator Warner of Virginia who 
is here with us today and thank him for his attendance. We have 
a member of the full committee who is not a member of the 
subcommittee but, given his interest, probably should be, 
completing our full Southern California panel, Dana 
Rohrabacher, who I know wants to make a brief opening 
statement.
    Mr. Rohrabacher. I got that ``brief'' part there.
    Mr. Chairman, first of all I am a member of the Foreign 
Affairs Committee and have been for 18 years now. But let me 
also note that I am a senior member of the Science Committee 
and served as chairman of the Space Subcommittee of Science for 
8 years, so I know about this issue, I have followed it, I take 
it very seriously. So let's be frank. Let's not beat around the 
bush about what we are really talking about here.
    If you don't want export control reform to focus on China--
if you do want to focus on China, that is fine--but if you 
don't want us to focus on China and you want to focus on how we 
can reform export controls generally, then take China right off 
the table, right off the bat.
    So any reform that is going to be really effective and that 
we have a chance of succeeding has got to be a two-tiered 
approach. It is as simple as that. That has been something that 
the industry has been unwilling to accept and to take 
seriously. Because what is happening in China and the threat 
that China poses is something that we cannot ignore, yet that 
should not be the controlling factor of how we regulate high-
tech and especially our policies dealing with satellites and in 
our dealings with all the other countries of the world.
    Last week the heads of the world's largest satellite 
operators said that they want to launch their satellites on 
Chinese rockets. They want to do that because it is cheaper. In 
fact, every time these satellite operators are given the chance 
to discuss ITAR reforms, they always tell us that they want 
permission to launch on the Long March rocket. It doesn't take 
a rocket scientist to deduce that the leading edge of reform 
efforts in terms of ITAR, then, is actually an effort to permit 
satellites to be launched on Chinese military rockets.
    Is that what the debate is really all about? Because you 
can count on me to be working with all of you to try to make 
sure that we decrease the regulations on America's ability and 
other people's ability to sell our technology to other 
countries.
    But let's be serious and talk about China. It is somewhat 
offensive for me to hear the SES whose holding company, I might 
add, is in Luxembourg, or Telsat, a Canadian company, or 
Eutelsat, which is French, of course, and then Intelsat, which, 
of course, pays its taxes in Bermuda, it is kind of disturbing 
to hear all of these people lecture us about how we are trying 
to save jobs in the United States by letting foreign companies 
take advantage of cut-rate military launches.
    First of all, these people aren't concerned about jobs in 
the United States. But what about the jobs in the United 
States? Don't they count? What about the people who work in our 
launch industry? They should be part of the equation when we 
are talking about this.
    Now, as a Republican and a believer in free markets, I do 
not begrudge satellite operators who are making millions of 
dollars of profit, I don't begrudge them that profit. But the 
fact is that we should not be compromising the security, long-
term security interests of our country for that short-term 
profit, and that is why we have to focus on China.
    Benjamin Franklin is quoted as saying, ``Sir, please don't 
burn down my barn to cook your eggs.'' Well, we have Eutel 
Satellite basically asking us to endanger our national security 
in order to fatten profits. And Eutelsat, as I say, is making a 
profit.
    So let's take a look at what policies we should have about 
China and let us not forget that the reason why there are the 
restrictions on China that we have got is because China remains 
a vicious dictatorship. It is the same Chinese regime today 
that massacred the reform movement in China at Tiananmen 
Square, and that is why these restrictions were put on in the 
first place.
    So I would suggest that those who are very serious about 
trying to make sure that we pay attention to the cumbersome 
restrictions that ITAR puts on high-tech companies, I suggest 
let's talk about setting up a two-tier system where they are 
freed from those restrictions and have a realistic policy 
toward China.
    Thank you very much, Mr. Chairman.
    Mr. Chairman, if I could indulge you, I notice that the 
administration is not represented here today, and I have a 
series of questions that I would like to submit for the record 
that we would like the administration to answer in terms of 
this issue.
    Mr. Sherman. They will, without objection, be made part of 
the record.
    Whether those who are not here have an obligation to 
answer, I leave to the Parliamentarian, but certainly I would 
urge you to send those to the administration in the form of a 
letter, and often the administration takes seriously the 
obligation to respond to such letters.
    We now have been joined by Congressman Connolly of 
Virginia, who will not only be making an opening statement now, 
but he will be chairing these hearings at 2 o'clock until about 
2:15 when I have to go vote in the Financial Services 
Committee.
    The gentleman from Virginia is recognized.
    Mr. Connolly. I thank the distinguished chairman, and thank 
you for holding today's hearing. I also want to join in 
welcoming my friend, the former senior Senator from Virginia, 
John Warner. I am delighted to see Senator Warner here today.
    I believe the subject of this hearing highlights once again 
the law of unintended consequences. Here we have a case in 
which a previous Congress, well-intentioned as it might have 
been, imposed tighter export restrictions on the commercial 
communications satellite industry in the interests of 
protecting national security based on accusations of improper 
technology-sharing with China.
    I appreciate and support the need to safeguard the 
propriety of our military technologies. However, the practical 
effect of the International Traffic in Arms Regulations appears 
to have been to stifle innovation and America's competitive 
edge in the global satellite marketplace.
    The U.S. share of worldwide satellite manufacturing revenue 
has fallen by one-third since these restrictions became law. A 
DoD survey showed the industry attributes more than $.5 billion 
in annual lost revenue due to administrative problems and the 
changes in regulation. According to the industry, the 
technology beaming the deliberations of this legislative body 
to television sets back home is now more regulated than those 
industries developing new weapons.
    During the last decade, competitors in other nations 
stepped in to fill the void left by the shrinking U.S. 
commercial satellite industry. While their technology may not 
be quite on par with American production, it comes with none of 
the restrictions in selling to unfriendly nations. So while we 
succeeded in preventing American companies from inadvertently 
providing technology to China or other restricted nations, we 
also helped fuel our global competitors, some of whom do not 
share our concerns for supplying unfriendly regimes.
    As if this dynamic were not enough to warrant a fresh 
review from the new administration, we are now hearing from 
leaders within the defense and intelligence agencies who 
believe the American satellite industry has been so weakened 
that it is now threatening the sustainability of the very 
security we are trying to protect.
    Mr. Chairman, this is a sobering reminder that good 
intentions are not enough. Whether it is the overly rigid 
parameters of No Child Left Behind, the lack of regulation for 
derivatives and no-fault swaps--which I was just talking about 
in the Government Reform and Oversight Committee--or the 
oversight of commercial satellites, it seems to me that it is 
incumbent upon those of us writing the laws to ensure they are 
more than the enshrinement of good intentions. They must be 
focused on efficacy.
    In this particular case I would say we are overdue for 
revisiting this export policy at the start of a new 
administration, and our upcoming review of the State Department 
budget provides just such an opportunity. I hope today's 
hearing will be the start of that important discussion, and I 
thank you for holding it.
    [The prepared statement of Mr. Connolly follows:]

    
    
    Mr. Sherman. I thank the gentleman from Virginia.
    I am about to recognize our witnesses. I will ask them, 
kind of in reference to the comments of Mr. Rohrabacher, if 
they can weave into their opening statements whether there is a 
way to achieve the jobs objective if we completely shut out 
China, but otherwise make changes; and, second, whether we are 
talking here not just about opportunities for the companies, 
but try to tell us whether we are creating U.S. jobs rather 
than just profits for U.S. companies.
    Without objection, we will enter into the record the 
opening statement submitted by Mr. Manzullo, who is a member of 
this subcommittee, and also a copy of today's New York Times 
article on the subject of these hearings.
    [The prepared statement of Mr. Manzullo follows:]

    
    
    
    
    [The article referred to follows:]Article, New 
York Times deg.









    Mr. Sherman. With that, let us welcome our first witness, 
Pierre Chao, Senior Associate with the International Security 
Program of the Center for Strategic and International Studies. 
Mr. Chao was a co-chair of the working group on the health of 
the U.S. space industrial base and the impact of export 
controls.
    Mr. Chao.

  STATEMENT OF MR. PIERRE CHAO, SENIOR ASSOCIATE, CENTER FOR 
              STRATEGIC AND INTERNATIONAL STUDIES

    Mr. Chao. Mr. Chairman, Mr. Royce, members of the 
subcommittee, thank you for inviting me to testify before you. 
If I can have my written testimony and a copy of that study 
included for the record, I would be grateful.
    I was asked to talk about this study that we undertook in 
2007-2008. A lot of the conclusions and findings I am hearing 
quoted, so from that perspective that is a good thing. At the 
time I was a full-time employee of the Center for Strategic 
International Studies. I am now a non-resident senior associate 
at CSIS.
    The study started in response to mounting concerns on the 
part of the National Security Space Community about the health 
of its industrial base and the rumblings that space-related 
export controls were causing problems within the industry. We 
put together a working group that we thought was very well 
balanced, that represented all the different constituencies, 
because there are multiple viewpoints. So we made sure we had 
on that working group people from the Defense Department, 
people from the State Department, people from large companies 
and small companies, people with congressional experience, 
people from the new space community.
    We were also able to leverage some outstanding data 
analysis generated by the Bureau of Industry and Security. It 
was a survey done of the industry, the first time anybody had 
done it, and the fact that your CEO would go to jail if they 
didn't answer it made sure we had a 100 percent response rate. 
So we had a lot of good data related to it.
    We also approached the problem with a couple of key 
principles: First, leadership in space is critically important 
to U.S. national security.
    Two, there are deep interdependencies between the defense 
space, intelligence space, civil space and commercial space 
communities. Weakness in one represents a weakness in all, 
because we share the same industrial base.
    Third, it is important to have a strong industrial base.
    Four, a prudent export control policy is important and 
necessary.
    Finally, we also looked at this whole issue through the 
lens of national security. It was very clear in that 1999 
legislation, the intent of the Congress was very clear. It said 
that national security trumps economics in this case, so 
therefore we examined everything from a national security lens 
to see are we meeting the goals we wanted.
    So what were some of our findings? One, the overall health 
of the industry is good. We put quotes around the word ``good'' 
because there is a certain amount of fragility to it. There is 
a lot of capacity, not enough work. And we did recognize some 
very noticeable weaknesses in the second and third tier of the 
industries, where there is the beginnings of single points of 
failure which should be of concern.
    Two, the U.S. space industrial base has returned to being 
very dependent and tied to the defense market. Where once upon 
a time it was more broadly based, now 60 percent of the 
revenues are related to defense, 90-95 percent are related to 
U.S. Government. We are arsenalizing the industry. 
Philosophically you can make a policy decision and say that is 
the way I want to do it, but there is a price we have to pay 
for that. And we have to be honest about the price in order to 
keep it as part of an arsenal, or we let it complete more 
broadly in the global marketplace and diversify and broaden its 
competitiveness.
    Third set of findings. Space capabilities continue to 
proliferate globally. Mr. Chairman, you talked about that. And 
we are rapidly losing the ability to control that 
proliferation. Many of the countries that have gained 
capability in space got it from the Russians or others.
    So from that perspective, the intent of the Space Export 
Control System has not prevented the rise of these other 
powers. It may have slowed them down, it may have increased the 
cost of achieving those capabilities, but it has certainly not 
stopped the arrival of other players.
    In fact, in some of the more striking findings they found 
that the Export Control Regime had a perverse--to use your 
words--a perverse unintended consequence of encouraging others 
to develop indigenous capabilities, when they told us they 
would have been more than happy to buy American equipment 
because it is far better; but because of the friction in the 
system, they couldn't rely on American components. So we were 
very much struck by that.
    Another set of findings related to the fact that the export 
control regime makes it very difficult to engage in cooperation 
with our close allies, in some cases contrary to what the U.S. 
national space policy is, which says to encourage international 
cooperation. Again, there is a friction in place.
    Then the last set of findings we found is that regardless 
of what study you look at--and I don't care which one you 
find--the U.S. satellite industry has been losing global market 
share over the last couple of years. And in particular, the 
biggest burden has landed on the second and third tier of the 
industry that don't have the resources of the big guys to wind 
their way through the export control system; that really rely 
on being able to participate in the global marketplace in order 
to generate the profits to invest back in plants and research 
and development.
    So we came up with a series of recommendations and I would 
like to highlight a couple of key ones.
    One, it is time for the administration and the Congress to 
sort of review and reconcile the strategic intent of these 
goals.
    Two, take the technologies and identify the components that 
you want to restrict for China, or for anybody else, because 
that is what we want to get at, rather than putting the entire 
satellite on it, which turned out to be an extremely blunt 
instrument, because once you put a satellite on the munitions 
list, every component down to the simplest bolt becomes a 
munition. So let's stop what we want to stop going out, which 
is the critical technology componentry, allow the overall 
satellite to be moved back, and if someone doesn't want to put 
critical technologies on it, they don't have to and they can 
sell it, and we are still protecting technology while 
generating jobs in the grand scheme of things.
    You need an annual review. This committee has talked about 
that in prior reform. Why? Because the technology changes quite 
a bit.
    Finally, there are other amendments or changes that you can 
do in terms of time of licenses, et cetera, that you have 
referred to, and other reform legislation that you actually--
because you have a piece of legislation related to the space 
industry--insert related to this topic.
    So, I thank you for allowing me to present our study and 
thank you for taking up this very important topic, and I look 
forward to your questions.
    Mr. Sherman. I thank you for that presentation.
    [The prepared statement of Mr. Chao 
follows:]Pierre Chao--note: new Word copy submitted 
with transcript but compared to original; no change deg.













    Mr. Sherman. I would note that the reason Congress put 
satellites on the munitions list had, believe it or not, 
nothing to do with the component of the satellite and 
everything to do with preventing any U.S. entity from having an 
interest in the success of the program. So it wouldn't really 
matter whether it was great technology or poor technology that 
was inside the satellite. If you bought the rationale for the 
law we passed in the nineties, you would maintain it.
    With that, let us go to Dr. Larry Wortzel, vice chairman of 
the U.S.-China Economic and Security Review Commission. He is a 
retired U.S. Army colonel with extensive experience in 
technological security and counterintelligence. He served two 
tours of duty as a military attache at the American Embassy in 
China.

STATEMENT OF LARRY M. WORTZEL, PH.D., VICE CHAIRMAN, U.S.-CHINA 
            ECONOMIC AND SECURITY REVIEW COMMISSION

    Mr. Wortzel. Thank you, Mr. Chairman. Chairman Sherman, 
Ranking Member Royce, satellites form a really major part of 
military command, control, communications, information 
gathering and targeting systems or C4ISR systems. And I am 
going to draw from some of the conclusions in the annual 
reports of the U.S.-China Economic and Security Review 
Commission, and I will provide you some of my own views in 
discussing how satellite exports bear on the strength of the 
Chinese People's Liberation Army, or the PLA.
    Now, the Strom Thurmond National Defense Authorization Act 
for Fiscal Year 1999 turned control over satellite export 
licensing to the State Department under the Arms Export Control 
Act. Factors driving Congress to make this change were concerns 
about the rapid growth of the PLA, China's strategic 
intentions, potential threats to the United States, and the 
potential for proliferation of weapons and delivery systems by 
China.
    Congress also expressed concerns that cooperation with 
China in space and missiles could improve accuracy in Chinese 
missile programs, assist with the development of multiple 
independently targeted reentry vehicles, and assist with the 
development of submarine-launched ballistic missiles.
    I see no reason to change the decision to have satellite 
exports remain on the munitions list. Satellites are now an 
integral part of China's military architecture. They are used 
to support intelligence collection, control forces, direct 
precision missile strikes, and for data transfers that improve 
combat effectiveness.
    The PLA has research that suggests using ballistic missiles 
with maneuvering reentry vehicles to attack U.S. aircraft 
carrier battle groups. A sensor architecture based on 
satellites would guide such attacks. Right now, the PLA has 
only two tracking and data relay satellites in orbit. That is 
not enough to give them a real time global intelligence 
collection capability, but is it is more than adequate to 
support their plans to target American aircraft carrier battle 
groups with both hypersonic cruise missiles and those 
maneuvering ballistic missile warheads.
    Now, given the way that satellite programs are being used 
in China, exports of dual-use technologies that would improve 
China's remote sensing satellite capabilities still require 
careful control. Our Commission's 2006 annual report concluded 
that China has recognized the effectiveness of force 
multipliers like C4ISR and it is enhancing its own capabilities 
to make its military a more formidable fighting force. These 
improvements depend directly on satellites.
    In 2007, the Commission's annual report concluded that 
China has developed an advanced anti-satellite program that 
consists of an array of weapons that could destroy or 
incapacitate an enemy's satellites.
    My own research shows that China's military strategists see 
the United States as the most likely potential adversary. A 
research paper that I did for the American Enterprise Institute 
documents that PLA strategists contemplate maneuvering 
satellites in space, among other measures, as a means to 
degrade an adversary's C4ISR programs.
    Mr. Chairman, I ask that copies of my research be made part 
of the record.
    Mr. Sherman. Without objection, so ordered.
    [The information referred to is not reprinted here but is 
available in committee records.]
    Mr. Wortzel. Although China has not successfully tested a 
submarine-launched ballistic missile, it has fielded two new 
ballistic missile submarines. A decade ago the House expressed 
concern that satellite cooperation with China could improve its 
submarine-launched ballistic missile program.
    I also recommend examining more closely how the United 
States controls the dual-use satellite-related technology. 
China is working with Iran on space and satellite programs, 
plus other countries.
    Last week, Dr. Eugene Arthurs, who is CEO of the 
International Society for Optical Engineering, told our 
Commission that technologies used in satellites, such as high-
powered chips that support lasers, can be part of a space-based 
weapons system.
    I urge you to keep satellite export controls in the 
Department of State and also to look into implementing some of 
the findings of the ``Beyond Fortress America'' report related 
to ensuring that export control processes are more timely, 
distinguish among technologies, and that regulations are 
updated to account for advances in technology and development.
    I would note in response to Mr. Rohrabacher's concerns that 
in Fiscal Year 2000, the Congress, despite where satellite 
controls were placed, decided they wanted to move forward and 
push satellite and space cooperation with Russia, and through 
executive decisions were able to do that, regardless of where 
the system was administered.
    Thank you very much for the opportunity to be here and 
testify.
    Mr. Sherman. Thank you.
    [The prepared statement of Mr. Wortzel 
follows:]Larry Wortzel deg.



















    Mr. Sherman. Our third witness is Ms. Patricia Cooper, the 
President of the Satellite Industry Association, a Washington, 
DC-based trade association, representing global satellite 
operators, service providers, manufacturers and launch service 
providers. Ms. Cooper has spent more than 17 years working in 
the satellite industry and in government.
    Please proceed.

STATEMENT OF MS. PATRICIA COOPER, PRESIDENT, SATELLITE INDUSTRY 
                          ASSOCIATION

    Ms. Cooper. Thank you, Mr. Chairman, Mr. Royce, members of 
the subcommittee, Mr. Rohrabacher. Thank you for inviting me to 
testify today on the critical issue of U.S. satellite export 
controls.
    As president of the Satellite Industry Association, I speak 
here as the unified voice of leading satellite manufacturers, 
launch providers, satellite operators and service providers. 
While the satellite industry is by no means monolithic, SIA 
speaks when the industry has a common view on policy, 
regulatory and legislative issues that affect its business. We 
hold such a common view on U.S. export policies for satellites 
and space-related products.
    The commercial satellite industry endorses strong, sensible 
and effective export controls which prevent the most advanced 
technologies from falling into the hands of our adversaries. 
But we believe the time is right for Congress to review its 
decision of more than 10 years ago to mandate by legislation 
that exports of all satellites and related technologies be 
controlled by the State Department and licensed pursuant to 
ITAR.
    Notwithstanding their original intent, SIA believes that 
the current rules governing satellite exports have resulted in 
overly broad regulation that disadvantages U.S. spacecraft and 
component manufacturers in the global marketplace without 
necessarily having accomplished their desired intent. The 
broader U.S. space industry has also been impacted, raising 
concerns about the health of the underlying space industrial 
base that supports the defense, intelligence and civil space 
communities.
    Satellites are the only commodities included on the U.S. 
munitions list by congressional mandate versus regulation. As a 
result, the executive branch wields limited discretion 
authority over satellite exports. SIA questions fundamentally 
whether commercial satellite technology merits this 
extraordinary and unique position of legislative oversight 
compared with all other sensitive technologies in the USML.
    SIA is also concerned about the U.S. satellite 
manufacturing sector's ongoing competitiveness. Until recently, 
most satellites manufactured anywhere in the world required the 
inclusion of U.S. componentry or subsystems regulated under the 
ITAR. In other words, virtually all satellites had some measure 
of U.S. export control, no matter where they were made, so the 
added time, cost and uncertainity stemming from ITAR compliance 
fell in some measure on every manufacturer.
    This is no longer the case. In the past few years, European 
manufacturers have developed the capability to produce the 
requisite parts and components for a spacecraft without any 
U.S. content. One European manufacturer, as mentioned by the 
chairman, Thales Alenia Space, has actually begun to market an 
ITAR-free satellite.
    Because European countries do not regulate satellites as 
munitions as does the United States, these ITAR-free satellites 
are traded as commercial dual-use products under far less 
stringent export controls. We know of at least six such ITAR-
free satellites sold by Thales to date, initially to Chinese 
and Hong Kong customers, and more recently to Indonesian, 
Egyptian and European satellite operators.
    U.S. export policy now has joined price, quality and 
technical capabilities as a factor when customers consider 
buying U.S.-made satellites. Whether for real or perceived 
reasons, many prospective international satellite customers 
maintain the belief that U.S. export controls are 
unpredictable, excessively stringent and time-consuming.
    As a result, U.S. companies face an added constraint in 
winning international business. Our efficiency and 
competitiveness directly affects our ability to retain and grow 
the quarter of a million high-quality, high-paying satellite 
jobs now within the United States.
    Addressing this challenge requires action on two fronts. 
First, redouble the State Department's ongoing efforts to make 
the ITAR licensing process more efficient, timely and 
predictable.
    Second, SIA encourages Congress to adopt legislation that 
would return the authority to set export licensing policy for 
satellites to the executive branch where it resides for all 
critical technologies on the USML. Restoring executive 
authority for satellite export policy will allow for expert 
review of individual satellite technologies, ensuring that the 
USML focuses exclusively on items that merit control, those 
products that are critical to our Nation's security or 
competitiveness.
    The current satellite chapter remains largely untouched 
from 10 years ago, including items that may have been cutting 
edge in the late 1990s but today have limited military or 
technological sensitivity. Many are now widely available from 
non-U.S. sources. Careful review and update of all satellite-
related USML chapters should be an immediate priority.
    Finally, SIA believes that the imperative to review and 
revise overall United States policy on satellite exports is 
distinct from concerns regarding the launch of such technology 
on Chinese launch vehicles. Rigorous safeguards govern the 
export of any United States spacecraft or related technology 
for launch from China.
    Since 1999, no communications satellite or related 
technologies have been launched on Chinese vehicles, nor have 
there been reports of such permissions being sought. We urge 
that any consideration of this complex and country-specific 
issue not impede Congress from timely action and assessment of 
the appropriateness and effectiveness of its blanket mandate to 
regulate virtually all satellite technology under the ITAR.
    The satellite industry remains committed to U.S. export 
policies that safeguard sensitive technology, but we urge 
Congress and the administration to consider legislation that 
supports U.S. satellite exports and the jobs dependent on them 
by enabling the executive branch to determine the appropriate 
licensing treatment for exports of U.S. commercial satellites.
    It is our belief that the reform of these policies will 
result in a healthier satellite sector, reinforcing the 
American industrial position in the global marketplace and at 
home, and safeguarding both jobs and critical space technology 
for the Nation.
    On behalf of the members of the Satellite Industry 
Association, I again wish to thank you for the opportunity to 
testify and look forward to your questions.
    [The prepared statement of Ms. Cooper 
follows:]Patricia Cooper deg.



















    Mr. Sherman. Thank you. And if we are going to go forward, 
we are probably going to have to have another hearing before we 
do legislation where we will have a chance to hear from the 
administration, particularly the incredibly qualified, 
knowledgeable and gifted Ellen Tauscher, who currently serves 
with us but will be the relevant Under Secretary should the 
Senate do the logical thing, which they should do quickly, and 
that is confirm her.
    Ms. Cooper, what if I let Dana write one section of the 
bill, because I know what he would write--don't let the Chinese 
do anything--and I let you write the rest of the bill. Your 
testimony said, well, don't let the ``country specific'' issues 
prevent a good general policy. So you get to write the good 
general policy, and he gets to write the one policy that says 
the Chinese don't get involved.
    Does that bill mean more jobs and a stronger satellite 
industrial base for the United States, or does letting Dana 
write that one section eviscerate the good that the bill would 
do?
    Ms. Cooper. Mr. Chairman, we believe it will retain U.S. 
jobs and potentially add new jobs. The global satellite market 
is more than----
    Mr. Sherman. So that is even if we exclude China from 
everything?
    Ms. Cooper. The global satellite market is more than just 
China.
    Mr. Sherman. So we could have Dana write the stuff on China 
and otherwise allow the administration to decide how to treat 
satellite and satellite technology, and that would go a long 
way toward achieving the job objectives and the industrial base 
objectives we are trying to achieve?
    Ms. Cooper. I believe that your question about whether that 
will aid the industry, yes, I believe it will. There are plenty 
of non-U.S. customers that are concerned about the ITAR system 
when purchasing components or when considering purchasing an 
overall----
    Mr. Sherman. And these are customers that are not going to 
use China to do the launch?
    Ms. Cooper. If it includes United States technology, it 
won't be launched on a Chinese vehicle under current law. I 
will note that U.S. satellite operators and manufacturers are 
disadvantaged when they are constrained from access to the same 
launch vehicles their competitors are.
    Mr. Sherman. I didn't say you could write the whole law. He 
gets one section.
    Ms. Cooper. I do think that is an important point. But at 
this point, the Satellite Industry Association is not asking 
for changes in the Chinese policy.
    Mr. Sherman. Okay.
    Dr. Wortzel, you spoke about how important it was that 
China, and perhaps others, not get an advancement in their 
satellite technology. To what extent would we achieve your 
purposes if we allowed the launch vehicle, the Chinese launch 
vehicles, to be used, but we had, say, a colonel accompany the 
satellite, you know, with 10 American armed guards and 
whatever, to make sure that nobody looked inside it, and assume 
we were effective in telling American companies not to give 
launch technology or propulsion technology to the Chinese?
    Would that achieve our purposes?
    Mr. Wortzel. Thanks for that question, Mr. Chairman. I 
think it would achieve part of the purpose. A very good Air 
Force colonel who is a friend of mine was actually out there on 
both of those launches trying to do that.
    I think it is important to realize the Chinese satellite 
launchers and Great Wall Industries didn't crack that satellite 
open to try to get a look at technology. Now, there are other 
concerns about what they might develop in terms of fairings and 
warheads. The failure in those two cases, the allegations 
against Hughes and Loral, were the failures of two American 
engineers. So I think if you strengthen oversight----
    Mr. Sherman. So any American engineer going with the 
satellite would have to be mute?
    Mr. Wortzel. Certainly they would have to be extremely 
careful.
    Mr. Sherman. Or just don't talk.
    Mr. Wortzel. But if you increased the penalties for 
unauthorized disclosures of controlled information and really 
put a couple of people in jail and fined them, that helps.
    Mr. Sherman. It is not so much to increase the penalties. 
To say, ``What happened in that case was inadvertence,'' was a 
defense. Now, it would be hard just in light of history to use 
that defense again. We could go further and say for this 
industry, inadvertence is not a defense, at least in dealing 
with China.
    Mr. Wortzel. Not with the history of what has gone on. But 
I think Mr. Chao made one point with four parts in his 
testimony, when he talked about looking at satellites in terms 
of their defense purposes, their intelligence purposes, their 
civil application or their commercial application.
    When you begin to look at this, and I really like this 
Beyond Fortress America approach to updating and changing how 
we handle a broken export control system, but if you look at 
those things, you could perhaps begin to parse out technology 
in satellites or the uses of satellites that really are 
inherently military or intelligence related, and others that 
are truly commercial.
    Mr. Sherman. Is there any evidence that China or anyone 
else has gotten any information about satellite technology, as 
opposed to propulsion and launch technology, through any 
inadvertence of a United States company?
    Mr. Wortzel. The Chinese have stolen such information in 
cyber attacks that I frankly don't know what is gone.
    Mr. Sherman. Let me refine the question. As a result of 
their capacity to launch satellites, have they gotten any 
information about what is inside either a European or American 
satellite that they weren't supposed to get, and speak only of 
what is in the public domain. Don't tell me anything 
classified.
    Mr. Wortzel. Sir, I know of no instance where they violated 
the integrity of a satellite.
    Mr. Sherman. I am sure they have plenty of intelligence 
operatives trying to hack their way into Ms. Cooper's clients, 
scurry around the outside perimeter or sneak inside, but 
nothing we do here is going to affect that.
    Now, Ms. Cooper, I am told that the economics are usually 
that the satellite is very valuable compared to the launch 
costs, and yet Newsweek reports that people are willing to pay 
a 5 or 10 percent premium for an ITAR-free satellite so they 
can use the Long March rocket, which is a 20 percent discount 
compared to an American rocket.
    I am not a rocket scientist. I am an accountant. You do the 
math, and it looks like these companies not only are 
undercutting what should be joint Western foreign policy, but 
they are costing themselves money; because paying even 5 
percent more for the satellite to get a 20 percent discount on 
the rocket--in most cases that means you are paying more.
    Is the launch vehicle usually only 10 or 20 percent of the 
cost of the satellite?
    Ms. Cooper. It depends on the kind of satellite. Satellites 
are somewhere between $200 million and $500 million, and the 
launch in most Western or non-Chinese launch vehicles, as a 
ballpark, is around $80 million. The Chinese launch vehicles, 
from our understanding, are around $40 million.
    Mr. Sherman. So Newsweek may have it wrong, in that the 
discount by using the Chinese launch vehicle may be as much as 
50 percent as compared to using a Western vehicle.
    Mr. Chao or Dr. Wortzel, do you agree generally with those 
numbers, that a Western launch vehicle is going to be $80 
million, the Chinese about $40 million?
    Ms. Cooper. In general, that is what we understand. I will 
say----
    Mr. Sherman. I am asking the other two witnesses whether 
they have an understanding that clashes with that.
    Mr. Wortzel. Well, I will tell you, based on what we have 
learned at the U.S.-China Economic and Security Review 
Commission, I have looked at the subsidized launch services----
    Mr. Sherman. I am only looking at this from the standpoint 
of the owner of the satellite. They don't really care whether 
the Chinese are efficient or subsidized.
    Mr. Wortzel. They just want to save money. It makes a lot 
of sense.
    Mr. Sherman. Right. And I am saying you save about $40 
million on the launch when you go from the European or United 
States launch vehicle to the Chinese?
    Mr. Wortzel. That seems to be true.
    Mr. Sherman. And to get it ITAR-free, you are going to be 
paying another $20 million for the satellite, at least. So the 
savings are slight, but the fear is there that--well, Ms. 
Cooper, is an ITAR-free satellite selling at a 5- or 10-percent 
premium, or is the ITAR-free satellite the same cost as one 
that is not ITAR-free?
    Ms. Cooper. We understand the ITAR-free satellites are more 
expensive. I think that range is about right.
    I would note that cost isn't the only consideration when 
choosing a launch vehicle generally. It is also availability of 
timing. The schedule to try to get to orbit is pretty 
important, and that may be a consideration.
    Mr. Sherman. So subsidizing our program might be helpful, 
both in terms of providing more launch vehicles and providing a 
price that reflects what the Chinese are providing.
    At this point, the gentleman from Virginia will chair these 
hearings as I go vote in Financial Services, and he will be 
recognizing the most senior Republican member in the room. You 
can chair it from your own desk. This one has nifty things.
    Mr. Connolly. It is too soon, Mr. Chairman.
    Mr. Connolly [presiding]. Mr. Rohrabacher.
    Mr. Rohrabacher. Thank you very much. I am wondering if 
back during the late 1930s we would have decided that it was 
really cost effective to contract with the Germans to launch 
things into space. After all, Hitler had a V-2 rocket, which 
was much more cost effective than what the Allies had or 
anybody that was friendly to the United States.
    Perhaps we should think of that as a comparison here 
because perhaps launching something in and of itself doesn't 
mean that Hitler would have received the benefit of what was in 
the satellite, and, Colonel, we are not talking about what is 
in the satellite. We are talking about the relationship that is 
established, will it further the ability of an adversary or 
potential enemy of the United States if we enter into that 
relationship?
    And I don't think anyone here would be advocating that we 
start use utilizing the V-2 rocket back in 1939 or 1940. That 
would have furthered Hitler's efforts because it would have 
enabled Hitler to develop that rocket a lot sooner than he did.
    What we do know is that the last time we dealt with the 
Chinese, and it was almost deja vu all over again when I heard 
the chairman talking about we are going to have armed guards 
down there and would this make a difference, and the fact is 
that I signed on to permitting American satellites to be 
launched on Chinese rockets with that very same guarantee.
    And the minute the relationship was established, it was--
all the safeguards disappeared and the relationship that was 
established, let us remember this, resulted in what?
    The Chinese now, the Long March Rocket Company, by the way, 
which is a People's Liberation Army-owned company. So we are 
talking about the Army of Communist China, of the regime of 
Communist China went from a situation where the Long March 
rocket was a relatively ineffective and inefficient because it 
would blow up all the time. Nine out of ten flights were--they 
couldn't have afford to have satellites being launched on it--
went from being the most undependable to the most dependable 
rocket launched, right, under that time we were having our 
relationship with them.
    It went to the point where a Long March rocket before could 
only launch one, in the 1 out of 10 times they were successful, 
it had the payload of one, and after our relationship the Long 
March miraculously could launch three different payloads.
    So it wouldn't--one would conclude from that that we 
basically had through our relationship permitted a vicious 
dictatorship, which still puts religious people in jail, which 
allows no freedom of speech, no opposition parties, and still 
considers the United States their most likely enemy, that we 
actually, in our relationship, permitted them to MIRV their 
rockets from their military rockets and improve their stage 
separation, which is what their major problem was, from what I 
understand, improve their stage separation to the point that 
now they have rockets that succeed in launching rather than 
fail.
    And I might add, they also have gyroscopes. Just 
miraculously, gyroscopes used to be huge things like this, and 
now they are on chips and about that big. And, miraculously, 
the Chinese rockets have the gyroscopes that were developed by 
hundreds of millions of dollars of research in the United 
States.
    So we aren't just looking about, talking about whether we 
have, when we are letting the Chinese enter into this 
relationship. I am just talking about what they will get by 
opening up a satellite, because that is not the worry. But the 
relationship will increase the potential of a country, which is 
the world's worst human rights abuser, who looks at us as their 
most likely potential enemy. And until that changes, we should 
have them regulated on a different level than we are regulating 
how we deal in the relationships that we establish with Brazil 
or England or Italy or any of these other countries like that.
    Now, Ms. Cooper, I was very happy to hear that the 
satellite industry has recognized that, yes, it would be a good 
thing to reform our system even if it did leave out China, 
because the rest of the reform package would actually be 
beneficial as well.
    So am I correct in assuming that we can all work together 
now and try to find out what that area of reform is, because I 
will let everybody on notice, if we are going to loosen the 
controls on this vicious dictatorship and our relationship 
there, I will fight that, and I will make sure that people--and 
there is a lot of people will agree with that.
    However, if we can agree on the rest of the world and make 
things better for it, maybe we should do that.
    Mr. Connolly. The gentleman's time has expired. If the 
panel wants to briefly respond.
    Ms. Cooper. Yes, Mr. Rohrabacher, although I have mentioned 
that satellite manufacturers and operators are disadvantaged 
when they don't have access to the same resources that their 
competitors do, we recognize that policy with regards to China 
includes a different level of complexity, a different set of 
stakeholders, a different set of allies, a different set of 
considerations.
    As a result, the Satellite Industry Association is not now 
seeking change to those unique prohibitions and restrictions on 
United States satellite technology being launch from China.
    In fact, I would note again the study that Mr. Chao 
described that seems to indicate that our export rules are 
actually encouraging the development of comparable technology 
from European manufacturers, which can then be launched from 
Chinese vehicles without the controls comparable to U.S. ITAR 
controls.
    Thank you.
    Mr. Wortzel. Mr. Rohrabacher, I would go a little further 
than you. I think you have to look at the fact that the chief 
of China's strategic rocket forces, who also is responsible for 
some of these satellite launch missiles, has twice visited 
Brazil and Argentina on space cooperative programs.
    So you really have to be careful about what you loosen and 
who is cooperating with whom in space.
    I am going to reinforce one of your points by noting that 
the House Select Committee on U.S. National Security and 
Military/Commercial Concerns with the People's Republic of 
China expressed concerns a decade ago that China could improve 
its submarine-launched ballistic missile program.
    Mr. Rohrabacher. Correct.
    Mr. Wortzel. They just put a new submarine base in Hainan 
Island, building two new ballistic missile submarines. But they 
don't yet have a missile they can launch from it, so we really 
don't want to do anything to help them along with that either.
    Mr. Connolly. Mr. Chao, briefly.
    Mr. Chao. Yes, I want to tease out a thing that you 
mentioned that is very important in what you said to the extent 
of identifying who, because in many ways I think that is at the 
basis of what real export control reform can be about today. We 
obsess and focus on the what, when in the reality, the decision 
in the end is about the who. And because we focus on the what 
versus the who, we are treating good allies and friends like 
the U.K. And Australia exactly the same way we are treating the 
Chinese, and that is where all the friction is showing up in 
the system. If you sort of reverse the lens and focused more on 
who, I would suspect you would get--you would find a lot more 
flexibility and movement and loosening of the friction in the 
system, because it is meaningless to obsess about whether the 
Brits are getting bolts for an airplane.
    On the other hand, I want to pay close attention to certain 
satellite technology or semiconductor technologies or biotech 
technologies in terms of who they are flowing to.
    Mr. Connolly. Thank you. Let me ask the panel, in 1997, 
U.S. companies controlled 65.1 percent of the world satellite 
manufacturing market. By 2007 that was down to 41.4 percent. To 
what do you attribute the decline?
    Ms. Cooper. Some of the decline was for Chinese customers 
that United States companies could no longer seek, and I think 
some of the additional changes in the demographics, the market 
share for U.S. manufacturers, does deg. have to do 
with the additional restraints placed on ITAR. I would note, 
however, that the market share for U.S. companies, U.S. 
satellite manufacturers, has remained very stable at about 40 
percent now.
    We will be very interested to see statistics in the next 
year or so when the contrast is between U.S. ITAR-regulated 
satellites and European non-ITAR-regulated satellites. That 
contrast hasn't been as clear or apparent in years previous to 
the development of an ITAR-free satellite.
    Mr. Chao. In our study we tried to unpack that data and get 
behind it. There is a clear drop that you can see when you draw 
the line. There are lots of factors in it and so people will 
just push back and just say you can't blame export controls, 
and that is a true statement. The European industry has been 
rising at the same time.
    But if we didn't find the smoking gun, we at least got a 
whiff of gunpowder, is the way I put it, to the extent that in 
specific cases you saw customers saying that I will not buy 
from America now because of the ITAR. And it is not really the 
issue of getting to the technology--in some ways, one of the 
answers to Chairman Sherman's question about why would you 
take--pay 5 percent more, a lot of it has to do with the timing 
and the uncertainty related to the launch.
    There is all the lost revenues that if you are late by 60, 
90, 180 days that they just cannot stand. And there is that 
economic component that is fed into it that I think has 
contributed to that market share loss, much to the frustration 
of the American industry that provides a fine product. They are 
just looking for that predictability and visibility that is 
lacking.
    Mr. Wortzel. Mr. Chairman, my understanding is that there 
has been, not related to China or these export control 
restrictions, such a decline in the American space launch 
industry that today we don't make our own rocket motors. I 
mean, we are using Russian rocket motors.
    So I think the source of those differences and the data may 
have a lot more to do with the way the technology and the 
industry globalized than on export controls.
    If you can't make a rocket motor, you are not going to have 
much of an independent industry.
    Mr. Connolly. One of the things that you both were talking 
about was maybe you could, you know, return to some more 
sensible kind of export control that would strip out the ITAR-
related things or the things that we now do not consider 
sensitive that maybe were considered sensitive, as you 
mentioned, Ms. Cooper, in 1999 but no longer are, and 
commercialize that and sell it.
    The question, I guess, for you is twofold, one is there 
really such a bright line that we can recognize strictly 
commercial uses versus something else; and what about the whole 
issue of dual technology, dual-use technology? Because I would 
assume with sophisticated technology, that line gets blurred 
more often than not.
    Mr. Chao. I think you have hit on the key point, from--and, 
again, same thing with Mr. Rohrabacher. If you are watching 
everything, you are watching nothing, right, and so the issue 
becomes prioritization of resources, technology, et cetera, et 
cetera.
    We believe there are clear bright lines, and in some of the 
initial work that we did you can find them, the bolts, the 
commonly available, you know, solar panels, the tubing, the 
coolant systems that are commonly available. There is a clear 
line.
    There is a very clear line on the other side of some very 
sensitive things you absolutely do not want anybody to get, 
even our closest friends, that you would not.
    But by doing that, what it would leave is the resources of 
the export control system to then focus on the difficult 
questions, and that is where you want to be putting your brain 
power and all the intellectual capital rather than trying to 
track everything.
    So we think you can--what you want to do is get the common 
stuff off, the bright line, never ship it away, and then let's 
spend our time figuring out the really hard parts.
    Ms. Cooper. I would concur with that. I believe that the 
current legislative mandate doesn't give the executive branch 
the permission or the sense of permission to do that 
evaluation. And I expect that the experts in the Department of 
Defense, the Intelligence Community, civil space and the State 
Department and Commerce Department can come up with a very 
clear list of those that should be in and those that ought not 
to be in, and there may be a gray area in between that would 
merit discussion.
    But the current legislative mandate of one-size-fits-all 
simply doesn't permit that differentiation.
    I would just note that I, too, like the conclusions within 
the Fortress America report, and would echo the phrase brought 
out by my colleague, Dr. Wortzel, saying distinguish among 
technologies. As Mr. Chao said, what?
    Mr. Connolly. Dr. Wortzel, and then my time has expired, 
Mr. Chairman.
    Mr. Wortzel. Sir, I think you can distinguish among some of 
the technologies, but I just can't overemphasize the fact that 
whether you control it on a munitions list or on a commodities 
control list, the export control system is bureaucratic, and 
they really make that case very well in this report, that it is 
broken.
    You have engineers that have never seen a production line 
trying to make decisions off a list about what the state of 
global production on a technology is. You have government 
bureaucrats who mean very well, good counterintelligence guys, 
that say we are just not going to do this, that don't know 
what's available. So that you really have to look at 
improving--government, industry panels that can develop an 
appellate process, that can do it rapidly, and that can really 
review what is cutting edge technology that matters and what 
you can buy at Ace Hardware.
    Mr. Sherman [presiding]. The time of the gentleman has 
expired.
    We will now recognize the gentleman from California.
    Mr. Royce. Thank you, Mr. Chairman.
    I was going to ask does the State Department regulate and 
monitor the use or follow the content of ITAR-licensed 
satellites. Do they monitor that? Do you think it is monitored?
    Mr. Wortzel. Yes, I believe that they do look at the 
content of the satellites, and I think that they do that in 
coordination with the Department of Defense and the 
intelligence communities, sir.
    Mr. Royce. And that is regulated by them.
    Mr. Wortzel. They must do that because the satellites are 
on the munitions list. They are ITAR controlled.
    Mr. Royce. Okay. Because one of the questions that one of 
my staff members had was, was it possible to prevent the 
military, the Chinese military, from utilizing the services of 
ITAR-licensed satellites operated by foreign companies?
    Mr. Chao. If it has a U.S. component--one of the other 
things that the legislation did and that the regulation has 
done, you are--if you are going to go oversees you are required 
to actually pay to have somebody follow that satellite along 
with it.
    Mr. Royce. Pardon?
    Mr. Chao. You are actually required to pay somebody to kind 
of monitor and follow along that satellite as a satellite as a 
service provider in order to safeguard it.
    Mr. Royce. I see. Well, let me ask Ms. Cooper a question.
    You advocate that we redouble our ongoing efforts to make 
the licensing program, the ITAR licensing program, more 
efficient and predictable and timely. And I was wondering what 
grades you would give the reform efforts made by the late Bush 
administration in this.
    Ms. Cooper. My members tell me that the licensing time has 
improved and that their efforts more recently to improve the 
process have borne fruit. I would note that the kinds of 
licenses that satellite manufacturers require for trade are 
more complex. So they take a little bit longer than some of the 
other kinds of export licenses that may not be program licenses 
but specific product exchanges.
    I think there is probably more streamlining that can be 
done for those many licenses that an individual satellite 
program requires, as many as six licenses for the transfer of 
one spacecraft.
    Mr. Royce. Are you suggesting in your testimony here that 
the commercial availability of satellite components from non-
U.S. sources is not considered in current reviews of the 
munitions list? Give me your view of what is going wrong there 
and pull microphone closer to you, if you will.
    Ms. Cooper. I don't believe foreign availability is a 
consideration at all.
    Mr. Royce. Pardon.
    Ms. Cooper. I don't believe foreign availability is a 
consideration in the current U.S. munitions list.
    Mr. Sherman. Excuse me, let me interrupt for a second. I am 
going to leave because we have one vote, I will be back.
    Diane Watson will chair the hearing as long as she is in 
the room. When she is out of the room, the hearing is adjourned 
until such time I am back.
    Mr. Royce. Let me ask you then, what is your position on 
doing business with China? In other words, what does the 
industry desire, really, is the question here, and how do you 
view China's strategic objectives as they pertain to satellite 
technology?
    Ms. Cooper. The satellite manufacturers, operators, and 
launch providers, haven't done business with China since 1998. 
So I don't know what their intentions are to resume that 
activity. What we have had is internal discussions of great 
vibrancy with respect to our current request, and our current 
request is that no change be instituted for the current 
prohibitions.
    I do think that the competitiveness of satellite 
manufacturers and operators is affected when there is a 
considerable difference in their availability of resources like 
launch vehicles, but we are not asking for changes now.
    Mr. Royce. What is the relevance, in your view, if any, to 
China's anti-satellite efforts to your policy recommendations? 
Is that why the recommendation is no change, or give me your 
view. Please pull that microphone closer. The acoustics in here 
for me are not very good and I can't hear you.
    Ms. Cooper. Okay. The ASAT test has not been a 
consideration in that factor, except to add to the conclusion 
that any attempt to create a coalition of interests to change 
Chinese launch policy would be a different track of policy and 
requests, completely different ball of wax.
    And so the ASAT test certainly changes the environmental 
level of concern, but we feel that the changes that we are 
asking for here have an immediacy to them. And we don't see any 
change in China policy, anything near and immediate timeframe.
    Mr. Royce. Thank you, Ms. Cooper.
    My time has expired, Chairwoman.
    Ms. Watson [presiding]. Yes. I am going to ask one 
question, and then we are going to recess for the chair to come 
back, so that we can all go and vote.
    I will address this to Ms. Cooper. What measures has the 
Defense Department taken to effectively monitor and prevent 
unlicensed technology from occurring in the investigation of 
satellite launch failures?
    Ms. Cooper. For every U.S. satellite that is launched on a 
non-U.S. launch, non-NATO vehicle, DoD monitors are required. 
And as Mr. Chao mentioned, they are paid for by the satellite 
operator. So that is a part of the activity understood in every 
non-U.S. launch.
    Ms. Watson. Great. I will have other questions, but we will 
wait until after the recess. And I would suggest that we will 
probably be back around 3 o'clock if the audience and if the 
witnesses can wait. Yes, maybe quicker than that. We just have 
one vote on the floor.
    Thank you very much. We will go into recess now.
    [Recess.]
    Mr. Sherman [presiding]. We will reconvene the hearing. I 
will try to drag out my questioning for this second round long 
enough for my colleagues to return. If they don't return, then 
we will gavel the hearing down.
    Ms. Cooper, these ITAR-free satellites, are they 
exclusively using the Long March rocket or are there people 
bothering to buy ITAR free and then launching them on American 
or French or Russian rockets?
    Ms. Cooper. To date, all but one of the ITAR-free 
satellites that we are aware of have all been either launched 
on the Chinese Long March vehicle or are slated to be launched 
on that vehicle, yes.
    Mr. Sherman. Do the current rules imposing ITAR prevent 
somebody from buying a satellite made in the United States and 
launching on a Russian vehicle? If it is classified as a 
munition, does that mean it can't go to Moscow?
    Ms. Cooper. It is not prohibited from being launched on a 
Russian vehicle, no.
    Mr. Sherman. Dr. Wortzel, I see you are--how do our laws 
with regard to satellites today, listing them as munitions, 
what is the practical effect with regard to launching in 
Russia?
    Mr. Wortzel. That is really part of the regulation and not 
the legislation, as I understand it, and it is the way the 
regulation is administered by the Department of State and the 
Department of Defense and, in fact, as I mentioned earlier, 
sir, it was the Fiscal Year 2000 Defense Authorization Act that 
specifically encouraged work with Russia on satellites and the 
space program. So that was one of the points I tried to make.
    Mr. Sherman. And so we don't have a blanket prohibition on 
selling munitions to Russia; we do have such a blanket 
prohibition on the transfer of munitions in general?
    Mr. Wortzel. That is correct. That is because of the 
Tiananmen sanctions, post-1989 Tiananmen sanctions.
    But the President has waived those in a couple of cases, 
and we sold munitions list items to China prior to the Olympics 
and during the Olympics.
    Mr. Sherman. Let me take a moment to announce that we will 
leave the record open for 10 days to accommodate all members 
who wish to make submissions and, likewise, those of our 
witnesses that wish to make submissions.
    Now, this is really a debate over which of two agencies is 
going to be handling things. As Dr. Wortzel points out, you can 
go to State and get a license to export a munition to China, 
and that could very well be a satellite.
    The average, and perhaps to some degree as a result of the 
hearings in this subcommittee, the average processing time for 
a license of a Category 15 item, which includes satellites, has 
gone down from 76 days to 23 days.
    Ms. Cooper, what is 23 days among friends? Why not just 
keep the law the way it is and, if somebody wants an ITAR-laden 
satellite to go up on a Chinese rocket, apply for a license?
    Ms. Cooper. Well, let me make----
    Mr. Sherman. Which I assume would be conditioned on that 
mythical colonel that I talked to Dr. Wortzel about 
accompanying the satellite. But I am sure you are willing to do 
that.
    Ms. Cooper. First is perhaps a nuanced clarification, which 
is that a launch of United States technology from China is not 
actually prohibited.
    Mr. Sherman. Yes.
    Ms. Cooper. There are requirements that are effectively 
prohibitive, a process that is complicated and a high enough 
level of complexity that no one has sought it since they have 
been imposed. There is not actually a prohibition, to be clear.
    And the difference is, perhaps, not 23 days, the difference 
is, for technical assistance agreements and the kinds of 
authorizations that typically are required for satellite 
programs, they do take quite a lot longer.
    Mr. Sherman. Why would there need to be technical 
assistance to the Chinese just if they are launching the 
rocket?
    Ms. Cooper. This has nothing to do with China. This is just 
the routine authorizations that are required to export 
satellite information, marketing data, eventually the design 
and materials, to describe it to a customer, the actual export 
of a satellite upon launch, if it is being launched from a non-
U.S. location.
    Mr. Sherman. So one alternative here is not changing the 
law but asking the new under secretary to come in here and 
expressing our view that she ought to take what is it, a 17-
step program, and turn it into a 7-step program.
    I will ask, first, Mr. Chao, then Dr. Wortzel. If we left 
the law the same and redid that 17-step program to something 
more practical, could we do something that was both feasible 
for the industry and would protect international security? Mr. 
Chao.
    Mr. Chao. There is yet another subtlety, which is more than 
just, you know, the differences between two organizations. It 
is two entirely different regimes.
    The mere fact that under the ITAR, the instant you declare 
something a munition, anything that touches it or is a 
component of it also is a munition while on the commerce sort 
of dual-use side; you have the ability to designate different 
gradations.
    Therefore, a chip of certain technology, of teraFLOPs or a 
solar panel of certain power can be restricted, while others 
are deemed to be commercial.
    You have none of that flexibility on the munitions side. So 
once designated a munition, it is a munition.
    Mr. Sherman. But if we have got this 17-step process which 
is burdensome, if we left the law the same and had you and Ms. 
Cooper change the 17 steps down to 7 steps, could we achieve 
both our national security objectives and our commercial 
objectives?
    Mr. Chao. If somebody believed you could do that and get it 
down to--and the key thing is not the day; 23 days versus 90 or 
whatever, is not the real trigger. The trigger is, how does 
that compare to a business cycle? So if a request for proposal 
has to be answered in 15 days, it doesn't matter if I have got 
23 days. I now, under that level, in terms of how rapidly the 
export control system responds--if you can get it down to a 
reasonable date and with certainty and visibility, the three 
things that the industry asks for, people wouldn't be 
complaining.
    Mr. Sherman. Dr. Wortzel, what if I let you withdraw the 17 
steps, would we achieve our objective?
    Mr. Wortzel. You must address the complexity of the 
approval process for licensing. But to be completely candid, I 
am not certain that if you went in for a commodity control 
list, dual-use license, and you move satellites there, it would 
go that much faster.
    I mean, because of the embedded technologies and the use of 
the satellite. That is why these distinctions between defense 
and technology----
    Mr. Sherman. Well, I mean there are two aspects as to 
whether it is State or Commerce that is going to control. One 
is, and I wouldn't have even thought of this until it happened, 
the U.S. company has an incentive to get the rocket off the pad 
and that might cause them to slip and provide information.
    What most of your testimony is focused on is the technology 
inside the satellite. And we have had our mythical colonel. Why 
wouldn't Commerce just look at it and say we don't care what is 
inside the satellite, because the Chinese are never going to 
see what's inside the satellite?
    Does that--and then you tell me why we can't let China know 
what is inside the satellite. If we have got a colonel with the 
satellite, then why doesn't that make State or Commerce or 
Congress feel secure?
    Mr. Wortzel. Well, I think Mr. Rohrabacher effectively made 
that case when he went through the fact that the variability 
and the technical assistance provided to China so it could 
release two or three satellites in space, move them forward on 
multiple independent re-entry vehicles, they don't use farings, 
and this comes from a Cox Commission report on their Long March 
launch vehicles, but Cox Commission was concerned that they 
would learn how to use farings more are effectively.
    Mr. Sherman. Farings?
    Mr. Wortzel. Farings are things you put over the nose of a 
missile, and that is why they can't master a submarine launched 
ballistic missile, because they still haven't mastered the 
farings that go over it. Mr. Rohrabacher expressed those 
concerns properly.
    Mr. Sherman. Your answer is noted. Let's say, Ms. Cooper, 
your industry was told if you are going to launch on a Chinese 
rocket, you can tell the Chinese how much it weighs, you can 
send them a clay mockup if they care to know what shape it is, 
and aside from that you cannot talk to them, except about 
price, date of launch. But you can't tell them that more of the 
weight is in the left part of the satellite or the right part 
of the satellite, looked at a particular view. And, more 
importantly, you can't talk to them about what kind of faring 
you are going to have, anything else.
    In effect, you just don't let American engineers talk to 
the Chinese. You just let accountants talk to the Chinese. 
Trust me, they could torture me. They wouldn't learn anything 
about their rocket program.
    So what if we had a rule that only accountants could talk 
to the Chinese? Would that impair the ability of this tenuous 
partnership between the United States satellite maker and a 
Chinese launch to be effective, or do you have to have the 
engineers talk to each other for this to work?
    Ms. Cooper. I don't know.
    Mr. Sherman. That is a good answer.
    Ms. Cooper. The hypothetical sounds good.
    Mr. Sherman. Dr. Wortzel, we are asking if you might know. 
If we just had a rule that only accountants who know nothing 
about rocketry are allowed to talk to the Chinese and, you 
know, accountants can talk about, well, when are you going to 
put it up.
    Mr. Wortzel. You can never find an insurer to underwrite 
that satellite launch if you didn't allow some kind of 
technical data exchange.
    Mr. Sherman. So there has to be technical data exchange for 
it to work?
    Mr. Wortzel. I believe so. I am not a rocket scientist, 
didn't sleep in a Holiday Inn Express, but I am pretty sure, I 
am pretty sure there has got to be technical data exchanged.
    Mr. Chao. Can I deconstruct the question?
    Mr. Sherman. Yes, Mr. Chao, I don't know if you are a 
rocket scientist either.
    Mr. Chao. I went to MIT, but I wasn't a rocket scientist.
    There are two sets of the industry, I think, that we care 
about, the satellite manufacturers and most of the questions 
you have been asking about relate to the sale of satellites. 
But there is an entire other constituency, which is the 
manufacturer of the parts, that all of the work around and the 
things we are talking about in relation to China and how to 
accommodate those concerns is, once again, as long as we are 
using the blunt instrument of the ITAR controlling act, does 
nothing for those--the parts components guys who are just as 
interested in selling their parts into an American satellite as 
they are into a European satellite being sold back to an 
American, which today they cannot do. Or, they can, but they 
find it----
    Mr. Sherman. I think you are a little off my question. The 
question is, it doesn't matter whether the whole satellite is 
made in the United States or whether a component is made in the 
United States. Under the regime I was putting forward, nobody 
on the Western side of the transaction could talk in 
``engineering talk'' to anybody on the Chinese side of the 
transaction.
    The purpose, from a national security perspective, is to 
prevent the Chinese from learning anything about rocketry. The 
impediment is that, therefore, those engineers involved with 
the satellite on the Western side couldn't share the useful 
information.
    If that happened, do you have any insight as to whether 
that would be practical?
    Mr. Chao. I think Dr. Wortzel is right. No insurance 
company would insure that satellite launch.
    Mr. Sherman. Okay. So as a practical matter.
    Mr. Chao. Practical matter.
    Mr. Sherman. We want to prevent anybody who knows more 
about rocket science than the Chinese do from talking to the 
Chinese, and this system is designed to prevent not only 
American companies but any European company that is dependent 
upon American parts from talking rocket science to the Chinese.
    What is interesting is that we have this giant hole, and 
that is we are doing nothing to discourage insurance companies 
from talking to the Chinese, and the insurance company--I mean, 
I could think that sometimes, just maybe, somebody who owns the 
satellite is hoping it blows up on the pad, providing the 
insurance company is not AIG.
    But the insurance company is always rooting for the 
satellite to make it into space. And do the insurance companies 
know enough about rocketry to be dangerous to our national 
security?
    Mr. Chao.
    Mr. Chao. They--so, again, this is where your point about 
the financial interests comes into play. And part of the issue 
back in 1999, my understanding, was partly driven by the 
insurance company saying you better have those guys figure out 
what's going on, because I don't want to blow up--I don't want 
to pay----
    Mr. Sherman. So the insurance companies may not understand 
engineering, and they may not know anything about rocketry, but 
they do know what I have just learned here, and that is the 
engineers at the satellite company need to talk to the 
engineers at the launch company for the launch to be 
successful. And once you have engineers talking to each other, 
somebody may slip and reveal some engineering information we 
don't want revealed.
    Dr. Wortzel, I don't know if you had a--you look like you 
have an additional comment. I don't know if you do.
    Mr. Wortzel. Well, in the Hughes and Loral cases, 
apparently the Chinese technicians just weren't getting it. You 
know, these were not Americans that were out to do harm to the 
United States.
    Mr. Sherman. Yes.
    Mr. Wortzel. They just realized that this wasn't going to 
work unless they told them how to solve a couple of problems.
    And that is, again, where Mr. Rohrabacher's problems come.
    Mr. Sherman. The natural tendency is for people to root for 
their partners and try to be helpful to their partners.
    And if you are in--if American companies are in partnership 
with China to launch vehicles, it is against human nature--it 
is usually successful; 99 times out of 100 the Loral engineer 
doesn't reveal any information, but it is against human nature 
to say don't help your partner.
    Mr. Chao. Your point about barn doors being closed, that 
issue was very specifically addressed in the legislation in 
terms of--it is called anomaly resolution, right, where it 
requires all kinds of additional licensing in order to do that.
    The unintended consequence of the licensing related to 
anomaly resolution, and the NASA Administrator testified to 
this, is on normal, cooperative, Western cooperative civilian 
satellites, it becomes so hard to do an anomaly resolution 
amongst friends that, again, they are afraid of putting our 
components on board scientific missions for a risk that I can't 
get a license fast enough if the satellite is about to tumble 
out of the sky, where I need an answer in 3 hours, I actually 
have to go through a licensing process to be able to talk to 
somebody about that.
    So it is another case where, once again, we are trying to 
stop something, we have caused some unintended consequences in 
other places.
    Ms. Cooper. If I could.
    Mr. Sherman. Yes.
    Ms. Cooper. I think Mr. Chao's comment is well founded. If 
you look at the percentage of Chinese launches compared to the 
overall number of orbital launches from last year, the Chinese 
launched 11 and there were 69 orbital missions last year.
    There are a number of other commercial transactions and 
launch considerations that we are not focusing on here because 
we are spending our time talking about China. Not to say we 
shouldn't be evaluating that, but I think there is a larger 
impact.
    Mr. Sherman. Okay, we talked about a bill that you and Dana 
would write. I know what is going to be in his part. Dealing 
with the non-China universe, what should be the description and 
then how do you make sure that any knowledge that we impart to 
the French doesn't then go to China?
    Ms. Cooper. First, we would return export licensing 
authority to the executive branch. We would encourage----
    Mr. Sherman. You mean to Commerce. It is in the executive 
branch.
    Ms. Cooper. The State Department and Defense Department do 
not believe that they have got the authority to evaluate the 
U.S. munitions list.
    Mr. Sherman. Well, yes. In other words, return the 
authority to determine which satellites and satellite 
components are munitions and which are not.
    Ms. Cooper. Correct.
    Mr. Sherman. To the executive branch.
    Mr. Sherman. Go ahead.
    Ms. Cooper. Remove the block.
    Mr. Sherman. Right.
    Ms. Cooper. Request an immediate and thorough technical 
view of the products that are in the U.S. munitions list that 
you can focus the controls on those products that are actually 
technologically sensitive.
    It is not clear at this point. We haven't done that review. 
Whether there are technologies that would allow us to have a 
non-ITAR satellite, I don't know because we haven't done that 
review.
    But the products that have no military or technological 
sensitivity should be export licensed by Commerce.
    Mr. Sherman. If the satellites launched in the 1990s by the 
Chinese actually were just pure junk, it wouldn't have 
mattered. It is not what was inside the box.
    So to say that a widget that is used on a satellite should 
be in one list, but a super widget should be on another list, 
makes sense if you think the Chinese are going to look in the 
box and see how the super widget was made.
    Ms. Cooper. But it has an economic impact on the overall 
trade, the component manufacturers, subsystems manufacturers 
and the practical licensing requirements for prime 
manufacturers and launch providers, operators are all subject 
to. It narrows the focus to those products that we care about.
    Mr. Sherman. Now, let's say you are a U.S. satellite 
manufacturer. Does this ITAR rule prevent you from offshoring 
the creation of one of the components? Let's say you are a U.S. 
satellite manufacturer, you already booked space on a U.S. 
rocket. In the past you have done everything in the United 
States and so you are not importing or exporting anything.
    And now, all of a sudden, somebody comes to you and says, 
you know, there is a European company that can make the widget 
for it. Does our law have the unintended benefit of making it--
or detriment, depending upon your point of view, from being 
able to import this--this United States satellite maker to 
import the widget from France or Britain or China or whatever?
    Ms. Cooper. I think United States manufacturers do import 
certain components from European suppliers.
    Mr. Sherman. And the fact that we call it a munition, does 
that mean that we in any way restrict imports in a way that we 
couldn't if it was a dual-use item.
    Mr. Chao. It does. There are a couple of anecdotal 
evidences where there was a particular technology developed by 
Europeans, who would not give it to us for fear that once they 
gave it to us it would then become ITAR controlled and they 
couldn't get it back out again.
    Mr. Sherman. So this was a case where they had an item for 
a satellite, they wanted to send it to the United States for 
integration or processing, and then send it back to Europe?
    Mr. Chao. Right. And the instant that it touched our shores 
on our satellite, and so they said, whoops, no, we would rather 
not sell it to you.
    Mr. Sherman. I mean, the point of my question is, to what 
extent does our current morass of regulations actually protect 
U.S. jobs from outsourcing?
    Dr. Wortzel, can you, do you see a circumstance in which 
this U.S. satellite manufacturer would just as soon not import 
one of the components?
    Mr. Wortzel. Well, in my view, what has happened to 
American manufacturing and industry in general makes your case, 
that if you can get it cheaper by offshoring it, and there is 
no policy support for maintaining an industrial base of that 
type in the United States, they are going to buy it cheaper.
    Mr. Sherman. Yes. But what I am asking is, do our 
regulations add a lot of red tape to the effort to import a 
satellite component from abroad?
    Mr. Wortzel. I do not know the answer to that, sir.
    Mr. Chao. It does. And in our study, we are also able to 
get and quantify the burden on the second and third tier in 
order to work your way through the system, costs them about $60 
million as a whole. It costs them 2 or 3 percentage points of 
profit, which they could have used to hire other people.
    Mr. Sherman. Yes. I mean, my question is, are we protecting 
American jobs with these regulations by discouraging American 
companies from importing components?
    Mr. Chao. Not as much as we are damaging them in terms of 
exporting, so it is a net loss.
    Ms. Cooper. I would agree.
    Mr. Sherman. But it is a netting. We lose these exports, 
but we prevent certain imports?
    Ms. Cooper. I would just like to address the outsourcing 
issue. I agree with my colleagues that the ITAR regulatory 
regime has actually encouraged manufacturing capability to be 
developed offshore.
    So, in your terms----
    Mr. Sherman. I am aware that these regulations cause a 
commercial problem. I am trying to see whether there is a----
    Ms. Cooper. But I think those jobs have moved, some jobs 
have moved offshore, not because they are cheaper but because 
they evade regulation.
    And I think we need to be realistic that not all jobs make 
sense to be outsourced. In this world, where the technology is 
highly complex, and can't be retrieved or repaired once it is 
launched 22,000 miles off of the Earth's surface, there is a 
great deal of caution and conservatism about the sourcing of 
your componentry. This is not a technology where people take a 
lot of risks on suppliers.
    So the flexibility to move jobs over--up to unknown 
supplier sources with limited initial experience is a high 
barrier, in my estimation.
    Mr. Sherman. Okay. Drawing to a close here, Dr. Wortzel, 
let's say we go with this bill, Ms. Cooper writes all the 
provisions, Rohrabacher writes the anti-China provision.
    Do you see a threat to national security to letting some 
imports and exports and launches from Russia, France, et 
cetera?
    Mr. Wortzel. I think you have to be very careful, as you 
draw up such a bill, to look at the multilateral and bilateral 
space and satellite cooperation programs that China has, in 
some cases, with our allies.
    So if your goal is to sort of cordon off China, then you 
have to ask, well, what are they doing with Brazil, Argentina, 
France, and how does that affect the way you have written the 
legislation?
    Mr. Sherman. Would you be focused on rocket technology or 
satellite component technology?
    Mr. Wortzel. I would focus on rocket technology and the 
launch aspects of it because, again, they haven't cracked 
satellites.
    Mr. Rohrabacher took me to task for that statement.
    Mr. Sherman. They haven't what?
    Mr. Wortzel. They haven't cracked open a satellite to steal 
the technology in it.
    Mr. Sherman. Okay. But if we are cooperating with Brazil or 
France in manufacturing satellites, then the Brazilians and the 
French are going to learn something, and you don't have to 
crack open a satellite, you just crack open a Frenchman or a 
Brazilian.
    Mr. Wortzel. That is right. And I think there is always the 
danger that some of that information, if they are in a separate 
bilateral program with China, is going to get there.
    The question is, what is the risk to the national security 
if that happens?
    Mr. Sherman. So, certainly, any legislation, if it grants 
to the executive branch this kind of authority, has got to 
require a review of what technology is going to go to our ally 
and what controls that ally has to make sure the technology 
doesn't go anywhere else.
    Mr. Wortzel. Yes, sir, and we regularly license 
technologies to allies and place restrictions on the reexports 
of data and information.
    So, usually, they are pretty good about it.
    Mr. Sherman. What about Russia? Does Russia already know as 
much about rocketry as they are likely to discover by launching 
American satellites?
    Mr. Wortzel. My sense from the Fiscal Year 2000 Defense 
Authorization Act, where we encouraged all the space 
cooperation with Russia, is it is not just that--they are 
pretty well advanced, so there is not much to worry about.
    But both of us have enough nuclear warheads aimed at each 
other that it doesn't make a material difference in the 
national security----
    Mr. Sherman. So Russia might learn something, but it 
doesn't make them materially any more of a menace?
    Mr. Wortzel. You are going to get 2,000 warheads one way or 
the other.
    Mr. Sherman. Mr. Chao. Any comment on that?
    Mr. Chao. No. In all the industries, you know, the space 
industry has been one of the few that they have been investing 
in. And in some cases, because they invested in it, it actually 
turns out they have the world-class technology, you know, much 
to our chagrin, frankly. Motors, for example, is a good 
example.
    Mr. Sherman. Ms. Cooper, is there any way to provide tax 
incentives or subsidies to the launch industry, which is a 
segment of your organization, to get all the--you know, the 
jobs and all the national security advantages of beating the 
Long March?
    Ms. Cooper. I think we would be interested in working with 
you on ways to courage U.S. launch capabilities. There are new 
entrants to the U.S. launch industry, and I think there is a 
great deal of work we can do to try to encourage domestic 
launch capabilities and capacity.
    Mr. Sherman. Well, one approach is tax credits for those 
who use it. Another approach is to say that those in that 
particular industry don't have to pay payroll taxes, if the 
U.S. taxpayer would do that for them.
    One approach is just direct subsidy, and a final approach 
that I can think of is that the U.S. Government act as the 
launcher, albeit contracting with U.S. companies to make the 
rocket.
    I hope you pursue those, but I would hope you would also 
come up with some other ideas.
    It is nice to hear that, yes, there are things that we 
could do. So, you are brilliant, figure them out, bring them 
back.
    Mr. Chao. Subsidized or paid for insurance, too, would----
    Mr. Sherman. Yes. Another way to do that is either to pay 
for insurance or act as the guarantor, free insurance.
    So, I mean obviously, if we get--if the best way to put 
something in space is to have the Americans put it in space for 
you, we have solved most of these problems.
    I think at this point we stand adjourned.
    [Whereupon, at 3:05 p.m., the subcommittee was adjourned.]
                                     

                                     

                            A P P E N D I X

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     Material Submitted for the Hearing RecordNotice deg.



                               Minutes deg.

                               
                               
                               Statement of Frank Vargo, National 
                               Assoc. of Manufacturers deg.___

                               
                               
                               
                               
                               
                               
                               
                               
                               Letter and statement from AIA deg.__

                               
                               
                               
                               
                               
                               
                                 
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