Export Controls Threaten U.S. Edge in Foreign UAV Markets

An Obama administration effort to relax strictures on selling less-sensitive military hardware to foreign countries virtually ignored the red tape unmanned aircraft manufacturers must navigate when marketing their products overseas.

Those reforms transferred some UAV components from the International Traffic in Arms Regulations to the less-restrictive Export Administration Regulations, but failed to ease the rules governing unmanned aircraft.

In an effort to avoid losing a share in the rapidly expanding foreign unmanned aerial vehicle market, industry is slowly making progress on reducing the number of hoops they must jump through before selling high-end UAVs to foreign nations.

There are already 4,000 different unmanned aircraft platforms in circulation on the global market, most built by U.S. manufacturers, according to an IHS Industry Research and Analysis report. But in the race to capture a share of the $81 billion international UAV market through 2021, industry is being hobbled by restrictive export controls that lump them in with missiles, said Eric McClafferty, a partner in the law firm Kelley Drye & Warren LLP, who specializes in international trade.

Because of the extended range and carrying capacity of high-end UAVs like Global Hawks and Predators, they fall under a stringent set of controls that govern the international sale of cruise missiles. The Missile Technology Control Regime, or MTCR, requires exporters of systems that can fly farther than 300 kilometers and carry more than 500 kilograms be licensed by both the State and Commerce Departments. 

“What is happening now is that at the multilateral level, all these countries are talking about revising the MTCR to split out unmanned vehicles into categories” from missiles, McClafferty said. “That’s going to take a long time because you’re talking about a multilateral agreement.”

Though MTCR is not a treaty among the 34 member-nations, it works the same way. Every member must agree to changes for them to take effect. A single veto could derail any attempt at revision, so it could take years to achieve any meaningful changes, McClafferty said.

Driving the desire among industry and governments to relax the constraints on UAVs is the recognition of the myriad commercial uses for aircraft that were initially developed solely for military use, he said.

“That move within the MTCR is not just being driven by the U.S.,” he said. “There are other countries involved that are pushing those discussions forward.”

Alain Dupiech, communications director for Airbus Defense and Space, said the commercial proliferation of UAV technology has prompted efforts to revise the restrictions.

“There is now a fundamental difference between the civilian missions and military missions these aircraft are capable of,” he said. “Until recent years, only a military organization could ensure their safety and maintenance. In this context, there was no one except governments and very large manufacturers who would be able to operate such an aircraft, so why bother to embark on the long and politically difficult process of reforming the export rules?”

U.S. unmanned systems manufacturers also want to avoid losing business to foreign UAV builders that are not governed by such restrictive export controls, said Robert Slack, an associate with Kelley Drye & Warren focusing on export controls. They are wary of losing the technological edge they currently enjoy, much like what happened to the satellite industry, he said.

The United States was once dominant in the satellite market, but customers began to find it simpler to buy space vehicles from other nations.

“There grew an interest in manufacturing [satellites elsewhere], and the U.S. satellite industry got left behind,” McClafferty said. “There is an interest to not see that happen again in [the UAV] industry.”

U.S. unmanned systems manufacturers are “concerned that … the U.S. and other MTCR members are losing their competitiveness,” he added. “Israel, for instance, has a booming drone industry and far fewer restrictions on where they sell those platforms.”

Phil Finnegan, director of corporate analysis at the Teal Group, agreed that the control regime could prevent U.S. drone manufacturers from accessing emerging markets.

“There’s definitely a risk of losing market share because of MTCR,” he said. “As this technology spreads worldwide, the U.S. and Israel are not going to be the only exporters. New potential exporters include Turkey and India. China is developing a wide range of UAVs and is beginning to get into the export market.”

Turkey is one of 34 MTCR members. Israel, China and India do not have to abide by the regime’s export rules.

Some change has occurred in the interpretation of the MTCR, allowing U.S. allies to purchase certain systems, Finnegan said. The Australian Navy has purchased the Triton, the U.S. Navy’s maritime version of the Global Hawk for surveillance missions at sea. South Korea is also interested in the Triton, while Japan has indicated a desire to own the U.S. Air Force’s version of the UAV, he said.

“You are also seeing a trend where U.S. companies are being proactive and trying to develop export versions of UAVs that are saleable,” Finnegan said.

General Atomics did just that with its Predator XP, an unarmed version of the medium-altitude, long-endurance UAV flown by the U.S. military. The United Arab Emirates was able to procure an XP because it is specifically designed to not carry weapons and its maximum payload is below the 500-kilogram threshold.

General Atomics officials declined to comment for this story. 

“Allies will buy these versions that may not have the capabilities that U.S. forces use but suit their purposes fine,” Finnegan said. “That opens the way for a country like Saudi Arabia to purchase these kinds of high-end UAVs.”

Sales to foreign countries of drones that are unable to carry weapons but can fly 300-kilometers and carry a 500-kilogram payload still must be licensed. But the State Department may be more likely to grant an export license to an unarmed drone, McClafferty said. Such modifications do not exempt medium and large drones from export restrictions altogether.

“The government officials who are paying attention are likely to think that [the UAV]  can’t launch a missile, and it is not weaponized itself as a missile, then we’ll let it go for this purpose,” McClafferty said.

The government requires that manufacturers provide end-use certification that describes how the purchasing nation will employ a drone. The government also levies restrictions on what those missions can be, McClafferty said. Once the drone is exported, it cannot be transferred to any other entity or put to any other use unless approved by the U.S. government.

Prior to October, parts that were designed for use with any long-range unmanned aircraft, down to basic nuts and bolts, were subject to ITAR export restrictions. Many of those components were moved from that list to the less-restrictive EAR as a result of the reforms that went into effect last year.

“It may have some impact for some components manufacturers,” Finnegan said. “When it comes to core systems, what is really needed is a change in the MTCR regime, and that doesn’t seem likely any time soon.”

In all cases, companies still need a license from the Commerce Department to sell dual-use items abroad.

“There are some big benefits to being on the Commerce side,” Slack said. “Under the old regime, if you had one component that was ITAR-controlled and installed that on a bigger system, then the entire system became subject to ITAR.

“Export control reform has addressed that,” he added. “The goal is to allow our parts and component manufacturers to sell to our allies so they can incorporate those items into larger foreign-made systems without threatening those systems with control under U.S. export regulations.”

The EAR rules also allow for exceptions for exports to specific U.S. allies.

“That was written to make life easier for companies who made components on the EAR that are integrated into larger systems abroad,” McClafferty said.

The long-term effort of reforming the Missile Technology Control Regime is based on an explosion in the commercial value of drone technology. Finnegan said that would help ease restrictions on smaller drones, but reforms to ease exports of commercial platforms derived from military designs are a long way off.

“The thing is, for the near term, the commercial market that develops is going to be smaller systems. It’s not going to be Global Hawks or Predators,” Finnegan said. “Those systems are designed to provide the utmost capability and cost is a secondary concern. In the commercial market, you don’t need the complexity that the military needs.”

Even small- and medium-sized UAVs that were never meant for military use are subject to ITAR control. To export any aircraft capable of flying beyond line of sight, whether over the horizon or around an obstruction like a building, requires a license from the State Department, Slack said. 

If a UAV is capable of autonomous or pre-programmed flight, it is controlled by ITAR, McClafferty said. An exemption to the export rules exists for hobbyist aircraft that are specifically not for commercial use.

“If you are selling these things as anything other than toys, you are going to need a license to export,” he said. “What most people would consider to be relatively benign products, the U.S. [government] still considers those to be sensitive goods.”

Many companies are unaware of the restrictions on smaller UAVs designed for civilian use. They are subject to “national security control” and require a license for export to virtually any country other than Canada. Failing to abide by the guidelines can be painful for large companies and potentially fatal for startups that lack the resources to navigate the red tape, McClafferty said.

Criminal penalties for failing to obtain an export license for a controlled item, even a small UAV, include jail time. Civil penalties run to $250,000 per occurrence, he said.

Dupiech said commercial entities are beginning to consider the non-military utility of large unmanned systems. Facebook, for instance, recently announced it was studying using high-altitude drones to extend Wi-Fi internet connections to rural areas of the globe. Existing high-altitude, long-endurance UAVs could be used to relay communications and data rather than expensive satellites, he said.

“It is a coming issue but is not here yet,” he said. “It will have to be decided how to regulate the sale of aircraft designed for commercial uses that are derived from military designs versus new designs specifically for commercial use.”

Topics: Defense Department, DOD Policy, International, Robotics, Unmanned Air Vehicles