Memorandum submitted by the Defence Manufacturers
1. The DMA is a non-profit making Trade Association
representing the UK Defence Industry. It has 370 members ranging
from the largest (BAe, GEC, GKN, Alvis, Vickers, Vosper Thornycroft)
to many small companies including manufacturers, service providers
and Defence executive agencies supplying to land, sea and air
environments. Through a subsidiary (the Association of Police
and Public Security Suppliers) it also represents companies (including
Defence contractors) supplying to the Police, Prison Service,
Customs and Excise etc. Total membership of both Associations
THE UK DEFENCE
2. The UK Defence Industry is a key element
of the UK's Defence capability and a major creator of wealth in
the economy. It has a long and successful history of providing
the equipment required for the UK's Armed Forces. It offers a
full product range from complete platforms (aircraft, warships
and armoured fighting vehicles), through major sub-systems (communications,
radar, propulsion systems, munitions) and support services (repair,
spare parts, training, catering), to basic equipment (clothing,
footwear, tentage, etc.).
3. The Industry, particularly in the electronics
sector, enjoys a world-wide reputation for technical excellence.
Consequently, as well as winning major platform orders, many of
its contracts are for sub-systems and components. There are few,
important Western high technology Defence programmes that do not
have some level of UK sub-contractor participation. The UK has
also pioneered many recent innovations, including the development
of thermal imagers, simulators, and command, control and communications
equipment. It is also a world leader in the development of nuclear,
biological and chemical protection equipment. Much of this
technology has dual-use application in the civilian sector.
4. The Industry, wholly privately owned, comprises
a large number of companies involved partly or wholly in the Defence
business and employing some 415,000 people. This represents around
10 per cent of the UK's total industrial manufacturing workforce
and Industry accounts for about 11 per cent of the country's industrial
manufacturing output. Most of the companies involved are small
to medium enterprises but some are amongst Europe's largest. Ten
companies were listed in the 1995 list of the "Top 100 World-wide
Defence Firms", of which two were in the top 10.
5. Influenced by major cuts in national Defence
spending, and the adoption by the previous Government of a policy
of meeting its' equipment needs through tough, international,
competitive procurement, the Defence Industry has donwnsized and
become highly competitive. In the last decade it has completed
a major restructuring, with the loss of over 300,000 jobs
since 1980 (160,000 of these since 1988). It has also compensated
by increasing, significantly, its share of the world export market.
6. Current MoD business to the Industry is about
£8 billion per annum, with a further £1 billion
given to overseas competitors.
7. Although Defence spending has reduced significantly
as a proportion of GDP (down from 5.1 per cent to 3.0 per cent
in 10 years), the importance of the sector for the Government
cannot be overstated. The Government is its' only domestic customer.
With the exception of roads, Defence procurement expenditure (at
£9 billion per annum) is the only area of major capital spending
left to Government large enough to impact upon the UK economy
for better or worse.
8. The present Government has pledged to maintain
a strong and capable Defence Industry. Defence exports are crucial
to this undertaking. Defence Exports:
(a) Reduce the cost of equipment procured
for our own Armed Forces by amortising development costs across
increased production quantities. The MoD also exacts a commercial
exploitation levy on exports of equipment developed at the UK
(b) Contribute significantly to the UK balance
(c) Account for almost 40 per cent of Defence
Industry business and are, therefore, now critical to its survival,
and are likely to be increasingly so in the future.
(d) Provide employment for over 140,000 people
in the UK. The remaining 275,000 Defence industry jobs not dependent
directly on exports would be at risk were exports to be seriously
(e) Are an important instrument of Foreign
policy for the Government in supporting allies, influencing other
nations, helping to maintain regional stability etc.
(f) Help to improve the prospects of achieving
non-defence export sales to recipient countries
9. The UK Government, mainly through the Defence
Export Services Organisation (DESO), provides strong support for
exports by identifying target markets, supporting the marketing
effort, establishing essential Government to Government links
and liaising with senior civil and military representatives of
foreign nations' Defence establishments. DESO was established
25 years ago by Denis Healey under a previous Labour Government.
The DTI also provides support, in a similar way to that provided
for non-defence exports, by means of subsidies to inward and outward
trade delegations and the Trade Fairs Support Scheme. They also
identify priority target markets for Defence exports, interestingly
not always the same as those identified by the DESO.
10. Industry's general position, therefore,
is that Defence exporting is legitimate and important business,
strongly encouraged by Government and complementary to its highest
priority role of supplying equipment to the UK Armed Forces. It
is a national, strategic asset. That said, it fully recognises
the need for control of Defence exports by Government to ensure
they comply with current foreign and Defence policy aspirations,
including the protection of human rights. It equally recognises
that the decision to allow or refuse exports is sometimes a difficult
one, needing the balance of complex factors such as treaty obligations,
local external threats, regional stability, the importance of
influence, the likelihood of conflict between the UK and the state
concerned, relationships with third party states, intelligence
advice, the nature of the recipient states Government, economic
11. Industry considers that it is not sufficiently
well informed or qualified to make judgments on all these issues
and whether particular exports would or would not serve the UK
national interest. It, therefore, accepts the need for a system
of licensing of Defence exports, whilst having reservations about
the efficiency, effectiveness and fairness of the current system.
12. Defence exports are controlled under legislation
enacted in 1939 to prevent the sale of arms to Nazi Germany. Four
departments of State are involved in the processing of licences.
Initial application is made to the DTI, the responsible Department.
Reference is then made by the DTI, at their discretion, to the
FCO, MOD and the DFID. Over 1,000 licenses a month are submitted
by industry and take many weeks, often months, to process. Very
few are actually refused, reflecting Industry's highly responsible
adherence to the issued guidelines by not making controversial
applications. However, much business is lost to our competitors
as a result of the uncertainties and delays inherent in the system.
This has been severely exacerbated in the last year by delays
consequent upon the Government's review of ethical guidelines.
13. It is often difficult for companies to track
progress on their applications. Some officials are secretive and
difficult to approach, especially in the FCO, and there is sometime
ignorance amongst them about the nature of the equipment involved
and its intended role. Recent examples of delays or refusals include
the sale of spares for British built flail vehicles used by the
Canadians for clearing mines in Bosnia and the sale of
helmets for use by UN Observers in Afghanistan. It is particularly
frustrating that in these, and other cases, business is sometimes
lost to competitors (including from EU countries) who do not have
to seek a licence at all because their governments do not categorise
such equipment as military.
14. Industry's greatest concern in the export
market is its competitiveness. Competition is tough and winning
business requires protracted effort and investment. It is frustrating,
after being encouraged by Government to secure a sale, to lose
a contract to competitors through licence refusal or, worse, bureaucratic
delay. Nations, even those ruled by questionable regimes, will
secure Defence equipment elsewhere if we refuse to sell. Further,
it is not merely a matter of the loss of individual contracts.
A Defence order normally leads to long term involvement in training,
spares support and maintenance. Even if regimes change, the Navies,
Armies and Air Forces of a country are committed to the systems
they have procured. A good example of this is perhaps that of
Spain. In the mid 1960s the UK Government refused to sell naval
ships to Franco. Spain went elsewhere and bought what it needed
then, and ever since, from the USA and France. Today, many years
after Spain achieved democracy, there is little UK equipment in
the Spanish naval inventory.
15. Industry notes the failure of even international
embargoes to control the spread of arms. The consequence of the
embargo on apartheid South Africa was for that country to develop
its own, indigenous, Defence industry. It is particularly ironic
that democratic South Africa, under Nelson Mandela, is now one
of our most effective competitors in the world market.
16. Finally it is worth repeating that, above
all, Industry seeks fairness, clarity and efficiency in the export
licensing process. It believes new, primary legislation is needed,
and welcomes the publication of the 1 July 1998 White Paper on
Strategic Export Controls upon which it will be commenting, in
detail, to the DTI in due course.
It is appropriate, because of its topicality,
to comment on the Sandline affair. Sandline are not members of
the DMA and Industry notes that had Sandline, or their advisors,
chosen to recommend British equipment a licence would have
had to be applied for and, almost certainly, been refused!