Gradually, commercial uses of space began to develop,⁴ although space transportation remained an area of government monopoly. In the United States, the government proved inept at meeting the increasing demand. An overly politicized decisionmaking process led NASA to commit the bulk of its resources to the space shuttle, phasing out use of unmanned expendable launch vehicles (ELVs).⁵ However, the shuttle proved not to be an economical launcher of commercial satellites.⁶ Meanwhile, other countries, particularly in Europe, continued to develop ELV technology. The European consortium Arianespace entered the commercial market in 1980, and it soon became clear that NASA's monopoly on western commercial launches was broken.⁷

Beginning in the early 1980's there was some activity by companies interested in entering the commercial launch market.⁸ In 1982 the Reagan Administration, as part of its general fervor for deregulation, began to encourage the commercialization and privatization of space transportation. On July 4, 1982, President Reagan unveiled his National Space Policy,⁹ which anticipated private sector investment and involvement in the development of launch vehicles.¹⁰ The National Security Council furthered this policy by issuing a comprehensive policy for ELV commercialization on May 16, 1983.¹¹ Nevertheless, companies were slow to invest in commercial launch services, perhaps because all other competitors were either governmental or government-owned.¹²

Although the Act originally left the details of the insurance requirement to the discretion of the Secretary of Transportation,¹⁹ the 1988 Amendments set out comprehensive regulation of launch insurance.²⁰ The most important part of the insurance section limits the liability of the launcher to $500 million and requires that the launcher obtain an equal amount of insurance, or the maximum obtainable on the world market, whichever is less, for each launch.²¹ As a condition of this minimum insurance requirement, the government is obligated to require all of its entities and all contractors and subcontractors associated with the launch to file cross-waivers of liability for amounts in excess of the level of insurance.²² These provisions limiting the liability of commercial launchers could add greatly to the confidence of the industry by reducing the risk borne by each launcher, although this will depend on the cost of the insurance required by the Act.²³ Similar limits of liability have been used in the past to encourage the development of nuclear power and aviation.²⁴

The 1988 Amendments to the Act also added provisions meant to encourage research and development. Section 10 of the 1988 Amendments requires NASA, in concert with representatives of the satellite and commercial launch industries, to develop a program to encourage research and development of advanced launch technologies with higher performance and lower costs.²⁵ This program would make these advances available to both government and commercial launch systems.

The Act also provides that the government facilitate the use of excess capacity at government launch sites through sale or lease at fair market value.²⁶ For the use of launch services, the government is to charge only "direct costs," meaning those additional costs incurred solely because of the commercial launch.²⁷

Of the three launch systems, the Commercial Titan possesses an advantage of large payload capacity, which allows it to easily carry two satellites or carry single satellite payloads that are too large for other vehicles.³⁹ The development of the Titan IV vehicle for the United States Air Force⁴⁰ also gives Martin-Marietta tremendous economies of scale because the same production facilities can be used in the manufacture of the Commercial Titan. General Dynamics has developed a configuration which allows three smaller satellites to be launched into low earth orbit by a single Atlas,⁴¹ which could give it a significant advantage in the small payload market.⁴²

A challenge for domestic commercial launch firms will be to keep their launch technology up to date. Without any government contracts, the firms will have to initiate their own research and development to improve on the archaic systems presently in use.⁴³ Some effort is already under way with programs such as the Titan IV.⁴⁴ However, large American aerospace corporations have been criticized for not taking a more aggressive approach to financing leading-edge space commercialization efforts.⁴⁵ The need for entrepreneurial efforts, therefore, has been filled by smaller companies.

The start-up companies present a strong contrast to the major launch corporations. They are in many ways more innovative, building brand new rockets from the ground up, or using old technology in new ways.⁵² OSC/Hercules, for example, has launched its Pegasus rocket from a B-52,⁵³ and Amroc has attempted a sea launch of its Dolphin rocket.⁵⁴ Despite the creativity of the start-ups, their market is limited because they cannot compete in the highly lucrative communications satellite market,⁵⁵ and they have few long-term purchase contracts.⁵⁶ They have had to compensate for this deficit with agressive marketing. OSC, for example, has retained Arianespace as its European marketing agent,⁵⁷ and has recently concluded a marketing agreement for Japan with Okura & Co., Ltd.⁵⁸ SSI submitted a proposal to the Department of Transportation to launch cremated human remains into space.⁵⁹ OSC has also made a public stock offering,⁶⁰ which should help give it an edge in an area where there is a dearth of capital.⁶¹

The small payload sector of the launch industry is enthusiastic, innovative, and quite capable of producing many useful, reasonably priced launchers. Small payload launchers are extremely vulnerable to launch failures, however. One failure could decimate the company's available capital, and even with reliable launchers, insurance rates could be too high for the smaller companies to afford.⁶² Small payload launchers can be successful by emulating the large payload launchers' use of government contracts as the basis of their launch business.⁶³ They must also stress their abilities in areas in which they possess a cost advantage by encouraging the development of technologies that use lighter payloads, such as "lightsat" technology⁶⁴ and the use of reentry modules for microgravity experiments.⁶⁵

The development of foreign space programs and their eventual entry into the commercial launch industry has had a profound effect on the shape of the market. From 1983 to 1985, foreign launchers provided only one-half to one shuttle equivalent per year to American users.⁶⁸ Since the Challenger accident, foreign launchers have capitalized on the U.S. standdown to develop the capability to supply six to ten shuttle equivalents per year through the rest of the 1990's.⁶⁹

A variety of factors have made Arianespace a leader in the provision of commercial launch services.⁷⁴ Their launchers have been very reliable. Until a recent failure, Arianespace had successfully launched a total of seventeen rockets⁷⁵ and has since recovered to launch three more through mid-1991.⁷⁶ Even given the most recent launch failure, Arianespace is the clear market leader in launch services, with over half of all contracts for future launches.⁷⁷ To fortify its position, the company has concluded four "framework" agreements with European subcontractors for the production of 50 additional Ariane 4 launchers over the next eight years,⁷⁸ giving Arianespace the same economies of scale that American launchers achieve through government contracts. In addition, Arianespace has maintained a creative and aggressive marketing strategy, accepting equity rather than cash in some cases, and helping customers obtain insurance.⁷⁹ As a result of these advantages, Arianespace already commands more than half of the commercial launch market⁸⁰ and should remain a potent competitor throughout the low demand period of the 1990's.⁸¹

Because of the dominance of Arianespace, private efforts in Europe have lagged behind those in the United States. Orbital Transport-und-Raketen Aktiengesellschaft (Otrag) of Germany has been interested in commercial launching since the late 1970's, but has had difficulty finding a launch site.⁸² The only other private corporations that have expressed interest in the commercial launch industry are Bristol Aerospace, Ltd. of Canada⁸³ and SovCan Star Satellite Communications, Inc., a joint venture between Canadian and Soviet corporations.⁸⁴

The Soviets have a broad range of available launch vehicles,⁹⁹ and other than NASA, they are the only competitor capable of providing full-service space transportation.¹⁰⁰ Indeed, the first American company to receive an export license to use a Soviet launcher went to the Soviets precisely because of their ability to provide long-duration exposure to microgravity.¹⁰¹ The Soviets have also shown innovation in developing portable commercial launchers.¹⁰² However, to be truly successful in the international market, the Soviets will need to allow greater customer access to their production facilities so that customers can better analyze the quality of the launchers before entering into launch contracts.¹⁰³

Other countries are attempting to enter the commercial launch market by providing launch sites. Australia has chosen to cooperate with the space powers by developing its own commercial spaceport at Cape York, Queensland,¹¹⁰ and Mexico was the site of a recent launch for the Spaceport Florida Authority.¹¹¹

Public sector users could account for as much as 75% of demand through at least the mid-1990's;¹¹³ however, it is unlikely that private launchers will be able to capture a significant share of this market, even where private launching is more economically efficient. Although the cost of launching may enter into government calculations when developing a launch system,¹¹⁴ once funds have been expended to bring a launch system to maturity, public sector users will usually be compelled to use the government system, regardless of cost.¹¹⁵ The overwhelming importance of non-economic factors in the governmental sector of demand make price of much less concern. This is because a government will take into consideration the same concerns for national security and national prestige that motivated its desire to develop a launch program in the first place.¹¹⁶

Although public sector users may often be unable to use private launch systems, they can still have a beneficial effect on such systems. By limiting their consideration of non-economic factors to situations wherein those factors are pertinent, and by purchasing the remainder of their launch services from commercial providers, public sector users can increase demand for private launch services enough to make commercial launching feasible. With an assured level of demand from public sector users, private launchers can then achieve economies of scale for the commercial sector. For American launchers, government business can be a tremendous boon, since the U.S. government spends a total of $33 billion per year on space.¹¹⁷ This potential was partly realized by the increase in ELV business during the shuttle launch standdown that followed the Challenger accident.¹¹⁸ Commercial launchers can also achieve economies of scale when the government purchases launch systems for its own use that are similar to those used by commercial launchers since this will reduce the cost of each booster.¹¹⁹ Thus, so long as government does not invade the commercial launch market with its own subsidized launch systems, it can have a positive effect on commercial launchers.

At present only the communications satellite market is fully mature and profitable.¹²¹ This market was commercialized very early in its development, first with the American Comsat consortium, and later with Comsat's international successor, Intelsat.¹²² Intelsat remains the most important international producer of communications satellites, but its satellites are very large, so that only those companies with the largest launchers are in a position to compete for Intelsat launches.¹²³ American satellite producers currently have a dominant share of the communications satellite market,¹²⁴ and thus provide the strongest customer base for American launchers.

Other markets, though presently less mature, may in the future play a significant role in generating commercial demand, particularly for smaller launch vehicles.¹²⁵ Among these nascent markets are remote sensing satellites,¹²⁶ materials processing,¹²⁷ and "lightsat" communications systems¹²⁸ such as Motorola's proposed Iridium communications network.¹²⁹

Over the short term, competition for launch services will be quite stiff. Projections of demand for launch services by all users prior to the Challenger accident were, for the most part, overly optimistic.¹³¹ Much of this resulted from an overestimation of the performance of the space shuttle. As the program became more expensive, NASA continually downgraded its estimate of demand for shuttle services.¹³² The backlog of launches created by recent failures has helped to keep demand constant over the past few years, but will eventually be cleared.

Over the long term, demand looks to be even softer than over the short term. Although the Challenger accident reduced short-term confidence in space launching, long-term demand should not be affected;¹³³ however, other factors could have an important impact on future demand. Improvements in technology have the potential to increase the life span of satellites¹³⁴ and reduce reliance on space-bound applications.¹³⁵ At present, launchers foresee commercial demand for satellite launches of around 20 to 25 launches in 1990 and 18 to 20 in future years,¹³⁶ though the Hughes Space and Communications Group places that number much lower, at around 10-12 per year.¹³⁷

While demand for large-payload launch services diminishes, the supply of launchers will increase. Commercial providers will have the ability to perform slightly over 20 launches to GTO per year during the 1990's.¹³⁸ The Soviets and the Chinese can probably increase the availability of their launchers, if export controls on their use are relaxed.¹³⁹ Under Hughes' constrained scenario, competition could become fierce, and it is possible that some of the American commercial providers could be forced from the market by governmental providers with deeper pockets.

The future market for small-payload launchers is much harder to predict. The technologies demanding small-payload launch services are not as well developed.¹⁴⁰ As a result, this segment of the market will be much more price sensitive. Any company that experiences more than one or two launch failures could easily fail.¹⁴¹

The effect of future developments in launch technology is also uncertain. At present ELVs are still the only way for commercial launchers to lift payloads into orbit, and no new technology is likely to supplant ELVs in the near future. However, innovation could lead to the development of alternative technologies, such as gun launchers,¹⁴² which could capture a large portion of the small payload market if a workable system is developed. For large payloads, it is conceivable that the space shuttle or the proposed aerospace plane could become more economical for launches to low earth orbit, but this will happen only if full-scale commercial development is pursued. Other technologies are even further from availability.¹⁴³

Given that the market for launch services is contracting, and that there are no presently viable alternatives to ELVs, competition between the various ELV launchers is certain to become more intense. New competitors are entering the market with below-cost pricing in order to gain market share.¹⁴⁴ Subsidization by foreign governments of their launch companies could easily damage the domestic commercial launch industry and threaten its viability. If the government does not take some action to safeguard the industry, America could lose an industry that is essential for the commercialization of space.

There are a number of important drawbacks to such a scenario. First, it is unlikely that new shuttle capacity could be added at costs below the going market rate,¹⁴⁷ so the government would be forced to subsidize flights on the shuttle. Although this would work to the benefit of shuttle contractors, it would inefficiently take business away from profit-making ELV launchers and give it to a continually loss-generating program. The shuttle has proven to have many unique uses, but it is not the "space truck" it was originally intended to be. The cost of the orbiter and the human component involved in its launches require more preparation and care, which often lead to long delays.¹⁴⁸ But the political necessity of maintaining a manned space program would probably force continued over-reliance on the shuttle in spite of these costs.¹⁴⁹

Regardless of the care involved, all launchers will at some point fail,¹⁵⁰ and the government needs commercial launchers as a backup for its own programs. A failure of an ELV can be an incredible loss-in the hundreds of million dollars-but the loss of a shuttle is catastrophic. Over-reliance on the shuttle also shuts down U.S. launch capabilities following a failure, as in 1986.¹⁵¹ The existence of an alternative launcher would allow the government to continue launching important payloads during a shuttle launch standdown. Although the government could purchase ELVs for such an eventuality, it is possible that Congressional estimates of the number of ELVs needed, or the likelihood of shuttle failure, would prove overly optimistic. With launch services in the private sector, the government can be assured of an alternate launcher unimpeded by bureaucratic optimism. Moreover, shifting the costs of research and development of ELVs to the commercial providers would be more efficient and lead to the use of only those launchers that were economically feasible.¹⁵²

Because of the inefficiency of government launch programs, it is clear that the U.S. government should not reenter the commercial launch industry. With the help of the changes in governmental policies since the Challenger accident, commercialization of launch services is already well underway, a development that should be encouraged. But even if the private sector can provide launch services more efficiently than the government, some governmental involvement at the regulatory level is needed to prevent hypercompetition and unfair trade practices by foreign launchers. Such efforts will undoubtedly increase costs to launch service users to the extent they successfully remove government subsidization of launching, but such a cost structure will lead to investment in space systems only when truly economical. The government has several options: industrial policy, implemented either through "targeting" the industry for special governmental treatment, or through the use of demand side pressure; cartelization of the market with other launch powers; the use of the current trade regulations; or inclusion of launch services under the proposed GATT services agreement. Not all options are compatible, nor are they mutually exclusive.

Because of their importance as a threshold to space and their significance to technological development, launch services are the kind of strategic industry that is typically targeted for industrial policy. The commercial launch industry is already a part of the huge American defense establishment, for which the government has at least a de facto industrial policy.¹⁵⁵ As defense cuts begin to reduce the effectiveness of defense policy at helping American industry, the government can simply recast some of the defense programs as industrial competitiveness programs and allow them to continue unabated. Regardless of how these programs are characterized, there are a number of means through which the U.S. government can help the commercial launch industry: direct subsidies, the passthrough of benefits from government funded research, development of infrastructure, demand pressure, and other indirect benefits used to increase profitability.¹⁵⁶ The option of direct subsidies to launchers faced with unfair foreign competition can be immediately rejected. Such an approach could be extremely expensive for government and would likely make the launch industry more inefficient.¹⁵⁷

One approach with potential to help commercial launchers is to allow private industry to ride on the coattails of governmental research. The commercial airline industry is one that has benefited greatly from such an organized policy of coordination between military and commercial research programs.¹⁵⁸ Instead of using direct subsidies, the United States cloaked its subsidies by allowing commercial aviation to pass the technology gained from government programs through to commercial development.¹⁵⁹ For example, Boeing was able to save markedly on its development costs by using technology from the government's KC-135 program to develop the 707 aircraft.¹⁶⁰ Indeed for aviation, the American policy of coordination between government and private industry seems to have worked much better than the policies of many other countries in which government directly financed most commercial aircraft development.¹⁶¹ Another example is the development of the commercial satellite industry. NASA contributed mightily to the development of the communications satellite industry by providing the impetus for its development and later allowing Hughes to pass the technology through to its commercial satellites. Hughes is still dominant in the commercial satellite market.¹⁶² A similar effort by NASA or another government agency could greatly benefit the commercial launch industry.¹⁶³

Helping to build the infrastructure needed by industry is another form of industrial policy.¹⁶⁴ The commercial launch industry, however, can obtain only limited benefit from such a policy because the infrastructure for space services is already well established. The United States has two fully-developed launch sites,¹⁶⁵ which should be adequate given the expected flat or declining demand for launch services.¹⁶⁶ The government, thus, has little to do except assure that the environment for infrastructure improvement is good, and that commercial launchers have reasonable access to the available government facilities.¹⁶⁷ The government probably does not need to do much more to establish better public launch infrastructure,¹⁶⁸ as this would be a poor allocation of scarce resources.¹⁶⁹ Subsidies for the construction of private launch facilities are unnecessary because the Commercial Space Launch Act provides private launchers with access to government launch sites.¹⁷⁰ The combination of the expense of building new launch sites and the need for government oversight required by both the Liability Treaty¹⁷¹ and the Commercial Space Launch Act¹⁷² militates against the operation of a private spaceport.

Government demand-side pressure can also be very effective, as it was in the case of airline development. The Kelly Air Mail Act of 1925, for example, privatized air mail carriage and reduced airmail rates while keeping payments to air carriers constant, a subsidy that greatly increased the volume of mail travelling by air.¹⁷³ The government could easily initiate a similar policy with NASA and Defense Department demand.¹⁷⁴ In the area of demand-side pressure, the United States enjoys a huge advantage over other countries because public sector demand for launch services is so large.¹⁷⁵ President Bush has already announced that launch of U.S. government satellites will be restricted to domestically manufactured vehicles unless specifically exempted by the President.¹⁷⁶ Given that the U.S. government accounts for 90% of U.S. demand and 40% of world demand for space products,¹⁷⁷ such a preference could be of great aid to the domestic launch industry. Demand-side pressure, though not an effective way to build infrastructure, is a relatively inexpensive way to increase the profitability of domestic launchers.

Profitability can also be increased by providing tax breaks or loans,¹⁷⁸ or by easing restrictions on industry.¹⁷⁹ One of the simplest means of easing restrictions on industry is by limiting liability. This approach has been used to encourage industry since the informal application of favorable tort treatment for railroads in the nineteenth century.¹⁸⁰ Later manifestations have been statutory, such as the Warsaw Convention,¹⁸¹ and Section 4 of the Price-Anderson Act of 1957.¹⁸² Section 16 of the Commercial Space Launch Act¹⁸³ is a good start at limiting the liability of commercial launchers, and should substantially ease the burdens on the industry. Antitrust exemption can also be beneficial,¹⁸⁴ as it was in the merger that produced McDonnell-Douglas in 1967.¹⁸⁵

Despite its general aversion to governmental support of industry,¹⁸⁶ the Bush Administration has recently made some proposals to benefit commercial space ventures. President Bush and congressional leaders have discussed such programs as federal "space bonds" and voluntary income tax checkoffs,¹⁸⁷ and the President has directed governmental agencies to "actively consider commercial space launch needs and factor them into their decisions."¹⁸⁸ State governments have also begun to coordinate space policy. Florida has organized the Aerospace States Association to coordinate state governmental efforts to support space technology.¹⁸⁹

The argument for capacity controls is that because so many launch providers are governments motivated by non-economic factors, some form of capacity controls is necessary to prevent a price war and "ruinous competition."¹⁹⁴ But capacity controls based on the airline and shipping models would be inappropriate because of important differences between those industries and the launch industry.¹⁹⁵ The most obvious difference is that launch providers, although suffering from high fixed costs, do not suffer from a problem of excess capacity. Because payloads are relatively small-one or two satellites at the most-filling a flight is much easier than filling a cargo ship or a commercial aircraft on scheduled service. Therefore, it is almost certain that every launch will be made at full cargo capacity. Even if the situations were more closely analogous, it is unclear how well capacity controls have worked in either the shipping industry or in aviation. The UNCTAD Code of Conduct has been criticized as "balkanizing" world trade in shipping by mandating national preferences,¹⁹⁶ and the wave of airline deregulation that shook the United States after 1978¹⁹⁷ appears to be imminent internationally.¹⁹⁸

Analogies to primary product cartels, such as OPEC,¹⁹⁹ are also difficult. Although the service of launching is fungible, it is not a homogenous commodity like oil. The quality of service and its reliability can vary greatly. Under a system of capacity controls, certain commercial launch customers would therefore be relegated to inferior launch providers because the more reliable providers were fully booked. Governments would have to develop a system for yearly allocation of available satellites. A flat allocation based on current capabilities would be unable to respond to changing conditions, while a formula or ad hoc allocation could be exceedingly complex and politically charged. The cartel would have to make provisions for new members and for reallocating capacity within the cartel if a new launch power refused to join. Also, division of capacity between U.S. launchers would raise considerable antitrust concerns.²⁰⁰

Economically, cartels are difficult to sustain. Cartels can only exist if there are no good substitutes for the product, reasonable size of membership is maintained, administrative costs are low, and there is a low risk of defection and new entry.²⁰¹ There are certainly high barriers to entry into the launch industry, since governments can control who uses space, but membership in the cartel would have to include all the present and potential space powers to prevent cheating. It is also unclear whether demand for launch services is sufficiently inelastic to prevent the substitution of satellite alternatives, such as undersea cable. The administrative costs of cartels can be quite high, and the protected market can lead members to become less efficient.²⁰² This could be particularly problematic for launch services, since some members of the cartel would be governments, which are motivated by a host of political and other non-economic factors that could further hinder attempts at efficiency. If a cartel is only partially successful, the result can be the hypercompetitive market it was formed to prevent.²⁰³

Antidumping law is also aimed at unfairly priced imports. Section 731 of the Tariff Act²¹⁸ provides relief against goods priced at "less than fair value,"²¹⁹ so it applies more to individual producers than do countervailing duties. Antidumping investigations may be initiated by the International Trade Administration (ITA)²²⁰ or by private petition through the ITC.²²¹ As do the countervailing duty laws, Section 731 has a material injury requirement,²²² and lists numerous factors to be considered in the determination of injury.²²³ Section 731 also applies only to "merchandise."²²⁴ The limitation to "merchandise" is consistent with GATT coverage of antidumping, which allows antidumping measures only against dumped "products."²²⁵ Services traditionally have not been covered by international and domestic antidumping regulations.²²⁶ In addition to the trade laws, those injured by dumping may rely on Section 801 of the Antidumping Act of 1916,²²⁷ which is part of the antitrust laws and provides for both criminal penalties and private suits.²²⁸ The coverage of the 1916 Act is also limited to "articles" imported into the United States.²²⁹

At present, services do not fall within the technical coverage of domestic countervailing duty²³⁰ and antidumping laws.²³¹ However, efforts are being made at both national and international levels to bring services within the coverage of antidumping regulations.²³² The developing GATT services agreement could provide some protection against dumping of services,²³³ although the United States professes to prefer modification of domestic antidumping law as the best way to expand coverage to include services.²³⁴

Although technical changes could with some difficulty bring services under the coverage of the countervailing duty and antidumping laws,²³⁵ there are serious doctrinal obstacles to doing so. Because foreign launch services are provided outside the United States, beyond the traditional jurisdiction of the United States, application of U.S. trade laws would require use of effects jurisdiction. The United States supports this doctrine for the purpose of enforcing its antitrust laws,²³⁶ but other countries have strongly criticized this approach.²³⁷ Even in the area of antitrust,²³⁸ the effects doctrine has been limited to acts that affect imports into the United States, or to acts involving export trade or commerce that affects U.S. exporters.²³⁹ Application to launch services would therefore require a significant extension of the effects doctrine since it is unclear whether launch services providers would be considered exporters.²⁴⁰

The doctrine of foreign sovereign immunity and the act of state doctrine are of much less concern. Each of these doctrines contains an exception for commercial activity undertaken by the foreign government.²⁴¹ Any commercial launching by launchers owned by foreign governments is clearly commercial activity if sold on the international market to public and private users of many nationalities.²⁴²

Application of countervailing duty and antidumping law to services is complicated by the difficulty of enforcement. In the commercial launch market, as with other service markets, it is the customer or the factors of production that moves across national borders,²⁴³ so the service never actually "enters" the United States.²⁴⁴ One way to circumvent this problem would be to apply a special tax to the export of satellites from the United States for foreign launch.²⁴⁵ Where there is elasticity of import supply, countervailing duties will tend to injure domestic consumers because it is they who will pay the duty entirely out of their consumer surplus.²⁴⁶ For less elastic markets the amount of the duty paid by consumers and by foreign producers will vary.²⁴⁷ Economists view countervailing and antidumping duties as a "second best" alternative to be used only if the economic and political costs of displacement of workers and reallocation of resources are too high.²⁴⁸ This is not the case in the commercial launch industry since the satellite makers provide a powerful political counterweight to domestic launchers.

Given the practical difficulties in implementing antidumping measures and countervailing duties, along with their questionable economic effects, the Administration should be very careful in implementing them in the area of services. Furthermore, the radical change in policy that would be required to implement the trade laws extraterritorially could cause an enormous international protest.²⁴⁹

The remedies available to the USTR are also broad.²⁵⁸ Section 302 allows private parties to petition the USTR,²⁵⁹ or the USTR may initiate an action herself.²⁶⁰ Because of the potential for international controversy in a Section 301 investigation, the government might want to wait for a private petition before pursuing an investigation of unfair trade practices in the launch services market. Reliance on private party petitions would leave assessment of the various market factors to the petitioner and would serve to keep the government relatively neutral in the investigation. An appearance of neutrality will be especially important for countries with which the United States is trying to negotiate trade agreements. It is highly probable that the importance of launch services to national security and technological development would cause offending countries to refuse to make any concessions.

Private parties in the launch services industry have already attempted to petition for redress under Section 301. In 1984, Transpace Carriers, Inc., one of the several small companies trying to get a foothold in the launch industry, filed a petition pursuant to Section 301 with the Commerce Department.²⁶¹ Transpace alleged that the European firm Arianespace was engaged in two-tiered pricing and asked for relief.²⁶² President Reagan rejected the petition, however, because at the time NASA was also providing launch services at below cost.²⁶³ Since the time of the Transpace petition, efforts of the USTR in applying "Super 301" measures in the space services industry have met with some success in regard to Japan, which has tentatively agreed to make its government procurement of satellites more open to foreign businesses.²⁶⁴ The sole private party petition in the area of launch services filed since the Transpace petition is currently inactive.²⁶⁵

Section 337 of the Tariff Act of 1930²⁶⁶ also provides relief against unfair trade practices in broad terms similar to those of Section 301. It directs the ITC in response to private petition²⁶⁷ to conduct investigations of unfair trade practices other than those requiring antidumping penalties or countervailing duties,²⁶⁸ and to exclude the importation of offending articles.²⁶⁹ Section 337 applies only to "articles,"²⁷⁰ and also imposes an injury requirement.²⁷¹ Because of these limitations, it is of little use to the commercial launch industry.

The export of most satellites is covered by the Arms Export Control Act (AECA)²⁷⁵ and the accompanying International Traffic in Arms Regulations (ITAR).²⁷⁶ The manufacture or export of items included on the ITAR Munitions List must be registered with the Office for Defense Trade Control (ODTC).²⁷⁷ Most satellites are included within the coverage of the Munitions List because they qualify as "inherently military."²⁷⁸ The export of items on the Munitions List is prohibited to certain countries,²⁷⁹ and export licenses are required for export to all other countries.²⁸⁰ Applications for export licenses under AECA are reviewed by the Department of Defense, as well as other interested agencies,²⁸¹ and occasionally by the Coordinating Committee on Multilateral Export Controls (COCOM).²⁸²

Since commercial communications satellites are specifically excluded from AECA coverage, their export must be analyzed under the Export Administration Act of 1979 (EAA).²⁸³ Section 4 of the Act establishes several types of licenses,²⁸⁴ and authorizes the Secretary of Commerce to compile a control list.²⁸⁵ An export may be prohibited for reasons of national security,²⁸⁶ foreign policy,²⁸⁷ or short domestic supply.²⁸⁸ The Secretary may not prohibit export of items on national security or foreign policy grounds if those items are readily available outside the United States.²⁸⁹ Short supply controls are not limited by foreign availability, but currently only include strategic resources.²⁹⁰ Under the EAA, countries are divided into seven different groups on which different export requirements are imposed.²⁹¹ Strategic items not on the Munitions List are included in the Commodity Control List (CCL),²⁹² which is divided into ten commodity groups.²⁹³ Items are classified according to the technical designations within the control list.²⁹⁴ Satellites are not specifically enumerated in the CCL, but satellite components could easily fall into one of the many technical categories contained therein, so the applicability of the EAA to a particular satellite would depend upon whether its components were included in the list.

Using these regulations, as well as those mandated by COCOM,²⁹⁵ the government has the potential to control the market availability of foreign launch services. The main purpose of COCOM is, or was, to control export of strategic items to the (former) Communist Bloc.²⁹⁶ China is given special "green line" treatment.²⁹⁷ There is a general license permitting exports of certain items to COCOM members,²⁹⁸ but satellites are not specifically listed, so their export even to COCOM members is probably controlled by EAA.²⁹⁹

Recently, however, U.S. export control policy has changed somewhat. President Bush has called for "higher fences around fewer goods."³⁰⁰ Certain telecommunication items will be included in the liberalization, but it is unclear whether the lowered restrictions will apply to satellites. Also included in the liberalization is "green line" treatment for the Soviet Union and Eastern Europe, similar to that accorded China.³⁰¹ Under green lining, COCOM imposes a level of technology below which case by case export licenses are not needed.

This liberalization of export controls will be accomplished by compiling a new COCOM Core List with accompanying changes in national regulations. An abbreviated Core List was approved by COCOM on May 23, 1991, and is to take effect by September 1, 1991.³⁰² The recently released fact sheet on the new Core List does not mention the degree to which satellites are covered,³⁰³ but an earlier U.S. proposal for the "core list" significantly decontrolled some types of rocket engines and "spacecraft", a generic term which should include satellites.³⁰⁴ Because the new list will be more specific than the previous list as to what items are controlled,³⁰⁵ it is possible that it could result in the exclusion of satellites if they are not specifically listed as controlled items. Although the new list may be successful in "building higher fences around fewer items,"³⁰⁶ many in industry are disappointed that the decontrols are not more significant.³⁰⁷

Since even the new export control laws might prevent export of satellites from the United States, the United States could use export controls as an instrument to protect domestic launchers,³⁰⁸ as Congress did with regard to China and the Soviet Union in 1990.³⁰⁹ However, the American satellite industry is as important as the launch industry,³¹⁰ and to compete internationally satellite makers believe they must have access to all available launchers.³¹¹ Export controls should therefore be applied as loosely as possible without allowing sensitive technology to be transferred to undesirable countries. On-site monitoring of major launch sites by COCOM or American export control officials can assure that no leakage occurs.³¹² Controls should be used only to assure compliance with existing trade agreements.³¹³ This approach appears to have been reasonably successful in recent dealings with China³¹⁴ and might be the only way to influence the launch practices of recalcitrant countries.

Because launch services have a relatively low priority in most countries' international trade policies,³¹⁸ a more comprehensive way to achieve international agreement on launch services and other low priority trade issues is to consolidate them in the GATT services negotiations currently under way in the Uruguay Round. This will allow the inclusion in the agreement of developing countries that do not presently have viable launch industries. Such countries would probably be hesitant to negotiate an agreement aimed specifically at launch services.

The GATT services negotiations have been underway since 1986, and were scheduled to conclude by the end of 1990.³¹⁹ The talks collapsed in December 1990, but have since resumed.³²⁰ The talks are expected to continue through 1992,³²¹ though they could conclude sooner.³²² President Bush has asked Congress to extend authorization of "fast-track" approval for GATT through June 1, 1993.³²³ This renews the possibility of achieving some success in services.³²⁴

There is also the possibility that some smaller version of the General Agreement on Trade in Services (GATS),³²⁵ will be concluded among thirty to forty countries even if an agreement including the over one-hundred members of GATT fails.³²⁶ Whether such a limited agreement would be of benefit to the launch industry is uncertain, however. An agreement limited to the developed country members of the Organization of Economic Cooperation and Development (OECD)³²⁷ would include the major launch competitors-Europe, Japan, and the United States-but would leave out marginal competitors such as the Soviet Union and China. As these countries begin to increase their presence in the commercial launch market, other competitors will need some forum in which to address the competitive practices of these launchers. Since these countries are seeking membership in GATT,³²⁸ they may be more easily coerced into joining GATS as well, thereby achieving greater coverage of world services.³²⁹ To assure the inclusion of other launchers not involved in the GATS negotiations, the United States should insist that membership in GATT be conditioned on GATS membership as well.

It is still too early in the restarted round to predict what kind of agreement will be produced, but the most comprehensive proposal to date is the U.S. proposal,³³⁰ which adopts several of the cornerstones of GATT as the basis for the services agreement. Article 8 of the proposal provides for national treatment of service providers, except to the extent "necessary for prudential, fiduciary, or health and safety reasons."³³¹ Article 7 applies national treatment to licensing, requiring that licensing and certification be based on competence,³³² and that it not be used to discriminate against foreign providers.³³³ Another GATT cornerstone, general non-discrimination, is also required by the U.S. proposal, giving the agreement an analogue to "most favored nation" (MFN) status.³³⁴ For the commercial launch industry, MFN status or national treatment is achieved by allowing satellite owners to export their satellites to the launchers of their choice. The basics of implementing such a policy are therefore much less complicated than for other service sectors. This simplicity will be undercut if states are allowed to use the health and safety exception³³⁵ too freely, particularly if it were to be used to justify the imposition of export controls by the United States.

Although the proposal allows for the maintenance of existing domestic regulations,³³⁶ it requires "transparency," a term of art meaning that regulation of covered industries, be it judicial, legislative, or administrative, be promptly published, and that in all review of foreign services, the foreign provider be kept apprised of the status of its case or application.³³⁷ The proposal also provides for a standing committee on services³³⁸ and for dispute resolution procedures.³³⁹

The American GATS proposal would include many services, but allows for the exclusion of some sectors. Rather than allow countries to include specific industries within the GATS framework, the U.S. proposal requires an "opt out" approach, in which every excluded industry must be specifically included in an annex for each signatory.³⁴⁰ Whether launch services would be included in the coverage of GATS or be opted out remains to be seen. The United States has expressed its desire to include telecommunications under a separate annex,³⁴¹ and launch services are the kind of strategic industry many countries might be inclined to exclude. Article 16.1 of the U.S. Services Proposal³⁴² allows countries to exclude services when necessary for national security. Other countries have also expressed concerns over GATS coverage of industries vital to national security, cultural independence, or technological development.³⁴³ The U.S. proposal also allows exceptions for government procurement,³⁴⁴ and allows countries to limit government aid to domestic services providers.³⁴⁵ Both of these provisions have the potential to be problematic for U.S. commercial launchers should foreign governments abuse the government procurement and subsidization exceptions, but they could also be helpful if governments take a managed approach.

The European Community (EC) also presented general counter-proposals meant to challenge areas of weakness in the U.S. draft. The main thrust of the EC proposal is to define services in very broad terms in order to prevent the exclusion of transportation and telecommunications implied by the U.S. proposal.³⁴⁶ The European proposal has important implications for the commercial launch industry because it is a sector that would likely be excluded from the agreement if either telecommunications or transportation were excluded. The breadth of the European proposal is also important in that it binds the EC to include launch services in GATS, something they might otherwise be disinclined to do given Arianespace's reliance on government support. The main drawback of the EC proposal is that it provides for a "relative reciprocity" approach, which allows a country to withhold benefits of GATS to countries it believes have not entered into the same level of commitment as the withholding state.³⁴⁷ This approach could lead to differences of treatment within GATS, and possibly to squabbles between countries alleging discrimination.

Initially, most countries reacted favorably to the U.S. proposal, including the Group of Ten, ten developing countries led by India and Brazil.³⁴⁸ Along with other developing countries, the Group of Ten had earlier insisted on the inclusion of labor flows in services, and relative reciprocity for developing countries.³⁴⁹ Although developing countries are abandoning their previously recalcitrant positions on some issues,³⁵⁰ and accepting, with some modifications, the U.S. proposal's exception for balance of payment reasons,³⁵¹ they are still lobbying for a more territorial approach to services than the U.S. and EC proposals.³⁵² These differences do not have a significant impact on the area of launch services, however, because they involve the movement of consumers, an area on which all sides agree.³⁵³ The issue of the movement of service providers and factors of production is more contentious.

GATS is by no means a panacea for the launch industry or the services sector in general. Many stumbling blocks remain, such as the treatment of financial services,³⁵⁴ professional services,³⁵⁵ cultural industries,³⁵⁶ and existing international regimes in telecommunications and transportation.³⁵⁷ Furthermore, GATS breaks new ground in international regulation of trade since regulation of services requires regulation of providers rather than of goods.³⁵⁸ This is an ambitious incursion for international law, which has traditionally kept out of the internal affairs of nation states. The most important contribution that GATS could make is to provide a framework for regulating trade in services through which further progress in launch services could be achieved.

The government would also benefit from non-intervention. Because of budget cuts, extensive expenditures for the launch industry are impractical. Moreover, the general governmental trend over the last decade has been one of deregulation domestically, and of championing trade liberalization internationally. In order to maintain its image as an advocate of free trade, the Administration will need to abstain from saber-rattling with the U.S. trade laws.³⁵⁹ The government cannot sit idly by, however. Some measures are needed to safeguard the competitiveness of domestic commercial launchers.

Present U.S. trade regulations do not adequately address the problems inherent in services trade, let alone those of the launch industry. Those provisions that do touch on unfair service practices, such as "Super 301," do so only in the context of a more general, broad-based pattern of unfair trade practices. The remedies imposed by "Super 301" are retaliatory rather than conciliatory, and can potentially tarnish the United States' reputation as a free trader.³⁶⁰ The United States should therefore rely on private petitioners to uncover unfair trading practices,³⁶¹ and should act against foreign practices only when both the commercial launch industry and the government are in agreement about the unfair nature of the foreign practice at issue. Although efforts at brinksmanship have thus far been relatively successful, at least with regard to recent improvements in U.S.-Japan trade policy,³⁶² they lead to bilateral solutions, which invariably leave important players out of the picture.

Liberalization of export controls should also continue. Because American industry is on both sides of the launch transaction, restraints on the free movement of satellites can only hurt domestic launchers and satellite producers.³⁶³ Most launching states have stated that they respect the proprietary nature of the technology involved, and will make no attempts to expropriate it. Safeguards for foreign launches can be accomplished at a minimal additional cost, considering the high basic cost of each launch.

Other governmental measures, such as export targeting, require increased expenditure, and could lead to inefficiency. Indeed, a highly competitive policy of export targeting could cost the government huge amounts of money, with the benefits accruing mostly to foreign satellite users.³⁶⁴ American industrial policy efforts in this area should instead concentrate on policies that are likely to benefit domestic launchers without harming domestic satellite producers. The United States has for many years had a de facto industrial policy with regard to the defense industry.³⁶⁵ Although some budget cuts are unavoidable, the government should attempt to transfer some of the savings from defense programs into modest civilian programs.

The subsidies need not be direct, however. A simple change in defense and civilian space policy to use a greater number of ELVs should give the commercial launch industry the economies of scale necessary to compete effectively. The Defense Department will be needing increased satellite capabilities as earth-based forces are reduced. Any procurement program should be aimed at allowing commercial launchers to develop economies of scale.³⁶⁶ This is the type of industrial policy that has worked best for the United States in the past. NASA can also contribute, albeit on a smaller scale, by reevaluating its manned mission policy. Such a reevaluation would give ELVs increased government business and reduce the possibility of another tragic shuttle accident.

A policy of non-intervention will not be successful if the United States cannot convince other nations to go along. A recent statement by USTR Carla Hills reflects this thinking: "There's a concern at home that our market is open and that the rest of the world is closed, and there's no enthusiasm for freezing the issue this way in the Uruguay Round."³⁶⁷ This is especially true in the area of launch services.

Some international regime is needed to prevent predatory behavior by foreign, government-financed launchers. A cartel arrangement would be hard to administer and would lead to difficulties in both international and domestic allocation of capacity,³⁶⁸ and it would run counter to a policy of non-interventionism. Liberalizing world trade in services through the GATS negotiations is a far better alternative. This would allow American competitive advantages to be fully exploited and would reward only those firms that could compete effectively. It would also provide some modicum of international oversight to the commercial launch industry, and provide the United States with a means of redress against unfair foreign competition.³⁶⁹ A free trade regime, coupled with governmental awareness of the needs of the commercial launch industry, is all the industry needs.