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U.S. Department of State

Diplomacy in Action

89. Memorandum re U.S. views on draft space assets protocol to the Cape Town Convention (October 29, 2006)


TO: Space Assets Working Group
International Institute for the Unification
of Private Law
Via Panisperna 28, Rome Italy

FROM: Harold S. Burman
Office of Legal Adviser

Re: US views on aspects of the Draft Space Assets Protocol

In response to questions about the policies underlying certain of our positions at the London meeting of interested states and industry representatives, we are providing the following information. It should be noted that, given changing developments in this new field both as to technology and policy, the views herein expressed will be reevaluated and may be amended when intergovernmental negotiations resume.

We have been asked about (a) our views as to the relationship between the draft Unidroit space finance protocol and the 1967 UN Outer Space Treaty (OST). and (b) whether the concepts of financing rights therein are drawn from existing international regimes such as that in place for commercial airspace.

As to the first, we have proposed, with the support of a number of States, that the draft protocol expressly provide that it does not alter or amend rights and obligations of states parties to the OST or the treaty undertakings set forth in the organic acts and subsequent instruments of the International Telecommunications Union (ITU). It is our understanding that there is agreement on this point which will be reflected in a subsequent draft. This is consistent with the views expressed at the UN Committee on the Peaceful Uses of Outer Space (COPUOS), where it was generally concluded that there was no apparent conflict between the two, but also agreement that the Protocol should not be a basis on which a state might argue that it was not obligated to adhere to the OST provisions if it were a party to both.

That said, the absence of definitions or agreed interpretations of key OST terms and provisions, plus the diverse practices that have arisen as “national means of implementation” of the OST, creates uncertainty as to the intersection of rights or obligations of states under OST and future transacting parties under the protocol. This has led to the avoidance in the protocol of terms used in the OST so that cross interpretations are not required. It has also supported the approach of the protocol, consistent with the underlying Cape Town Convention, of avoiding concepts of ownership of space assets, leaving the latter to other law. This in turn has raised the issue of the nature of such financing rights and their relationship to otherwise applicable property law regimes, if any (some read the OST as disapplying land-based property laws as an adjunct of the preclusion of state assertions of sovereignty).

The draft protocol instead focuses on financing rights only as between transacting parties and others acting in reliance. The underlying Cape Town Convention on mobile equipment financing provides a framework for the creation of secured financing rights in equipment, and for priority based on filing in a treaty-based international registry, which will prevail in most cases over otherwise valid domestic-law rights. As applied to aircraft under the first protocol to the Cape Town Convention, in force since March 2006, it already covers over fifty percent of the world’s commercial aircraft transactions.

Extending that regime on the same basis to interests in outer space was initially seen as a feasible goal. It was however concluded that the treaty basis of “law” and rights in commercial airspace was not compatible with that of the OST. The 1944 Chicago Convention, the 1948 Geneva Convention on nationality and certain rights in aircraft, and related undertakings are premised on territorial-based rights extended to overhead airspace, which are in turn modified and made subject to the Chicago Convention’s collective approach and regulatory regime under ICAO. Since the OST precludes assertions of sovereignty in outer space by states parties, which covers close to 100 states including all “space faring” states, together with endorsement of the principles of the OST by UNGA resolutions, that approach would be likely to be rejected by many. Indeed the US along with almost all states at COPUOS have not supported territorial-based rights in space asserted by some countries over which geostationary satellites are in orbit.

Other available regimes have not proven acceptable. The “common heritage” provision has not had an agreed interpretation, and the effort to create an interpretation parallel to the Law of the Sea Convention (UNCLOS) in the fifth and last of the OST-based treaties, the so-called “Moon” treaty, has had but few ratifications and joined by no substantial space faring state. It is unlikely politically that an approach drawn from Chapter 11 of UNCLOS which would subject commercial rights in space to regulation by a new treaty body would be possible at this juncture. The legal framework for states party to the Antarctic treaty would similarly be unlikely at this stage to gain agreement, although proposals to examine that precedent have been made.

The approach of the Cape Town Convention by contrast has been seen as achievable, and has been implemented recently for airspace, thus providing a substantial base for support in the aerospace sector. Since it is limited to financing rights of transacting parties, it may be possible without engaging the more political issues referred to above to create sufficient commercial rights both to income produced and recovery of assets of defaulting borrowers so as to create potential sources of credit. It should be noted that the final arbiter, should states ratify such a regime, remains the capital markets and market assessment of risk versus the degree of assurances provided by the space protocol.

Other OST state obligations are not expected to affect the drafting of financing rights as between transactional parties. Residual state party responsibility and liability as a launching state or otherwise could attach, for example, to damage caused by a satellite under OST or the OST Liability Convention (cases of such damage or application of these provisions are rare so there is no basis on which to assess their application). While this is unlikely to affect private financing rights under the protocol per se, it could affect the assessment of residual risk and therefore the credit rating of such transactions. Current regulatory regimes of states parties to the OST make cross-over issues such as this at present unlikely.

It should be noted here that the new space assets registry that would be set up would be completely separate from the OST-based registry managed by the UN staff of the Outer Space Affairs office (OOSA) in Vienna. Non-registration or inaccurate registration of a satellite at OOSA for example should have no effect on potential rights of transacting parties that could be established pursuant to filing in the Cape Town space registry. The space assets registry itself would not establish rights, but would position a claimant if a contest arose to have priority if its interest can be proven and it was first to be filed.

An additional point might be noted. The views expressed by the US in this negotiation and parallel views of many in the space and telecommunications sectors have been premised on analyses of the known risks and economics of the manufacture, launching and operation of satellites and the provision of commercial services in orbital space. No attempt has been made to estimate these factors in terms of any possible future commercial activities on stable bodies beyond earth atmosphere.

We hope these comments will assist in clarifying our posture and look forward to the resumption of negotiations.

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