Programme and Report
19 December 2006
ECSL Practitioners' Forum 2007
‘Recent developments within the European space industry: legal aspects’
Morning Session Chairman: Dr. G. Lafferranderie, ECSL Chairman
10.15 - Introduction
10.30 - Surveying the scene: restructuring and consolidation in the space industry
11.00 - Coffee break
11.30 - Issues under the UN treaties: nationality of companies & responsibilities of states
12.00 - Questions, answers & discussion session
12.30 - Luncheon
Afternoon Session Chairman: Dr. F.G. von der Dunk, ECSL Practitioner's Forum Coordinator
14.00 - The ESA regime, fair return and the consolidation of European space companies
14.30 - The case of GMES
15.00 - Tea break
15.30 - Questions, answers & discussion session
16.00 - Concluding remarks
17.15 - Drinks
Report on the 2007 ECSL Practitioners' Forum
The 2007 ECSL Practitioners' Forum was organised on 27 April at ESA Headquarters, by the ECSL Executive Secretary, Mrs. N. Faye, in cooperation with the Coordinator of the Practitioner's Forum, Dr. F.G. von der Dunk (International Institute of Air and Space Law, Leiden University).
The theme was “Recent developments within the European space industry: legal aspects”. The forum was attended by some 40 participants from various institutional, commercial and academic professions.
After some welcoming words on behalf of ECSL by Prof. S. Marchisio (Vice-Chairman of ECSL), Dr. Von der Dunk introduced the theme.
He said that this year, the Forum will deal with major developments going on within the European space industry environment, relating in particular to the restructuring and consolidation on a corporate level, where we have seen and are still seeing a movement of convergence, joint venturing, takeovers and statutory consolidation.
From a legal perspective, this raises some serious legal issues, e.g. under international space law and the UN treaties as to the nationality of companies and consequent responsibilities for states to exercise jurisdiction and control or to register with the UN; under the ISS arrangements on the state whose "related entity" a company now should be deemed to be; under the ESA legal regime with regard to such issues as fair return; and under the EC legal regime as to competition. An interesting example of the latter would concern the concession bid for the Galileo operator, which finds at the end just one mega-consortium, combining most of the major players into one, negotiating with the public authorities. Finally, there might also be some transatlantic issues related to US-European cooperation and joint ventures, as well as cooperation with other states, which should be investigated and discussed.
The second speaker was S. Bochinger, Director Institutional Affairs with Euroconsult (Paris), who addressed the question “Surveying the scene: restructuring and consolidation in the space industry”.
He offered an extensive overview of what is the space industry and who the actors are of the different sectors of this industry, in particular highlighting the upstream (satellite manufacturing and launch services) and the downstream (satellite sector) parts, without forgetting to analyse the satellite operators. The downstream parts of the value chain however constitute by far the most important in terms of commercial revenues.
He furthermore pointed to the distinction between government markets (military and civil) and commercial markets, where the government markets are the captive markets essentially for national companies. This brings in the issue of nationality of companies as an important line of defense against the cyclical character of the commercial markets; and many companies that could base themselves on captive government markets were seen to largely move out of commercial markets especially in the United States, whereas European companies were much more dependent on commercial markets and could not exit so easily (unless by going broke).
In the geostationary satellite manufacturing business concentrations are taking place with a few major companies worldwide, in other words a process of globalisation, but then also new entrants from non-GEO markets are seen to enter the GEO market. In addition, currently many companies are moving more into a vertical integration process.
Finally, the speaker noted that in the downstream value-added sector consolidation takes place almost exclusively within national borders – even within the European Union, and in spite of its politico-economic-legal drive towards harmonisation and an Internal Market tout court!
The third speaker was Prof. A. Kerrest de Rozavel, University of Western Brittany, on “Issues under the UN treaties: nationality of companies & responsibilities of states”.
He analysed the responsibility of States under Article VI of the Outer Space Treaty and liability of the “Launching State” under Article VII and the Liability Convention. As regards the two possible interpretations, he noticed that European states should have a common position on the interpretation and implementation. In fact, globalisation is characterised by the interest of legal competition and shopping, which must be maintained in order for such competition to remain fair.
In this context, his analysis of Article VI harked backed to the issue of the nationality of the company, as this Article refers to “national activities” and the “appropriate State”, and speaker considered ‘national activities’ to refer to ‘activities of nationals’. As for Article VII, a recent interpretation seemed to be gaining ground that if a non-governmental entity launches or procures the launch, this would not make the state of its nationality a launching state, which was contrary to the more ‘traditional’ interpretation whereby such launch does make such a state liable.
He consequently posed the question: what is the proper interpretation in accordance with the 1969 Vienna Convention on the Law of Treaties. He firstly discussed the context of the provision, whereby Article VI provided for the inclusion of private activities, and non-English versions equated responsibility and liability. Secondly, he focused on the object and purpose of the relevant clauses, which was to find someone (some state) liable, calling for a broad interpretation. Furthermore, he noted that if a state did not qualify as a launching state, then it also would not qualify as a registration state under Article VIII of the Outer Space Treaty and the Registration Convention.
Thirdly, speaker discussed subsequent agreements as a means of further interpretation, of which there was actually one: the 1988 US-China agreement for launches from the PRC, where in Article 2 the United States considers itself a launching state for privately-paid launches by and from the PRC.
Fourthly, the issue of subsequent practice was surveyed. Essentially, there was no practice so far, except in the neighbouring area of registration. If a state registers a satellite owned by a private entity and launched from another territory, then a broad interpretation is (apparently) applied. Then, there was one example of a unilateral declaration, by the United States, on the registration of satellites owned by US operators regardless of where they were launched; an example currently being followed by France as it was to be implemented through the national space law close to being enunciated. Finally, there were further examples of national implementation, e.g, the US Commercial Space Launch Act and two recent US studies, which were all in line with a broader interpretation, as were the UK Outer Space Act, the Swedish Act on Space Activities, and the national acts of Belgium and Australia.
Speaker noted furthermore that the attractiveness of the US Commercial Space Launch Act and the French draft law also derived from the unequivocal establishment of a ceiling of liability and insurance, which establishes legal certainty for companies rather than forcing them to ‘bet the company’.
Within the context of European space activities, it is impossible to maintain the liability for the state of the territory of launch refusing to accept the liability of the state procuring the launch, which will take the most important profit of the activity. By controlling launches, the states of territory will have to be sure of a good share of the burden of the risk. They will do it by passing laws to be able to do so.
After lunch, under the Chairmanship of Dr. Von der Dunk, the afternoon session was opened by Mrs S. Groth, from the European Commission, on “The case of GMES”. She started her presentation by making an overview of what is the ‘Global Monitoring for Environment and Security’, raising the issue of the involvement of industry in GMES in liaison with the impact of space on the economy.
She pointed out that as a matter of fact the day before the Communication on European Space Policy had been formally agreed upon, which includes GMES as a major cornerstone for the future European economy and society as far as involving space activities and programs. As she said, Europe needs strong and globally competitive companies in the development and manufacture of space systems, related areas and value-added services, as these are critical to key areas of the economy.
Speaker furthermore discussed the fact that GMES also functions as a contribution to GEOSS, the Global Earth Observation System of Systems stemming from a respective US initiative, but that GMES at the same time was going considerably further in a number of respects. This logically followed from the crucial involvement not only of ESA, but also of the Union and its legislative machinery in the GMES project. She explained that GMES will use to the maximum extent possible existing products and services, including private ones, which inter alia raised the question where and how such private players would come in: would there somehow be a consortium/concessionaire in between, as satellite operator, somehow along the lines of Galileo, which upon closer look however did not offer too much relevance for GMES from such a perspective.
Speaker pointed out that the first three operational services were envisaged already by 2008, likely involving satellites (but without further specifications as to which satellites yet being offered), in order to also fulfill the task of GMES in enhancing space industry efforts within Europe – as part of the European Space Policy agreed upon. Finally, she briefly discussed several of the specific legal questions involved, as they related to space law, EU law, data issues, and security, pointing out that considerably more research would be required in this respect.
The final speaker was Mr Eros Pittarelli, ESA, Head of the Procurement Policy, Coherence Achievement Division, who discussed the sensible topic of “The ESA regime, fair return and the consolidation of European space companies”. After having set up the objectives of ESA industrial policy and Article VII of the ESA Convention (worldwide competitiveness, cost effectiveness and free competitive bidding, where these may conflict with the ‘fair return’ principle), he pointed to the greater flexibility of the fair return-approach already as of 2001, with the possibility of ex post facto-readjustment being introduced. He also pointed to the fact that large system integrators competitive in world-wide arena have come about as the consequence of such ESA space policies using the Article VII-objectives in a balanced manner, inter alia leading to more vertical integration which was important from an economic perspective. He also noted however, that small system integrators such as SSTL now found themselves more and more supported by ESA.
Increased harmonisation of ESA activities with national activities, including selective procurement policies aimed at guaranteed participation in SME’s and the new procurement strategy decided in 2001, amounting to selection of the prime contractor towards the end of the definition phase was also helpful – there simply often was no room in Europe for two consortia able to take a whole project upon their shoulders. In addition, some sort of control over the selection of sub-contractors by the prime contractor, which included the use of an ombudsman, were implemented.
Further reform of procurement rules however continued to be on the ESA agenda, and led to a next reform of ‘fair return’ in 2005: the flexibility was increased as lower levels are dealt with, moving from global (programmes as a whole), through individual programmes to individual programme elements; more weighting factors were included to weigh technological value with the purpose to arrive at more structural restructuring.
Finally, speaker explained from this perspective the FINPOL (‘Financial Policy’) reform and IDWG. The new FINPOL system, in use since 1 January 2006, is helping ESA to adapt itself at a time when most countries face restrictions in their national budgets and their contributions need to be justified and used as efficiently as possible. The various flexibility-systems put in place, beginning in 1998, produced important improvements in the yearly consumption of ESA budgets, but they had their drawbacks. FINPOL is a simpler, more transparent system, providing greater flexibility for programme managers and ESA member states.
An interesting and extended discussion followed, which was summarised by the afternoon session’s Chairman, Dr. Von der Dunk. He reiterated the fundamental need to reinforce the European industry’s position not just in the European context, but also with a view to the global playing field.
Finally, on behalf also of Dr. Lafferranderie he thanked ESA and its Director-General for usage of the main Room at ESA Headquarters, ECSL for organising the Forum, especially Mrs. N. Faye, Executive Secretary of ECSL, as well as all speakers and the audience, and invited all present for drinks.
Frans G. von der Dunk