Space Industry Demonopolization: a Pyrrhic Victory?

The article presents arguments in favor of lifting the state monopoly and illustrates the necessity to comply with Ukraine’s international obligations, based on the norms of international space law norms, and also analyzes the current normative legal act, which was approved by the Verkhovna Rada on October 2, 2019.

Together with the high-tech space industry, Ukraine inherited a state monopoly on the implementation of certain types of space activities from the USSR. The fuse, which had previously allowed the state to keep the industry strategic and economically secure, under control, has turned into a permanent red traffic light for private investment.

Since 2017, the phrase “space monopoly” in one context or another has been increasingly heard in profile publications, from the mouths of professionals and amateurs, and has risked becoming a mainstream marker if it has not been properly reflected in reality.

However, on October 2, 2019, the Verkhovna Rada of Ukraine approved the draft law No. 1071 of August 29, 2019 “On Amendments to Certain Legislative Acts of Ukraine on State Regulation of Space Activities” by 308 votes in a second reading. So the country has an occasion to celebrate. But what are the consequences of a long-sought demonopolization?

Stumbling blocks

First of all, it is worth determining what the state monopoly on space activities was. In accordance with Art. 4 of the Law of Ukraine “On Entrepreneurship” “Activities related to the development, testing, production and operation of launch vehicles, including their space launch for any purpose, may be carried out only by state-owned enterprises and organizations.” In other words, space activities not listed in the aforementioned article (in particular, space research, development, testing and production of non-rocket objects, their repair and maintenance, etc.) could be carried out by private enterprises. 

Another lever of state monopoly was the licensing of space activities. It should be noted here that due to the entry into force of the Law of Ukraine “On Licensing of Economic Activities” in 2015, space activity was removed from the list of economic activities subject to compulsory licensing. In 2018, the resolution of the Cabinet of Ministers of Ukraine abolished the relevant regulatory acts, including the decrees of the State Tax Administration, which determined the procedure for licensing. However, the Law of Ukraine “On space activity” still contained a provision on licensing, that is, in fact it was a “dead” norm, until recently.

The third essential aspect that, when abused, could turn into an instrument of state monopoly, was the control of the central executive authority, the State Tax Administration, over the implementation of foreign economic activity, namely the requirement for mandatory obtaining permits for the subjects of space activity of Ukraine to negotiate with foreign business entities and the conclusion of agreements (contracts).

A year of initiatives

During the 26 years of independence, the issue of legislative reforms in the direction of demonopolization has not been raised once. However, in 2018 the rowing broke. The first sign was the draft law No. 9219 of 18.10.2018 “On Amendments to Certain Laws of Ukraine on Promoting the Development of Space Activities and Attracting Investments in the Space Industry of Ukraine”, submitted to the Verkhovna Rada of Ukraine by People’s Deputy A.A. Teteruk. However, it was rejected without the possibility of referral to the subject of the legislative initiative for re-first reading or revision.

Draft law No. 10096 of February 27, 2019 “On Amendments to Certain Laws of Ukraine on Demonopolization and Development of Space Activity” submitted by the Chairman of the Verkhovna Rada Committee on Industrial Policy and Entrepreneurship V. V. Galasyuk did not even pass the first reading, and therefore could not be sent for consideration by Parliament of IX convocation and fell like its predecessor.

After the unsuccessful experience of both draft laws, the draft law #1071 of 29.08.2019 “On Amendments to Some Legislative Acts of Ukraine on State Regulation of Space Activity” was submitted to the newly formed Parliament. It became the third and victorious initiative for the private sector.

What do these initiatives have in common:

1. a proposal to amend Article 4 of the Law of Ukraine “On Entrepreneurship” to allow the carrying out of activities for the development, testing, production and operation of launch vehicles for non-state entities;
2. deletion of licensing provisions from the Space Law;
3. common to #9219 and #1071 is the introduction of free negotiations with foreign counterparties on space activities, the liberalization of the conclusion of contracts between Ukrainian private space entities and foreign counterparties.

However, draft law №1071 went much further than its predecessors, proposing to introduce a declaration on space activities, which is inherently a mechanism of a communicative nature, as well as to cancel the registration in the Space Agency of concluded agreements between Ukrainian private entities and foreign entities.

“Desired” changes or extremes?

Restrictions on the conduct of certain types of space activities were fully justified at a time when state-owned enterprises constituted the bulk and non-state enterprises only started their economic activity. However, until recently, such a state of affairs made it impossible for private enterprises and institutions to enter the Ukrainian space market having the desire and ability to contribute to the development of the industry. As it was noted at the plenary session of the Verkhovna Rada of Ukraine in the context of the consideration of the draft law #1071 in the first reading, only 5 out of 26 state-owned enterprises managed by the State Tax Administration are profitable today.

It is only natural that the implementation of the New Space concept in Ukraine requires, first and foremost, the evolution of Ukraine’s space law, which contains many archaic provisions.

Novels in space law of Ukraine deserve to be celebrated, because abolishing the state monopoly will create the preconditions for:

• self-sustainability of the space industry (as opposed to the existing deplorable financial position caused by the presence of public institutions’ debt). Today, the only way to revive the industry for Ukraine’s space institutions is to participate in international space programs.
• training young Ukrainian astronauts, improving the training program, and launching them into Earth’s orbit. At present, Ukraine cannot afford to send its own astronaut into space, since the cost of this service with participation in foreign space programs amounts to about $150 million.
• as well as graduates of relevant specialties, which will prevent the outflow of highly intelligent human resources outside Ukraine; (Look at startups founded by Ukrainian citizens abroad, including SpaceBit by Pavel Tanasyuk)
• establishing fruitful international relations with foreign private space companies on a parity basis for the implementation of joint projects, as well as attracting foreign investors to the implementation of Ukrainian projects.

However, the improvement and liberalization of national legislation must take into account the requirements of international space law, in particular in the security dimension, and especially in the context of our country’s desire to harmonize the law of Ukraine with the law of the Member States of the European Union.

Proponents of draft law #1071 have repeatedly appealed to US space law and regulatory practice as exemplary, as America was in the forefront of states that paved the way for private space companies to operate.

However, the analysis of US law demonstrates the following facts (immediately compare to the provisions of the draft law):

1) Private entities should not submit declarations for space operations. However, both licenses and permits are available, though not for activity, but for launch/return operations, launch vehicles, spacecrafts (licenses), and their testing (permits).

According to the declarative principle introduced by draft law #1071, an entity must file a declaration with the permitting authority in order to obtain the right to engage in space activities without obtaining the relevant permitting document from it. In other words, the entry ticket to the market is a declaration, that is, a notice document. It is clear that the ideology of the legislation on the declarative system is aimed at opening the hands of entrepreneurial initiative and minimizing the contacts between the entrepreneur and the official. However, on the other hand, the declarative principle applies only to those types of economic activity that cannot be linked to the threat to the security of the state, the threat to life and health of citizens (scientific space research, development and design of space objects, their repair, including their components and components).

A compromise is to introduce a permit system in Ukraine for the following types of space operations:

• testing and launching of launch vehicles (for testing only if in its course the launch vehicle is launched into outer space);
• launch of the spacecraft;
• the return of the spacecraft or its components to be returned from outer space to Earth;
• control of the spacecraft.

For all other space activities, the declarative principle is acceptable.

2) A variety of agencies are involved in shaping and implementing space policy in the United States, but they do coordinate with one another. The formation function is entrusted to the National Council for Space, and the implementation to the National Aeronautics and Space Administration through the directives of the US President. The National Space Council includes: US Vice President (Chairman), Secretary of State, Secretary of Defense, Secretary of Commerce, Secretary of Transportation, Secretary of Homeland Security, National Security Advisor, Head of National Intelligence, Director of Administrative and Budgetary Management, Head of the National Aeronautics and Space Administration, Chairman of the Joint Chiefs of Staff, Space Policy Advisory Group.

In addition, the United States has a separate body responsible for the activities of private companies in the space industry – the Federal Aviation Administration.

The text of the draft law #1071 of 29.08.2019 stipulates that ensuring the formation and implementation of state policy in the field of space activity is carried out by the same central executive authority.

However, this approach is neither effective nor theoretical.

In theory: Part 2 of Art. 1 of the Law on Central Executive Bodies established:

In practice, the formation of state policy in the field of space activity should be assigned to the Ministry of Development of Economy, Trade and Agriculture of Ukraine, and the implementation – to the State Space Agency of Ukraine.

Instead of merging the said functionality into the competence of the unified central government bodies, it is appropriate to facilitate the adoption of relevant CMU resolutions on the delimitation of these functions, and subsequently to ensure the necessary coordination on the above issues between the Ministry and SSAU (State Space Agency of Ukraine).

However, it is necessary to involve the Security Service, the Foreign Intelligence Service, the Ministry of Defense, the Ministry of Ecology and Natural Resources of Ukraine in the interagency cooperation.

3) In the US, the registration of contracts for foreign economic activity of private space entities does not occur, but very strict export policy in accordance with ITAR (International Traffic in Arms Regulations) and EAR (Export Administration Regulations – Rules) export management).

It was proposed in the text of draft law #1071 to obtain the permission for negotiations for private companies to cancel, and for contracts – to leave registration for public entities and private entities executing public procurement, and for all other private entities – to enter into the accounting of concluded agreements (contracts).

In this context, we note that the Missile Technology Control Regime and the Wessenaar Arrangements, to which Ukraine is a signatory, restrict the transfer of missile technology and its creation technologies to states that are not members of the said treaty. In the event of a breach of contract, the US Department of State may impose primary sanctions on the offending entities and secondary on all their counterparties, as well as on those negotiating with those who are already under secondary sanctions.

In order to ensure that Ukraine complies with the requirements of the MTCR and the Wessenaar Arrangements, the requirement for a permit to negotiate and register treaties (contracts) of the FEA was introduced.

It should be noted that in case of withdrawal of the negotiation permit, it would be necessary to introduce a mandatory registration/accounting of the FEA contract at the project stage, rather than post-factum (registration/accounting of concluded agreements (contracts).

Result

It should be noted that the discussion to improve the draft law continued until the very last moment. On Monday, September 30, the Verkhovna Rada Committee on Economic Development held a roundtable on “Does Ukraine need a private space?”, which resulted in the decision to establish an emergency working group to revise the relevant draft law on the premises of the Space Agency that day. The working group included representatives of both public entities and private enterprises. All parties expressed their position, and seemed to come to a consensus.

However, as the text put to the vote showed, the misunderstandings occurred after the meeting of the working group. The reasons remain a mystery.

Pros:

1. The provisions on the introduction of a permit system for the most dangerous outer space activities have been integrated into the final text, which is a direct implementation of the provisions of the Treaty on the Principles of the Activities of States for the Exploration and Use of Outer Space, including the Moon and other celestial bodies (Space Treaty, 1967), the Convention on Space international liability for damage to space objects (1972), as well as UN General Assembly resolution 68/74 of 11.12.2013 “Recommendations on national legislation relating to research and use the state of outer space for peaceful purposes.”
2. At the last moment it was decided not to merge the Regulations on the Registration of Spacecraft and Unique Objects of Space Activity in Art. 13 of the Space Law. This decision is due to the fact that the mechanism of registration of unique objects (which primarily concerns the objects of terrestrial infrastructure) is used for the protection of intellectual property rights, invented and created in the territory of Ukraine, and the registration of spacecraft in the national register is a mandatory requirement for the provisions of the Convention on the Registration of Space Objects Launched into Outer Space (1975).
3. The relevant restrictions on the space activities of private entities, set out in Art. 4 of the Law on Entrepreneurship. Now private companies can be involved in the development, testing, production and operation of launch vehicles.
4. From the text of the Law of Ukraine “On space activity” the provision on licensing of space activity was finally withdrawn, which brought the said law into conformity with the current legislation of Ukraine.

Cons:

1) Despite the arguments about the inappropriateness of merging the functions for the formation and implementation of state policy in the field of space activity, as well as the explicit agreement of all participants of the working group on this issue in central government organs, in the final text, the specified powers were assigned to one body, the Space Agency. However, the proper editorial work, in order to make this provision look the same in the text of the entire draft law, was not carried out (please refer to Art. 10 of the Law on Space Activities in the new version, where the relevant permission is obtained from the central government body, which implements the state space policy).

In practice, such a norm only exacerbates the institutional situation in the industry, since the Space Agency does not have the necessary organizational and human resources to implement it, nor does it stand any comparison with the successful experience of other states.

By the way, even before the bill appeared, the institutional side of space activities in Ukraine raised a number of questions. In particular, in February 2019, the Office for the Coordination of Space Activities was established at the Ministry of Development of the Economy, Trade and Agriculture of Ukraine, which is responsible for preparing proposals for the formulation and implementation of public space policy. However, no necessary changes have been made to the Ministry’s Regulations to date. In addition, there has been no coordination of activities between the authorized Department of the Ministry and SKAU since the Office was established and up to the present.

2) Due to the introduction of the system of accounting of notices of negotiations and concluded contracts (contracts) of FEA instead of permits and registration, the main form of control over the transfer of missile technology is state export control, which is carried out at the stage of implementation of the treaty that has come into force. So now we will put all our hopes on the State Export Control Service of Ukraine.

3) A number of issues remain unresolved:

• the development of a technical regulation requiring mandatory certification of space activities, taking into account relevant international standards ISO and European Cooperation for Space Standartization, as well as environmental requirements;
• space program issues with the ability to divide it into civilian, commercial and defense sectors;
• development of requirements for keeping state secrets, confidential and restricted information, intellectual property rights for technologies and products;
• development of appropriate permits directly relevant to the technical and operational safety of space flight, since the authorization for the use of airspace by the State Aviation Service applies primarily to public (including military) and civil aviation.

The history of draft law #1071 has become a remarkable case demonstrating, on the one hand, the willingness of the present government to carry out the long overdue reforms and the desire to hear the initiators of such reforms; however, on the other hand, it is an irrational rush in which the focus on detail is blurred, and there is little to no rulemaking.

The new laws are not passed to satisfy the interests of “public players” and “private players” (as it is now fashionable to say). A full-fledged space state has in its arsenal both public and private space operators, and all of them, even those who do not fulfill government orders, by their foreign economic activity, form a sectoral image of the state in the international arena, which, by appropriate echo, influences the activity. both public and private sectors.

The specificity of outer space is that it belongs to no one, and that is correct. But to establish liability for damage/contamination of something that does not have a certain owner, and to ensure practical implementation of this responsibility is not easy. It is the consciousness and expertise of every cosmic state at the level of national law that relies on the whole world.

Each legislative initiative must be characterized by a spirit of statehood and cosmopolitanism, not a separation of public and private interests. We hope that further initiatives to improve Ukraine’s space law will be welcomed by the government just as quickly and with the same readiness to cooperate with the expert environment.