House of Commons - Defence

Select Committee on Defence Second Report

DESO'S ACTIVITIES

Main areas of activity

13. The MoD provided a breakdown of the staffing of the broad areas of DESO's work in relation to the activities within its purview (Figure 2).

Figure 2: Distribution of DESO staff
	DESO Staff
Marketing support	22%
Military assistance and exhibitions	17%
Export control, policy and finance	7%
Disposals of MoD equipment	14%
Government-to-government Project Offices	40%
	100%

We explored with Mr Edwards what was involved in some of these activities—

DESO supports the UK's two prime equipment exhibitions, hosting visiting delegations and facilitating contacts between UK producers and their potential customers. DESO recovers about a third of its exhibition costs from industry.[25]

It briefs potential customers on UK defence policies and UK equipment, and supports trade missions overseas, which give particular assistance to small and medium sized enterprises.[26] DESO also advises UK industry on marketing opportunities abroad, including advice on structuring potential 'offset' arrangements that ease the burden of defence imports for customer countries through locally placed sub-contracts and other economic assistance.

DESO arranges demonstrations of equipment, and training for the forces of customer countries through the Defence Military Assistance Fund. The Fund is used, amongst other things, to defray costs of support for defence exports, and DESO has drawn on the Fund to cover costs of training linked to export sales, visits to the UK by representatives of customer governments, and visits abroad by UK Service personnel to discuss operational or support issues for the equipment concerned.[27] The largest beneficiaries of the Fund in the last three years have been Oman, Russia and Indonesia.[28]

DESO has a role in securing export insurance cover for UK defence exporters and discounted interest terms for some of their customers. Between 20% and 25% of the cover provided by the Export Credits Guarantee Department (ECGD) is concerned with defence exports,[29] and the MoD contributed nearly £0.3 million to the ECGD for these purposes in 1997-98.[30]

DESO is responsible for managing three government-to-government export agreements—with Saudi Arabia, Kuwait and Malaysia. Forty per cent of DESO staff are assigned to these project offices, most in the Al Yamamah Saudi Arabian programme.[31] The Saudi programme, now 14 years old,[32] has involved the supply of Tornado and Hawk aircraft, minehunter ships and other equipment.[33] The Kuwait programme, operating since 1993, has involved the export of Warrior vehicles, Starburst missiles and other equipment,[34] although the programme is now in the equipment support phase.[35] Since 1988 the Malaysian Project Office has provided advice to Malaysia on its purchase of Hawk aircraft, radars and frigates.[36]

DESO also has a major role in advising firms on defence export policies, and in assessing applications for export licenses. This important role is discussed in more detail below.

Defence export controls

14. The government criteria for assessing applications for arms exports were revised in July 1997,[37] and in June 1998, under the UK presidency, the EU agreed a Code of Conduct for arms exports.[38] In July 1998, the government produced a White Paper on strategic export controls,[39] which envisaged select committees examining an annual government report on UK strategic exports. In the meantime, the Trade and Industry Committee have recently examined strategic export controls[40]—the DTI take the lead in assessing export licence applications. DESO has lead responsibility within the MoD for the Department's contribution to this process. Its main objective, however, is to facilitate maximum defence exports, and one of its tasks involves advising firms on the implications of the government's exports licencing policies. We raised this apparent conflict in DESO's roles with the new HDES, and asked whether there was scope for tasks to be more rationally allocated between the MoD and the DTI. Mr Edwards told us that—

It is a perfectly legitimate question, and I know from what I have heard that it gets reviewed regularly at least once a year ... Although I have heard it argued that it could be described as an inherent conflict of interest, it works on the basis that [licences are assessed by] a separate group of people inside DESO who are not marketeers ... [and] we have other people whose job it is to sell ... I am not a believer in making a change for some theoretical conflict of interest if there is no evidence that it has taken place.[41]

15. Mr Edwards was clear about his obligations in this area, and no matter how responsibilities might be divided he told us that 'responsibility is the key word, and the discussions that go on to make sure that we are living with the letter, and also the spirit of the words [of the export criteria], are awfully important'.[42] He saw a clear ethical code of conduct for defence exports as an important element in showing that DESO was part of a legitimate business.[43] He also saw the EU arms export criteria 'levelling up' Europe to the UK standard.[44] The government are now considering whether the national and EU criteria ought to be consolidated.[45] At the same time, Germany—holding the EU presidency—are examining options for giving legally binding force to the EU Code of Conduct on Arms Exports, during the annual review of the operation of the Code due towards the end of their presidency.[46] We heard about the bureaucratic export controls of Germany during the Committee's recent visit to Bonn,[47] which were as far as we could ascertain no more stringent in terms of their ethical content than the provisions of the EU Code. Meanwhile, the UK government has drawn the Code to the attention of other arms exporting states, with some aligning themselves with the Code.[48] In relation to potential competition from the US and its adherence to ethical standards in export controls, Mr Edwards told us that he could have 'a useful conversation with the Americans regarding certain exports because British companies own collectively in North America defence and aerospace companies worth more than $6 billion'.[49]

16. We note the increased and more explicitly stated ethical focus introduced by the national export criteria and the EU Code of Conduct. Any measures to give export controls legally binding force should be focussed on the terms of the existing EU Code of Conduct and the procedures already built into it and, over time, on improving it. It is important that rationalisation of export controls across Europe does not mistake greater bureaucracy as a token of greater ethical consistency. It is clear that the approval of export licences for strategic goods is, and will remain, a vexed area of policy. We intend, with other interested committees, to examine the government's new style of annual report on the application of strategic export controls. This will provide a vehicle for a more considered review of DESO's role in the approval process and the question of whether this function sits entirely happily with its prime target of the promotion of defence exports.

25 Ev pp 25, 32 Back

26 QQ 31, 79 Back

27 Letter from Parliamentary Secretary to Mr Menzies Campbell MP, 28 January 1999; placed in Library of the House of Commons Back

28 HC Deb, 16 December 1998, c526w Back

29 Ev p 32 Back

30 HC Deb, 18 January 1999 c310w; and Appropriation Accounts 1997-98 HC1-IV Back

31 Q 55 Back

32 Ev p 28 Back

33 HC Deb 20 January 1999, c458w Back

34 ibid Back

35 Q 59 Back

36 The frigate purchases are still in progress-other elements of the programme have been completed Back