Description of sector
The global space economy market is valued at between £155 billion and £190 billion, and it is estimated to grow to £400 billion by 2030.1 The UK space sector has trebled in size in real terms since 2000 (see Figure 1). With a turnover of £13.7billion (2014/15), the UK currently captures between 6.3% and 7.7% of the global market.
The UK’s Critical National Infrastructure uses the space sector for defence, the emergency services, environmental monitoring, flood response and other essentialfunctions of the state
Skills
Employees in the space sector are on average the highest qualified by sector in the UK, with three out of four space sector employees holding a higher education qualification. Each direct UK space sector job supports another two employees in the supply chain and supporting sectors. Total estimated Type II employment (including indirect and induced jobs) is more than 115,000 jobs.
Together with its highly skilled workforce, the sector’s low volume, highly specialised production means that the movement of skilled business people within and between companies is an essential part of the sector’s business model. Major companies in the UK space sector have a multi-national structure with business units and teams spread around Europe. The sector’s trade association, UK Space, estimates that 11% of UK space sector staff are non-UK nationals.15
The current EU regulatory regime
Space became an explicit EU competence in the Lisbon Treaty. One of the EU’s largest space programmes (Galileo and EGNOS) was initiated much earlier under a trans-European Networks legal basis. The space programmes are established through EU Regulations synchronised with the EU budget period (currently 2014- 2020) that set the budget and objectives. Specific adjustments have been made to the EU procurement rules to allow the Commission to contract for space programmes in a way that reflects the peculiarities of the sector. Some security elements of these EU space programmes are restricted to EU Member States (e.g. the Copernicus security and emergency management services, Galileo’s Public Regulated Service,the right to manufacture specific receivers for Galileo signals) creating marketsexclusively for EU companies.
The technical and financial aspects of major space projects mean that collaboration at the European level is a feature of the space sector. Institutional support (domestic,EU and European Space Agency) is frequently needed to support technological innovation or to establish new systems and infrastructure.
EU activity on space has always had an explicit civil focus for reasons of Treaty competence, even though the systems developed have clear utility to both the civiland the defence sectors. The EU has allocated around €12bn on various space initiatives and projects between 2014-2020:
a. Galileo and EGNOS – €7bn29
b. Copernicus space element – €3.4bn30
c. Horizon 2020 space element – €1.5bn
61. The UK space sector receives EU funds through the following routes:
Grants.
UK companies and research institutes have successfully bid for around 9-13% of the available H2020 budget awarded so far in 2014 and 2015. Grants have funded research on a wide range of issues from space science, space exploration, technological innovation and the development of commercial services and products based on space technology. Horizon 2020 grants are also used to develop technology that will form the basis for future evolutions of the EU space systems Galileo, EGNOS and Copernicus. Horizon 2020 grants are also used to develop the European Space Surveillance and Tracking capability with
around €150m expenditure forecast in the budget from 2014-2020. The UK is part of a 5-nation consortium currently influencing direction and benefiting from these grants.
Procurement.The EU’s space programmes are procured directly by the European Commission through competitive procurement processes (they use procurement agents on their behalf for some of this). €3.5bn of contracts to design, build, operate and replenish EU space programmes are out to tender at present. UK firms currently hold Copernicus data processing contracts providing data from the satellites to run the Copernicus Services. These contracts are worth €23m to 2020.
The European Centre for Medium-Range Weather Forecasts operates the Copernicus Service Climate and Atmospheric Monitoring System from its offices in Reading on behalf of the EC, handling service budgets in excess of €60m p/a. Over the next three years, the European Commission is expected to release invitations to tender totalling €165m for running the Copernicus Climate Change Service. Beyond 2020, up to €5bn could be spent on contracts for next generation of Copernicus satellites.
Loans. Space companies are able to access European Investment Bank loans.
The EU is also an export market for the UK sector; a standard-setter; a source of imports and skilled professionals; a facilitator of the free flow of personal data; a customer for space projects and systems; and a facilitator of R&D collaboration.
EU frameworks and rules that establish free market access for goods and services are relevant to the sector. Manufacturers benefit from free trade within the EU for low-cost movement of parts and people to enable the sector’s mobile workforce to follow space projects around Europe (see the Galileo supply chain in figure 4).
Rules that facilitate and guarantee the free transfer of personal data within Europe play a part in the current business model for the sector, where telecommunications data crosses between the UK and the EU for operational reasons.
The UK is also a member of the European Space Agency (ESA) which is not part of the European Union. The ESA has established standards for its suppliers for equipment and products for use on space missions. These are increasingly used by other space faring nations in their own procurements.
Sector-Specific Rules
The EU has not established internal market rules that directly apply to the space sector (there was an attempt to do so in 2015 but it was withdrawn under pressure from Member States, including the UK). However, some space services do fall within the scope and benefit from EU regulatory frameworks; for example, the Telecommunications Directive, the Audio-Visual Directive, and broadcast and personal data transfer rules.
Trade Rules for Non-EU Countries
In addition to the rules and standards set out above, non-EU countries trade with the EU in accordance with WTO rules and, where relevant, EU Free Trade Agreement (FTA) commitments. Tariffs particularly affect the upstream ‘space manufacturing’ sector.
The EU Most Favoured Nation tariffs for ‘telecommunications’ and ‘other’ satellites are 3.2% and 4.2% respectively, and the tariff for launchers is also 4.2%. Parts for the aforementioned items are lower at 0% for telecommunications satellites and 1.7% for other satellites and launchers. EU tariffs on intermediate goods or inputs are also significant, although these are not space sector specific; for example, batteries, turbines and valves. Any goods imported under tariff preferences provided for by a Free Trade Agreement are likely to need to comply with preferential Rules ofOrigin.
Trade is also affected by a series of Non-Tariff Measures (NTMs). For goods, this includes compliance with EU technical standards and dual use controls, as well as the normal EU customs rules and procedure. In terms of procurement, in some cases aspects of the EU’s own space programmes are reserved for EU industry due to security concerns.
Services trade – particularly affecting ‘satellite applications and services’ and ‘space operators’ and ‘ancillary services’ – is determined by EU member states’ regulations, including restrictions on the establishment of commercial presence (affecting FDI) and the movement of business people (affecting inter alia intra-corporatetransferees).
International Rules and Standards
A number of international rules and standards apply to the space sector. There are five main UN Treaties, four of which place international legal obligations on the UK and other countries with respect to activity in outer space.
The UK develops its position in these UN bodies through its own legal and policy frameworks. Often these are in partnership with other Europeans, but none are subject to EU rules or formal EU coordination.
There are also voluntary international technology control regimes, such as the Wassenaar Arrangement and the Missile Technology Control Regime, to which the
UK and other EU Member States belong, and which apply to some space technologies.
The International Traffic in Arms Regulations (ITAR), operated by the USA, affects space export activity, since much of the space sector has military users as well as civil users (it is ‘dual-use’).37 EU companies have to comply with these requirements to use certain US sourced products, many of which are components for satellites, which has an impact on the manufacturing sub-sector. The use of non-ITAR technology is not controlled.
The key set of rules and regulations in satellite telecoms (the most commercial market) are set by access to spectrum which is managed through the World
Radiocommunications Conference. At this international gathering at the International Telecommunication Union in Geneva, Switzerland, terrestrial interests compete with satellite interests for valuable spectrum. The EU takes part in the meeting, but national agencies nominate their own policy objectives.
Standards and requirements for Earth observation data are set in various international bodies where the UK is represented and is influential.
Existing frameworks for how trade is facilitated between countries in this sector
The arrangements described in this section are examples of existing arrangements between countries. They should not be taken to represent the options being considered by the Government for the future economic relationship between the UK and the EU. The Government has been clear that it is seeking pragmatic and innovative solutions to issues related to the future deep and special partnership that we want with the EU.
International agreements in manufactured goods, services, access to public procurement markets and collaboration on scientific research are relevant to the space sector. Non-EU states have negotiated agreements with the EU on space related matters, including participation in EU space programmes.
International Agreements
Galileo and EGNOS Satellite Navigation Programmes
Agreements have been reached covering collaboration on space related matters. For Galileo, the EU has Cooperation Agreements on satellite navigation with countries including China, Korea, Israel, Morocco, Norway, Switzerland, Ukraine and USA. Other agreements exist covering more extensive participation in the EU space programmes. Details of these can be found below:
o Switzerland has a Cooperation Agreement on the European Satellite Navigation Programmes to participate in parts of the Galileo and EGNOS programmes. The agreement sets out a series of principles of cooperation,including a principle of unrestricted trade in European satellite navigations goods in the EU and Switzerland. It grants Switzerland certain rights in theprogrammes.
o Cooperation agreements with the EU on aspects of the programme were signed with Korea (2006) and Ukraine (2013) covering co-operative activities in the areas of scientific research and training, industrial cooperation, trade and market development, standards, certification and regulatory measures, regional and local augmentations.
o Norway participates in elements of the programme. Norwegian companies are able to compete for contracts and Norway hosts parts of the system infrastructure on its territory. Participation in the programme is granted through the EEA agreement and a separate Cooperation Agreement on Satellite Navigation. Norway are currently negotiating access to PRS (thesecure signal).
o The United States and the EU are beginning negotiations to allow the US access to the Public Regulated Service.
Copernicus Earth Observation Programme
Norway and Iceland have an agreement with the EU providing for participation in the programme and access to data and services, including the right for their industries and institutions to bid for contracts. They participate fully in the EU programme committees, but without the right to vote. As above, these agreements include financial contributions by Norway and Iceland, provided for by the EEA Agreement.
The USA and Australia have signed cooperation agreements with the EU on a ‘no exchange of funds’ basis. Both countries provide contributions in the form of mirror sites to store and distribute data in their regions. In the case of the USA, there is also a reciprocal open data agreement on Earth observation data. Australia’s agreement enables fast access to Copernicus satellite data through the establishment of a regional data access and analysis hub.
Free Trade Agreements (Manufacturing Sub-Sector)
Customs
There are many customs facilitation arrangements in international agreements. These include the EU’s agreements with a number of third countries, such as Canada, Korea, and Switzerland. These agreements differ in the depth and scope of customs facilitation offered. Examples of customs facilitations include: simplifying customs procedures, advance electronic submission and processing of information before physical arrival of goods, and mutual recognition of inspections and documents certifying compliance with the other parties’ rules.
Tariffs
In the absence of a preferential trade agreement, goods imported into the EU from non-EU countries must pay a tariff. Tariffs are custom duties levied on imported goods. Under WTO Most Favoured Nation (MFN), a country’s tariff schedule must be consistent for all countries it trades with, except those where a preferential tradeagreement exists. EU MFN tariff rates vary depending on the good.
Tariffs particularly affect the upstream ‘space manufacturing’ sub-sector. Tariffs include those levied on final satellite products, and those levied on component parts of satellites. These are often not specific to the space sector, and include a variety of intermediary goods such as pressure-reducing valves, batteries, inertial navigation systems, and radar apparatus among many others.
Rules of Origin
The EU includes rules of origin in all of its FTAs, which are restrictions on the originating content of products that exporters must comply with to gain tariff preferences. These rules typically reflect both the supply chains of both the EU and its FTA partner. Many of the EU’s rules of origin arrangements are based on the Regional Convention on Pan-Euro-Mediterranean Preferential Rules of Origin, which includes provisions that allow producers to treat content from some third countries as if it comes from their own country. Several arrangements aim to reduce the administrative requirements associated with origin certification, including the EU’s Registered Exporter (REX) system, which lets businesses register for selfcertification of origin using an online system, avoiding paper certificates.
