Market Insights: U.S. military high-energy laser development hindered by ITAR regulations

MARTIN SEIFERT and ANTHONY RALLO

In late 2014, the United States Senate Armed Services Committee (SASC) requested comment from The Optical Society (OSA) concerning the perceived lethargy in U.S. development of high-energy lasers (HELs) with military applications. The inquiry came amidst efforts by the Departments of State, Defense, and Commerce to rewrite portions of the United States Munitions List (USML) that regulate optics technology exports under the International Traffic in Arms Regulations (ITAR). The breadth and complexity of the ITAR—under both current and proposed regulations—discourages U.S. industry from developing military-grade HELs.

The ITAR illustrates a pervasive misconception that national defense and economic development are mutually exclusive. The ITAR limits to a mere handful the entities that are both interested in purchasing, and lawfully allowed to purchase, U.S.-manufactured defense technologies. Therefore, even usable devices designed for military purposes are typically unprofitable until the U.S. Government awards sizeable contracts after innovation is achieved. Considering both the high costs of innovation and the fact that even successful innovation does not guarantee procurement, businesses are better served by investing R&D funds in non-defense technologies with broader markets.

Profiting from specialized laser technology requires access to foreign markets. Approximately 90% of the world market for specialized fiber lasers is located outside the U.S., with nearly 75% located in China. Industrial fiber lasers are already encumbered by export restrictions that complicate access to the Chinese market. Although manufacturing these lasers for military applications is technologically possible, the ITAR would subject defense HELs and many concurrently commercial components to rigorous licensing procedures before export is permitted; exporting to China would become impossible.

Restrictions have increased

ITAR controls applicable to the optics industry are expanding. Proposed revisions to the USML subject all optics technologies developed with contributory Department of Defense (DOD) funding to ITAR controls. Unfortunately, most R&D projects with the potential to yield defense applications are worthwhile investments only to the extent that they complement concurrent R&D projects for commercial technologies. If pennies from the DOD render commercial technologies subject to strict export controls, then accepting even marginal DOD funds for HEL development is not risk-justified.

The proposed USML revisions beget a puzzling irony on the backdrop of President Obama's Export Control Reform Initiative (ECR). Initiated in 2009, ECR is a national security measure designed to bolster anti-proliferation efforts. The President and the Secretary of Defense identified the breadth of the ITAR as a major contributor to WMD proliferation. According to the President, ITAR controls were "overly complicated" and redundant "Cold War relics" that failed to "sufficiently reduce national security risk." The ITAR was over-inclusive and ill-equipped to "address the threats we face today and the changing economic and technological landscape."

The breadth and complexity of the ITAR contributed to the proliferation problem in three ways. First, the ITAR required monitoring of benign commodities, limiting resources necessary for policing substantial threats. Second, the cumbersome regulations burdened manufacturers with compliance inefficiencies, causing domestic firms to focus R&D on non-defense technologies as risk and cost-saving measures. Third, absent U.S. competition in global defense markets, developing and selling substitutes for ITAR-controlled commodities generated large profits for foreign manufacturers, which further funded sophisticated R&D. The result was accelerated defense development abroad while U.S. manufacturers concurrently avoided defense innovation.

President Obama's awareness of the relationship between export policies and proliferation was generated by lobbying from manufacturers of proliferated yet highly controlled aerospace commodities. At their inception, aerospace technologies were strategic military advancements. Satellites provided efficient communication, navigation, and reconnaissance, and the popular profile of space missions made space exploration a forum for demonstrating U.S. technological prowess to citizens, allies, and enemies. Preserving these tactical and political advantages was an intuitive necessity during the Cold War.

The need for categorical aerospace secrecy began to diminish as the Cold War subsided. There are now broadly utilized civilian applications for aerospace technology, which have generated international demand for commercial space products. Unfortunately, overly inclusive export laws—such as the National Defense Act for Fiscal Year 1999 (1999 NDAA)—subjected all commercial satellites to the ITAR indefinitely, precluding U.S. manufacturers from competing in international aerospace markets.

At the outset of President Obama's ECR initiative, Congress required the U.S. Department of State (DOS) to investigate the ramifications of controlling proliferated satellites under the ITAR. The DOS concluded that the ITAR was far more stringent than export controls in other nations with functionally equivalent satellites. The DOS also found that controlling proliferated satellites actually harmed national security interests, because foreign nations were funding accelerated defense innovation with profits generated from international aerospace markets void of U.S. competitors. As a haunting illustration of this phenomenon, Iran and North Korea—two politically unfriendly sovereigns with historically unsophisticated technological capabilities—became spacefaring nations by 2012.

Policy makers began to realize that innovating faster than competitors is a more productive national security measure than attempting to delay foreign development by debilitating our own. In 2012, Congress repealed the problematic 1999 NDAA provisions, and the DOS began decontrolling non-critical technologies. Many USML categories now limit restrictions to those few technologies that are of critical military significance.

Although new regulations promote growth in some industries, DOS regulators propose expanding controls for the optics industry. The rational parallels that of prior controls for aerospace technology. Policymakers recognize the potential value of HELs, and cite technological nuances to justify stringent policies designed to chill foreign development until the technology is better understood. Presumably, the DOS will decontrol non-critical HELs once there are clear lines between military and commercial applications. If the plight of the aerospace industry is an indicator, however, it is unlikely that decontrol will occur before U.S. manufacturers lose whatever technological advantages they currently possess.

For optics manufacturers, the DOD's funding platform for HEL R&D exacerbates the effects of the ITAR. Although optical fiber lasers possess promising potential for military-grade HELs, companies are reluctant to invest in HEL development since doing so is costly, precludes international trade, and does not guarantee Government procurement. Without R&D subsidies, procurement contracts, or access to international markets, spending R&D resources on military-grade HELs is not a risk-justified investment.

Commercial development: The key to military HELs

Limited DOD investment and preclusive export controls illustrate a deep-rooted misconception that national security and industrial vitality are equal contributors to an inherently inverse relationship. The dichotomy fosters an inaccurate perception of the link between industrial health and national security. In reality, the lifeblood of our defense system is the ability of businesses to achieve innovation to perpetuate U.S. military dominance regardless of technological development abroad. Indeed, China has realized as much and invests heavily in the development of industrial and defense lasers, leveraging citizen expertise to improve its military prowess.

With disturbing frequency, Chinese expatriates with advanced U.S. degrees are returning to China and opening laser and component manufacturing facilities. Since the ITAR inadvertently prevents the export of some commercial components to China, large demands for quality laser components underscore a burgeoning Chinese optics industry. As Chinese manufacturers learn to manufacture commercial components available in the U.S., they will edge closer to more sophisticated discoveries that may have otherwise remained unintuitive. Meanwhile, U.S. optics manufacturers that rely on the robust Chinese market will lose business and resources.

The U.S. should invest in domestic companies committed to supporting defense programs by subsidizing research and development without concurrently foreclosing major portions of the global economy. U.S. optics manufacturers have the capability of contributing to the U.S. defense effort in a meaningful way, and are interested in providing HEL technologies to the U.S. military. Unfortunately, this will not become a reality until a more accommodating investment and regulatory infrastructure is adopted.

Martin Seifert is president and CEO and Anthony Rallo is Legal Counsel at Nufern, 7 Airport Park Road, East Granby, CT 06206; e-mail: [email protected]; http://www.nufern.com.