Senate Commerce Hearing on Regulating Space: Treaty, Agency, and Tax Issues

On Wednesday, April 26, 2017, Senator Ted Cruz chaired a hearing titled “Reopening the American Frontier: Reducing Regulatory Barriers and Expanding American Free Enterprise in Space.” The witnesses included Robert Bigelow, founder and CEO of Bigelow Aerospace, Rob Meyerson, President of Blue Origin, George Whitesides, CEO of Galactic Ventures, and Andrew Rush, CEO of Made in Space. The hearing covered a range of issues, but the two most interesting from a space law perspective were the regulatory and treaty discussions. Also, Senator Cruz was once the Solicitor General of Texas, and it was he who argued the case Medellin v Texas, which readers of GroundBasedSpaceMatters.com know is a major case in figuring out the consequences of a treaty that is not self-executing.

Outer Space Treaty. There was a lovely exchange between Senators Cruz and Nelson on the possibility of homesteading the Moon. Senator Nelson told the story of how his grandparents homesteaded just north of the Cape, and when he boarded the shuttle on his way to space he took a moment to look out over the old family homestead. Senator Cruz responded that perhaps his grandchildren could homestead on the Moon or even Mars.

During the question and answer session Senator Cruz asked whether the United States had a sufficient regulatory architecture in place. If the senator was intent on whether Article VI of the Outer Space Treaty, which requires the “authorization and continuing supervision” of “non-governmental entities in outer space,” requires more regulation, he is someone who is in a good position to know that it doesn’t have to.

We can gain insight into how the Senator may think about Article VI from an essay he wrote for the Harvard Law Review Forum, where he said:

With treaties potentially supplanting federal and state governmental authority, the President and Senate should carefully scrutinize all treaties, as a policy matter. We must jealously guard the separation of powers and state sovereignty if we are to preserve the constitutional structure our Framers gave us.

At the same time, our courts must scrutinize the federal government’s powers to make and implement treaties. Our federal government is one of enumerated, limited powers, and the courts should not let the treaty power become a loophole that jettisons the very real limits on the federal government’s authority.

Luckily, the Roberts Court has signaled that it will recognize the limits on the federal government’s treaty power. As Solicitor General of Texas, I had the privilege of arguing Medellí­n v. Texas, which recognized critical limits on the federal government’s power to use a non-self-executing treaty to supersede state law.

(emphasis added). Medellin is where the Supreme Court said that a non-self-executing treaty is not enforceable federal law. Article VI is  not self-executing because it requires Congressional action in the form of legislation to decide if a particular space activity requires authorization and supervision. Since Article VI does not require oversight of either all activities or any particular activity, the treaty itself does not provide sufficient reason to create a new regulatory regime.  For more detail on this issue, see here.

Regulations. One of the three regulatory agencies that oversees space activities is the Federal Aviation Administration’s Office of Commercial Space Transportation, which authorizes and regulates the launch and reentry of rockets, capsules, hybrid carrier aircraft and rocket combinations and any other vehicle going to or returning from outer space. Mr. Meyerson stressed Blue Origin’s position that the FAA needed to prioritize its existing authority before taking on new authority such as space traffic management. He wants the FAA to address the congestion in the nation’s airspace before attempting to solve any congestion in outer space. This comment alludes to the growing debate between the airlines, launch operators, and the FAA about how to integrate space travel with air travel. You have to go through the nation’s air space to get to outer space, after all, and the airlines don’t want holds for frequent launches placed on major travel routes.

Another point that Blue Origin touched on was duplication between the FAA and the U.S. Air Force. The bulk of the nation’s commercial launches take place at federal launch ranges such as Cape Canaveral, Vandenberg, Wallops, and White Sands, which are operated by the Air Force, Army and NASA. The ranges have their own safety requirements, and launch operators must agree to abide by them when they contract with the range to use their facilities and services.

It would be interesting to know whether Blue Origin finds duplication to be a concern solely for purposes of reentry, or on the launch segment as well, because there is a mechanism in place to avoid duplication for launch.

Years ago, the FAA and the Air Force attempted to resolve duplication concerns when the FAA promulgated 14 C.F.R. part 417, which contains many of the Air Force’s safety requirements. Neither agency thought duplication efficient  so the FAA committed to conducting “launch site safety assessments,” in which it would regularly review the Air Force’s requirements and practices to ensure compliance with part 417. See 14 C.F.R. § 417.101. The FAA would keep a list of where the two agencies diverged, and it would only be for the differences between the FAA and the range that the FAA would require a launch operator to demonstrate satisfaction of its requirements to the FAA. Otherwise, the FAA planned to rely on the ranges for safety oversight for launch. Reentry is another matter and may be the source of Blue Origin’s concerns. A quick review of parts 431, which applies to reusable launch vehicles, and part 435, which applies to all reentry vehicles, shows that the FAA does not rely on the ranges for oversight, perhaps, if memory serves, because at the time the FAA issued these rules, the ranges did not have reentry requirements.  Regardless, Blue Origin wanted the FAA designated as the sole oversight authority for licensing.

Intellectual property and taxes. Mr. Rush of Made in Space had two interesting requests, the first being that if a company develops intellectual property it be allowed to retain the intellectual property it develops. This may have to be the subject of a separate post depending on the context of his remarks, and I do not yet have his written testimony.   He also requested, however, that there be no customs or import tax for goods manufactured in space.  The Commercial Space Launch Act may already address that question. 51 U.S.C. § 50919(f) states:

(f)Launch Not an Export; Reentry Not an Import.—

A launch vehicle, reentry vehicle, or payload that is launched or reentered is not, because of the launch or reentry, an export or import, respectively, for purposes of a law controlling exports or imports, except that payloads launched pursuant to foreign trade zone procedures as provided for under the Foreign Trade Zones Act (19 U.S.C. 81a–81u) shall be considered exports with regard to customs entry.

 

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This New Ocean

This isn’t space law, but it feels like space law.  Or, to put it more pedantically, this application to the National Oceanic and Atmospheric Administration from Lockheed Martin Corporation to extend its deep seabed mineral exploration licenses contains interesting parallels to the mining of celestial bodies.  The mining would take place outside of anyone’s sovereign territory.  As a review of Lockheed Martin’s application shows, it’s technically very difficult.  Also, there’s a treaty that Lockheed is waiting on the United States to ratify, somewhat like some space miners are waiting for Congress set up a regulatory structure for them before they will start mining.   There is an International Seabed Authority, much as some, including the signatories of the Moon Treaty, would have there be an international authority for extraterrestrial activity.  Unlike for space miners, Congress did pass a law, the 1980 Deep Seabed Hard Mineral Resources Act, to regulate and administer seabed mining.

NOAA’s Federal Register notice links to the application itself.  In its application, Lockheed Martin states that it:

requests an extension of the seabed exploration licenses for the two Lockheed Martin claims, USA-1 and USA-4. NOAA renewed these licenses in 2012 enabling us to continue our investigation into the viability of exploration and development of the USA-1 and USA-4 licensed areas. Since the most recent 5 year license extension was granted, the Corporation has made significant progress against Phase I of its Exploration Plan.1 However, during the same period, progress on the Exploration Plan has been delayed due to the prolonged, severely depressed state of the metals markets and continued delay in resolving the security of tenure issues given the lack of ratification of the U.N. Convention on the Law of the Sea.

It would be very interesting to know why Lockheed sees the lack of ratification of the UN Convention as an impediment to going forward, but I found no additional detail or explanation in the Lockheed application for this tantalizing tidbit.

A quick internet search unearthed this comprehensive review of the 1982 UNCLOS.  Writing in 2012, Steven Groves of the Heritage Foundation explains how U.S. companies can engage in seabed mining without joining UNCLOS.  For one thing, the United States has entered into a series of agreements with other nations to, among other things, resolve conflicting claims and to notify each other when approving applications for exploration. A number of nations

have made a commitment to the United States that they will not interfere with or infringe on the claims by the United States or its companies in the CCZ. None of the nations has denounced or withdrawn from the agreements or has otherwise indicated that it does not respect its international commitments to recognize U.S. claims in the CCZ.

As a legal matter the article notes, the countries who are part of  UNCLOS “cannot prevent the United States or any other nation from mining the seabed any more than they can prevent the U.S. from exercising the freedom of navigation and overflight, the freedom of fishing, or any other high seas freedom.”

Simply because most nations have ratified UNCLOS does not mean that those nations or any international organization, such as the Authority, may deny a right to the United States that it enjoys under international law. One set of nations cannot annul the rights of another set of nations by drafting a treaty that the second set of nations chooses not to join.

(From the perspective of Article II of the Outer Space Treaty, which bars national appropriation of celestial bodies, it is interesting to note that no nations claim sovereignty over the deep seabed yet those nations may recognize claims.)

Groves’ article sums up the state of affairs for security of tenure:

In sum, acting under the authority of DSHMRA, customary international law, and multilateral agreements with foreign countries and companies, the United States has successfully claimed and maintained security of tenure over vast tracts of the deep seabed. The U.S. has done so as an independent sovereign nation exercising its inherent rights.

Groves’ discussion highlights a number of areas of concern for U.S. companies, including environmental measures, inspections, data sharing, and, most significantly for a company with fiduciary obligations to its shareholders:

Under an UNCLOS regime, a U.S. company would have limited control over the area licensed to it for exploration. Once a U.S. company identifies an area of the seabed that it wants to explore, it must divide the area into two halves of equal estimated commercial value and share its data on the area with the Authority.[51] Thereafter, the Council reserves one half of the area for exploration by developing countries or the Enterprise, the Authority’s mining arm.[52] The remaining half would be licensed to the U.S. company for exploration. The size of the U.S. company’s half is effectively limited to only 75,000 square kilometers.[53] (By comparison, the USA-1 exploration area is almost 169,000 square kilometers.[54] Finally, a U.S. company would not have exclusive access to its half because the Authority has the right to enter into contracts with third parties to explore and mine the U.S. half for resources other than polymetallic nodules.

According to NOAA’s Federal Register notice, it seeks comments from the public by May 22, 2017, on Lockheed Martin’s request for an extension.  It will be interesting to follow this docket and see if anyone objects to the extension.  Might competitors file?  Might environmental groups?  Might those who think this a fine regulatory model for outer space be deterred by the thought that others get to comment on and thus delay their business plans?

Bonus points to anyone able to identify the source of this post’s title.

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Opportunity to Comment on Burdensome Regulations

We may be starting to see the President’s earlier Executive Orders, including E.O. 13777, start to bear fruit.  The aviation side of the FAA is holding an ARAC meeting. on April 20, 2017.   The Environmental Protection Agency recently released a notice requesting comments from the public on which of its regulations it should repeal, replace, or modify in accordance with the Executive Order directive.  E.O. 13777 requires each agency to form a task force and identify regulations that:

(i) eliminate jobs, or inhibit job creation;
(ii ) are outdated, unnecessary, or ineffective;
(iii) impose costs that exceed benefits;
(iv) create a serious inconsistency or otherwise interfere with regulatory reform initiatives and policies;
(v) are inconsistent with the requirements of section 515 of the Treasury and General Government Appropriations Act, 2001 (44 U.S.C. 3516 note), or the guidance issued pursuant to that provision, in particular those regulations that rely in whole or in part on data, information, or methods that are not publicly available or that are insufficiently transparent to meet the standard for reproducibility; or
(vi) derive from or implement Executive Orders or other Presidential directives that have been subsequently rescinded or substantially modified.

Each agency must seek public input, and by late May provide to the agency head a report that identifies regulations that are candidates for repeal, replacement or modification.  The FAA’s Aviation Rulemaking Advisory Committee addresses aviation regulations.  I have not seen a similar notice from the FAA’s Commercial Space Transportation Advisory Committee (COMSTAC) or on the website of the Office of Commercial Space Transportation (AST).

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Inflating the Penalties for Commercial Space Transportation

To account for inflation, the Federal Aviation Administration issued a final rule that adjusts the fines—“civil penalties” in FAA lingo—that the agency may impose for violations of its regulations and statutes. The agency has to do this because several laws require inflation adjustments to ensure that the threatened fines of regulatory agencies continue to have a deterrent effect.   The laws include the Federal Civil Penalties Inflation Adjustment Act of 1990, the Debt Collection Improvement Act of 1996, and, most recently, the Federal Civil Penalties Inflation Adjustment Act Improvements Act of 2015. The 2015 Act amended the formula for and frequency of agency inflation adjustments, requiring an initial “catch-up” adjustment, followed by annual adjustments of civil penalty amounts using a statutorily mandated formula. The FAA implemented the initial adjustment in July 2016. This new rule provides the first of the annual adjustments. The FAA notes that the new law:

provides a formula for annual inflationary adjustments that increase civil penalty maximums and minimums by a cost-of- living adjustment (COLA). Under the FCPIAA, as amended by the 2015 Act, the COLA for each civil penalty is the percent change between the U.S. Department of Labor’s Consumer Price Index for all-urban consumers (CPI–U) for the month of October of the calendar year preceding the adjustment and the CPI–U for the month of October of the previous calendar year. Any resulting increase must be rounded to the nearest $1.

*          *          *

To derive the 2017 adjustment, the FAA must multiply the maximum or minimum penalty amount by the percent change between the October 2016 CPI–U and the October 2015 CPI– U. In this case, October 2016 CPI–U (241.729)/October 2015 CPI–U (237.838) = Multiplier (1.01636).5 Accordingly, the agency multiplied the civil penalty maximums and minimums provided in current 14 CFR 13.301 and 406.9 by 1.01636 to derive the updated maximums and minimums provided in this final rule.

Relying on an interpretation of the 2015 law from the Office of Management and Budget, the FAA did not issue a notice of proposed rulemaking for public comment. This final rule changes the minimum and maximum penalties effective April 10, 2017, the day the rule was published in the Federal Register.

The FAA’s space transportation regulations do not contain minimum or maximum penalties like the FAA’s aviation regulations do. Instead, the commercial space regulation, 14 C.F.R. § 406.9, implements the single penalty listed in 51 U.S.C. ch. 509 (aka the Commercial Space Launch Act). When Congress initially granted the FAA the authority to impose civil penalties, it capped the amount at $100,000.00 per violation per day. 51 U.S.C. § 50917. The United States Code still says that. With the passage of its various inflation adjustment laws, Congress mandated a global search and replace on civil penalties, including those imposed for violations of space regulations. Thus, the FAA’s own new requirement now says:

14 C.F.R. § 406.9 Civil Penalties.

(a) Civil penalty liability. Under 51 U.S.C. 50917(c), a person found by the FAA to have violated a requirement of the Act, a regulation issued under the Act, or any term or condition of a license or permit issued or transferred under the Act, is liable to the United States for a civil penalty of not more than $229,562 for each violation. A separate violation occurs for each day the violation continues.

The FAA will not necessarily claim a civil penalty as high as that, and, to my knowledge, has yet to do so.  Agencies are allowed discretion in deciding the size of a penalty, and will typically attempt to impose smaller fines for first-time violations.

 

 

 

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Deadline Extended in FCC Satellite Rulemaking

If you are following the Federal Communications Commission’s rulemaking for Non-Geostationary, Fixed Satellite Service System and Related Matters, the FCC extended the deadline for reply comments on its proposal until April 10:

the International Bureau, pursuant to delegated authority,extends the deadline for reply comments to be filed in response to a NPRM concerning potential changes to the U.S. Table of Frequency Allocations contained in part 2 of the Commission’s rules and to part 25 of the Commission’s rules governing satellite communications. Interested parties will now have until April 10, 2017 to file reply comments.

Unlike the Federal Aviation Administration, the FCC regularly provides an extra comment period.  In the first comment period, any interested person may file comments on the agency’s notice of proposed rulemaking.  Then, all these interested persons go and read each others’ comments, are shocked and appalled or really like something they hadn’t thought of, and get another chance to comment to the FCC in reply to the first round of comments. Since some of them are competitors, this makes life interesting.

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NTIA Advisory Committee Meeting

The Commerce Spectrum Management advisory committee to the National Telecommunications and Information Administration will hold a meeting on May 4, 2017, from 1 to 4 p.m.  The meeting will be open to the public, and will be held at the National Association of Broadcasters.  Matters to be considered include:

The Committee provides advice to the Assistant Secretary to assist in developing and maintaining spectrum management policies that enable the United States to maintain or strengthen its global leadership role in the introduction of communications technology, services, and innovation; thus expanding the economy, adding jobs, and increasing international trade, while at the same time providing for the expansion of existing technologies and supporting the country’s homeland security, national defense, and other critical needs of government missions. The Committee will discuss early observations and analyses of the topics and questions to be addressed for this session.

The public may comment at the meeting, and may also submit questions in advance.  Further details are available here in the Federal Register notice, and a more detailed agenda will be available here, probably closer to the time of the actual meeting.

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