Commercial Quandaries in Space

Introduction

Space is no longer dominated by a mere handful of space capable nations seeking military superiority. Startups around the world are racing to get involved in a growing and dynamic commercial space sector. Companies like SpaceX and Virgin Galactic are joined in the arena by names like Axiom Space and Astroscale. The Singapore Space and Technology Association recently hosted a Global Space and Technology Convention which attracted nearly one thousand participants and 350 companies to showcase new technologies and compete for $150 million Singapore has pledged to invest into the sector (Soh, 2022). Morgan Stanley projects the value of the global space sector to exceed $1 trillion by 2040 (morganstanley.com, 2022).

With this increase in congestion, both in stakeholder participation on the ground and satellites entering orbit, comes a parallel increase in the need to ensure that current international space law remains dynamic enough to maintain stability throughout the domain. The Convention on International Liability for Damage Caused by Space Objects (Liability Convention), which entered into force in 1972, expounded upon the legal foundation of the Outer Space Treaty of 1967, and it was a critical tool for establishing limited dispute resolution between the United States and the former Soviet Union during the Cold War. However, due to globalization and the increasing interdependence and cooperation among commercial entities across national borders, the Liability Convention faces limitations in supporting commercial space. More recently, private space insurance providers have worked to provide instruments that supplement the Liability Convention and support the growing needs of stakeholders.

The global community faces new challenges in addressing collective goals and enforcing established responsibilities. In international law, legal rights correspond with associated legal responsibilities. There remains a potential for commercial interests to exploit loopholes and operate beyond the current legal regime. In particular, the maritime use of flags of convenience to avoid shipping regulations, taxes, and other legal requirements has a possible analog in the space domain. Advances in cyber threat awareness expose the need to focus on creating resilient space systems. A new universal code of conduct for space will need to be sensitive to the benefits of complex commercial arrangements while mitigating the exploitation of these capabilities by actors with nefarious intentions.

The Liability Convention

The Liability Convention was agreed upon by the UN General Assembly in 1971, and it entered into force in 1972 (unoosa.org, 2022). It expounded upon Article VII of the Outer Space Treaty which places international liability for damage on the host nation of the launch causing the damage. The Liability Convention took this idea further, by defining terms. ‘Damage’ includes loss of life and property spanning nations, individual, and groups. ‘Launching’ includes attempted the attempted launch. ‘Space object’ can mean an entire vehicle or its components. The ’Launching State’ is then solely responsible for damage to a secondary space object. In other words, the treaty provides at-fault liability for damage in space and places that liability on the nation or group of nations that launched the at-fault object. Much of the convention explores the means to process claims for compensation. To date, 98 states have ratified the Liability Convention.

Convention Limitations

During the height of the Cold War, when the primary concern in space was avoiding nuclear war between the US and the Soviet Union and space was a sanctuary, the Liability Convention was adequate. Now, while it still works within the current international legal space regime to provide a manner of stability, there are several reasons this treaty lacks significant legal power.

A member state has only been partially made to provide compensation under the authority of this treaty once in its existence. In 1978, Soviet nuclear-powered satellite Cosmos-954 crashed into Canadian Territory (JAXA, 2022). This resulted in a multiyear cleanup, and the Canadian government claimed damages of more than C$6 million. In return the Soviet Union delivered C$3 million in compensation. Satellites can now be much more modular, the result of cooperation by commercial, academic, and national entities around the world. Space system component parts can have varying launch histories. The added difficulties in completing root cause analyses to find fault increases the likelihood the liability convention will have less ability to hold launch nations accountable.

Further, these complexities challenge the idea that a nation can be held responsible for all mishaps in space. The risk of collision with inert objects in Earth orbits is increasing. Approximately 42 percent of the satellites in orbit are inactive (Hussain, 2021). The ESA estimates there are 36,500 objects larger than 10cm, and 331 million objects smaller than 10 cm (330 million objects smaller than 1cm) currently in Earth orbit (ESA, 2022). In 1978, NASA scientist Don Kessler published his findings of a potential debris belt that would render Earth orbits untraversable if left unchecked, due to the cascade effect of debris collision in orbit (nasa, 2022). What is now known as the ‘Kessler Effect’ has edged closer to the realm of physical possibility, and there has been a worldwide push to automate collision avoidance. Space agencies and startups now seek to map space more accurately, create debris cleanup programs, and develop more sustainable practices. The Liability Convention has no proven ability to hold nations liable for damages caused by debris, even if that debris is the result of Anti-Satellite (ASAT) testing.

Analogous customary law of the sea attributes liability to effective control. Effective control has been defined as “the unambiguous exertion of state power in a territory or population” (Nakata, 2014). It has been demonstrated by both possession and by providing examples of governance. The establishment of effective control also requires the acquiescence or abandonment of control of the territory or object by any previous owner. Restricting liability to a launching nation does not allow for instruments that transfer effective control across national borders. As space debris cleanup technologies and programs mature, there will need to be a way to transfer liability of objects to the cleanup program from the launching nation without creating new loopholes that allow launching nations to abandon objects not entering the effective control of a cleanup program.

Finally, advances in cyber threat awareness have exposed the potential for satellites to be hacked by third parties and used for purposes other than those established by the launching party (Kehrer, 2020). Article VII of the Liability Convention excuses the launching state from damages caused to the launching state. Satellites can be hacked and forced to cause damage to a target in space or on Earth. Unless the hack can be traced to its source or its code can be proven to originate with a particular group, the potential for liability is limited. Successful investigations can be covered by criminal law, but adversaries have been known to enjoy international legal ambiguity. Space Force General David Thompson disclosed that U.S.-owned satellites are attacked by adversaries every day with lasers, radiofrequency jammers, near-collisions, and cyber-attacks (O’Neill, 2021). “Thus, cyberwarfare is becoming an increasingly common substitute for and possible precursor to the use of force, rather than simply a complex form of spying—and those methods are now being used in space rather than solely on Earth” (Kehrer, 2020).

Commercial Space Insurance

On February 10, 2022, a launch vehicle developed by a California startup named Astra failed three minutes after launching from the Caper Canaveral Space Force Station (Wall, 2022). This launch vehicle was carrying satellites from the University of Alabama, New Mexico State University, the University of California, Berkeley, and NASA’s Johnson Space Center (Wall, 2022). Rocket science mishaps are common in the early production phases of national and commercial endeavors alike. SpaceX’s bet on reusable launch vehicles endured years of doubt and questionable profit margins before becoming a dominant NASA contractor. Despite increasing risk mitigation as the science matures, rocketry is still a high-risk and costly enterprise. Commercial Space Insurance instruments have been developed to meet this emerging market.

Space insurance is the third most costly expense in the space domain, behind satellite construction and launch costs (Harrington, 2020). Major existing space insurance providers include such names as Lloyd’s of London, Munich Re, Axa XL, and Allianz (Moorcraft, 2019). The three main phases of space insurance policies include pre-launch, launch and in-orbit. Pre-launch insurance includes construction, systems integration, transportation, storage, launch vehicle integration, and launch pad placement. Launch insurance can be the costliest, and encompasses a three to six months window, from launch vehicle ignition to a satellite’s in-orbit operational capacity assessment. In-orbit insurance, also known as life insurance, can include third party liability and can be periodically negotiated for the operational lifespan of the satellite. The percentage premium rates for each phase are determined by the probability of failure during each phase. However, the increasing congestion of satellites and space debris in Low Earth Orbit (LOE) is incentivizing providers to avoid selling policies that include collision damage (Hussain, 2021).

Flags of Convenience

Flags of Convenience (FoC), the practice of registering and operating ships under the auspices of a nation other than where the ship owner is from, has been commonplace since the 1950’s. The practice of sailing under non-national flags has been documented in such historical settings as the Roman empire and early American merchant vessels wishing to evade Barbary pirates (Bergeron, 2017). ?Of the global merchant fleet numbering more than fifty thousand ships, more than 75 percent are registered under ten flags, including Panama, China, Singapore, Marshall Islands, Liberia, Japan, Hong Kong, Malta, Greece, and Bahamas (Placek, 2021).

FoC’s require the provision of open registries, or national ship registries that permit the registration of any ship from around the world. Smaller nations are somewhat incentivized to establish open registries. They can benefit from tonnage taxes and registration fees, franchise or royalty fees, and reduced government overhead due to outsourcing. Ship owners can also benefit from open registries, by being allowed to do business in a particular region, low tax requirements, less stringent operating regulations, and entry requirements, and streamlined registration procedures. For small or medium fishing enterprises, this could be the only means that enables them to compete with larger counterparts.

FoC’s have faced scrutiny by human rights and sustainability advocates. Less regulation can result in unsafe working conditions and low quality of life for workers. Illegal, unreported, and unregulated (IUU) fishing costs the global economy tens of billions of US Dollars annually (Petrossian, 2020). Sailing under FoC is not illegal, nor does it automatically equate to nefarious intentions by ship owners. However, it does create oversight loopholes that policymakers and international law have failed to adequately address (Petrossian, 2020).

While FoC’s may seem nebulous, the philosophy driving this business practice is not limited to the sea domain. Multinational corporations also leverage competitive markets to achieve optimal government regulation, tax requirements, export and import controls, and work safety and payment demands. This is the reason globalization has seen the shift of factories from Middle America to certain nations on the Asian continent. Increasing unease in relations between the US and China as well as prolonged supply chain issues due to the COVID-19 pandemic have had a minimal impact on this behavior. According to the American Chamber in Shanghai, of 125 companies who manufacture in China, 72% had no plans to shift production out of China in the next three years (Feng, 2021). In 2015, Pfizer moved its headquarters from the U.S. to Ireland in a “reverse-inversion” merger with a small Dublin-based pharmaceutical company named Allergan to enjoy an eight percent lower tax rate (Mole, 2015). The 2013 collapse of the Rana Plaza garment factory in Bangladesh which resulted in 1,132 dead and 2,500 injured, provided clothes for major brands in the U.S., UK, Spain, Italy, Germany, and Denmark, including J.C. Penny and Walmart (O’Connor, 2014). More than 100 similar factory mishaps have happened in developing nations since then (O’Connor, 2014). FoC’s are not alone in presenting international regulatory challenges.

Advantages of FoC’s in Space

Despite the continued growth of commercial interests in outer space, national space programs and national space investment programs remain the largest sources of revenue in the space domain. Nations seeking to establish their place among space stakeholders and cultivate domestic commercial space markets find space investment promising. Nations tend to be more cognizant of the dual-use nature of space technology and programs. Accordingly, they not only have a vested interest in cultivating their commercial footprint, but they are also responsible for maintaining national security and the protection of their intellectual property.

While commercial and national interests do not always align, they can work together in mutual interest. Pfizer has been a case study in proving that such an arrangement is possible. Although they moved their headquarters to Ireland to avoid high taxes in the U.S., the US government worked closely with Pfizer when investing in the initial development of a COVID-19 vaccine (LaFraniere, 2020). ?A patchwork of cooperation that has existed between the US and academic and commercial entities to facilitate space domain awareness can be leveraged for the spectrum of space activities.

The space domain benefits from an increase in competition among commercial enterprises. Competition cultivates innovation. If startups are allowed to participate in the space domain under FoC’s, not only will this enable an increase of competition among commercial competitors, but it could also force governments to compete to provide more competitive incentives for commercial space enterprises. Nations that seek to monopolize capabilities by restricting transparency could face challenges in a more open market in which rapid innovation alone determines both superiority and profit margins.

Disadvantages of FoC’s in Space

The use of FoC’s in the space domain presents an additional strain on the existing legal space regime. Smaller nations such as Liberia or Panama cannot feasibly provide liability for a high percentage of space launches. Each space launch event would most likely require additional insurance which could be provided by a commercial enterprise originating in a space capable nation that adheres to a high degree of regulation. However, if a private space system launches under the auspices of one of the few nations that is not a signatory to the existing legal regime (the Outer Space Treaty, Liability Convention, Registration Convention, and Rescue Convention) such as Albania, Somalia, or Zimbabwe, it is unclear if any requirements or regulations, including those related to existing space law, would be required. The criminal pursuit of private actors wishing to operate outside of international maritime law finds its space analog.

This opens the door to space piracy. As launch vehicle technology becomes more commonplace and space technology advances, space pirates could find profit opportunities outside existing space law. Space piracy could exploit a wide range of activities in space. Actors could launch unregistered space vehicles but otherwise follow sustainability and safety protocols to provide satellite services or mine space debris or celestial resources. Space piracy could include unregistered actors who weaponize the space domain to hold systems or persons for ransom. It could use cyber warfare to exploit satellite communication (SATCOM) information in transit. When participation in the space domain is no longer cost prohibitive, the only barrier to these actions will be the individual will of bad actors.

Closing Loopholes

Modern attempts to reach consensus among the United Nations General Assembly in space law has proven challenging. In 2008 and 2014, China and Russia presented versions of a draft Treaty on the Prevention of the Placement of Weapons in Outer Space, the Threat or Use of Force Against Outer Space Objects (PPWT) which the United States, Israel, Georgia, and Ukraine opposed on the grounds that it was one-sided (nti.org, 2022). In 2014, Europe proposed a draft International Code of Conduct for Outer Space Activities (ICoC) that also did not reach consensus (nti.org, 2022). In response, the United States appears to be attempting to establish legal norms, including the idea that space is not a global commons, through a series of bilateral agreements known as the Artemis Accords (Steer, 2017).

The existing threats currently posed to space infrastructure by nationally supported actors as well as threats that could materialize soon due to space piracy, seem to require the case for a purely military response. Infrastructure can be made resilient by increasing redundancy and defense in depth postures among satellite constellations. Escalation could require active defensive programs that escort high-value assets or leveraging the dual-use nature of space systems to include active defensive technology. However, a purely military response without establishing a more resilient legal framework will result in further escalation among rival nations.

In addition to an apt focus on national security, the current space law regime needs to be revised to support a more dynamic space sector. An ICoC is needed which allows for the transference of effective control of space objects, and which enables private interests to profit from the sustainable use of space. ?Nations need assurances that they are not giving up their ability and responsibility to protect their borders, assets, and citizens. Companies need the assurance that they will have the opportunity to attempt a profitable enterprise, while ensuring they pay back their initial government investments. This can incentivize stakeholder participation and degrade the incentives for space piracy.

Conclusion

Space is consistently becoming more congested, contested, competitive, and lucrative. As the domain becomes more dynamic, space law also needs to become dynamic to stem escalatory and rivalrous national forces. Moreover, it needs to become more dynamic to support a complexifying commercial sector. Space systems could soon be launching under flags of convenience, and the liability and insurance challenges that exist now will grow exponentially. Space law will also need to meet the emerging risk of space piracy in a way that stifles incentives for actors to operate outside of a legal framework. An International Code of Conduct for Outer Space could supplement the existing legal regime until the international community can reach a consensus on new outer space treaties.

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