House of Commons - Trade and Industry

Select Committee on Trade and Industry Second Report

II. LEGISLATION AND PARLIAMENTARY SCRUTINY

The 1939 Act

29. Strategic export controls are operated under powers given under the Import, Export and Customs Powers (Defence) Act 1939 — "the 1939 Act" — as amended by the Import and Export Control Act 1990. Section 1 provides for the Board of Trade (now DTI) to make by order "such provisions as it thinks expedient" for prohibiting or regulating, in all cases or any specified classes of cases the import or export of all goods or goods of any specified description. Orders under the Act are not subject to any parliamentary procedure, and are not even laid before Parliament. As the Scott Report pointed out, it was explicitly intended that the Act should continue in force only until the end of the emergency.[15] No Order as was envisaged by Section 9 (3) of the Act was however laid to repeal the Act, and Governments have continued to use what the then Mr Douglas Hurd described in 1980 as "a block - buster within the field that it covers".[16] The Scott Report sets out in detail the sorry story of the failure over many decades of successive Governments, and of Parliament, to set this right.[17] The situation was then made safer at law, but worse in equity and common sense, by the passage of the 1990 Import and Export Control Act, which in effect rendered permanent the granting in 1939 of temporary emergency powers. As the Scott Report put it — "The impropriety in using in peacetime wartime powers of subordinate legislation without Parliamentary control became entrenched de jure."[18] Sir Richard was highly critical of the failure to use this opportunity to import into the Act some provision for Parliamentary scrutiny of Orders made under the 1939 Act, despite consideration of this possibility by Ministers, officials and, apparently, Opposition front - benchers. The question of parliamentary scrutiny of Orders made under the 1939 Act and its eventual successor is therefore of central concern both because of a sorry history of 60 years of failure by Government and Parliament in this regard, and in the light of the attention devoted to it in the Scott Report. Parliament must be vigilant to ensure that new arrangements do not replicate the mistakes of the past.

New or amending legislation

30. The Scott Report recommended "new empowering legislation in place of the 1939 Act". The 1996 Green Paper announced that "the Government has no concluded view on the desirability of introducing new legislation to replace the 1939 Act", noting that the Court of Appeal had recently confirmed the technical propriety of continuing to rely on the Act. The 1998 White Paper confirms the Government's view that new primary legislation is desirable but leaves open the question as to whether this should be by amendment or repeal and replacement. The practical advantage of amending the Act is that other controls relying on the 1939 Act — such as those on heritage items, personal firearms and bovine offal — would remain in place.[19] Much of the 1939 Act has however been repealed or is not used or relied on. While it may be a nuisance to seek new legislative authority for other export (and import) controls, it can hardly come as a surprise to those concerned. For example, as long ago as October 1991 the Review on controls on the export of works of art concluded that it was "curious" that the legal framework for such controls was based on the 1939 Act, and strongly urged specific legislation. In June 1997 the Reviewing Committee on the Export of Works of Art noted in its Annual Report that "The need for legislation relating to the export of works of art not only arises from the fact that the world has changed a great deal since 1952, but also because some people who have appeared before us have questioned whether the same willingness to respect the spirit of the system as well as its letter remains universal." In its October 1998 Annual Report it stated "Times have changed and there is a need for new legislation .... . A legislative slot will be bid for in due course ....".[20] The Ministry of Agriculture, Fisheries and Food (MAFF) have used the powers under the 1939 Act, most recently in 1994 and 1995 to prohibit the export of various specified categories of bovine offal; but these powers have been largely superceded by powers under other Acts, and we understand that in recent emergencies MAFF has judged that these powers are sufficient. It would be in the general interest to have proper new legislative authority for export and import controls, not only for strategic exports, but in other areas as well. We consider that it would in principle be desirable to repeal the 1939 Act and replace it with wholly new legislation, rather than seeking to amend it.

Secondary legislation

31. The Scott Report devoted considerable space to criticising the absence of parliamentary scrutiny of the Orders made under the 1939 Act. Indeed, as long ago as December 1988 our predecessors on the Committee recommended an annual debate on the Cocom Order made under the 1939 Act.[21] The 1996 Green Paper stated the then Government's initial view that "any new legislation should allow for formal parliamentary consideration of rules and orders made under it."[22] In response to unanimous support for some form of scrutiny, the White Paper proposes that the negative procedure should be used, whereby an instrument comes into force immediately but is subject to revocation by Parliament within 40 sitting days.[23] The Scott Report explicitly proposed a form of modified affirmative procedure, whereby an instrument comes into force immediately but lapses after a specified period if not explicitly approved. This would allow for Government to react urgently, while ensuring that every change was debated in both Houses, however briefly. The Government based their rejection of this proposal on grounds of the frequency of amendments of the lists of controlled goods, which would "impose a significant burden on parliamentary time" if requiring approval in every case, and the fact that most amendments were uncontroversial and technical.[24] There have been 12 Orders since 1994 amending the Export of Goods Control Order (EGCO) made in April 1994; and 6 since 1996 to the Dual - Use Regulations made in February 1995, subject to negative procedure. None of these six amending Orders subject to negative procedure has been "prayed against" (the formal mechanism by which any Member may indicate a desire to have a debate on such a document). None of the 18 documents would seem to have been controversial. For example, one recent Order involved the raising of a computer CTP Threshold: the deletion of controls on certain machine tools: and the creation of defined exceptions for specified categories of nuclear - grade graphite. Nor do any of them seem to have been urgent.[25] As the White Paper confirms, most "are needed to update the lists of controlled goods to take account of changing technology, often as a result of changes agreed in the various international regimes on export control in which the UK participate".[26] Most amendments to the Dual - Use Regulations follow at least several weeks after the related decision taken within the EU Common Foreign and Security Policy (CFSP).

32. We are not unduly persuaded by the argument that the form of affirmative scrutiny proposed in the Scott Report would be unduly burdensome on Parliament, nor by the suggestion in the White Paper that, in order to avoid excessive numbers of Orders, amendments would be introduced less frequently, leading to a "less effective export control regime". We do however accept that the substance of changes to the lists are for the most part uncontroversial, and that the modified affirmative procedure would be likely to lead to further very brief and pointless meetings of Delegated Legislation Committees in order to debate wholly technical and uncontroversial measures. In order to ensure that significant changes are not slipped through Parliament without debate, we recommend that (a) drafts of Orders under the new Act be made available to this Committee in advance of their being made; and (b) that the Government undertake to find time for a debate on an Order if at least 6 Members so desire. On this basis, we consider that the negative procedure for orders laid under the new legislation will be found acceptable.

33. Eight Orders amending the 1994 EGCO have been made since the Scott Report's publication in 1996. None has been particularly momentous. None has been laid. While technically available on request, this means that they are notably less conspicuous to Members and others. We recommend that should Ministers wish to make any further Orders under the 1939 Act prior to the passage of new legislation, they give consideration to laying the relevant Order before the House.

Parliamentary scrutiny of primary purposes

34. The Scott Report stated that the absence of any indication in legislation of the purposes for which export controls could legitimately be used had led "to a dangerous confusion between the law on export controls and the Government's policy on export controls," and set out six suggested purposes.[27] We discuss the purposes further in paras 25 - 26 below. The 1996 Green Paper sought views on whether it would be desirable to set out the purposes of export control in legislation: and set out ten suggested purposes on which it invited comment.[28] The 1998 White Paper records "clear support" for the purposes being set out, "with most consultees favouring their inclusion in legislation", although some suggested including them in guidelines "in order to provide flexibility for Government to respond to changing situations". The Government proposes that the new primary legislation should make provision for the purposes of strategic export control to be set out in secondary legislation, subject to the modified affirmative resolution procedure. The Government's concern is to retain "the flexibility to respond to unforeseen circumstances, potentially at short notice".[29] The White Paper then sets out eight suggested purposes to be included in this secondary legislation.

35. It is evident that careful thought has gone into drawing up these proposed purposes. The 1996 Green Paper added counter - proliferation, consideration of the economy of recipient countries, preservation of stability and avoidance of diversion to the Scott Report purposes. The 1998 White Paper further refines the 1996 list, omitting separate reference to human rights abuses, and the reference to achieving "the least diversion for armaments of human and economic resources." In a parallel process, national criteria for export licensing and an EU Code of Conduct have been promulgated, covering similar ground. There have now been 3 lists of possible purposes for inclusion in the legislation, with some significant additions, deletions and re-draftings along the way. It can reasonably be assumed that there are no wholly distinct purposes omitted through ignorance or neglect.

36. We are very far from persuaded that there could be a need to respond urgently to unforeseen circumstances such as to require the immediate entry into effect of a new purpose, presumably to provide legislative authority to block a particular class of goods. If such a new purpose were to be thought desirable — for example, to prevent environmental damage, or to avoid the spread of offensive material — we accept that it would be reasonable for it to have immediate effect, subject to subsequent ratification by Parliament. The list of purposes for which export controls can legitimately be used is at the heart of the proposed new legislation, as the White Paper explicitly recognises.[30] The primary purpose in enshrining export controls in new legislation is to give Parliament the opportunity to debate and decide on the broad purposes for which controls should and should not be used. If the procedure put forward by the Government were adopted, it would be impossible for Parliament to amend the list of purposes. There are genuine and important questions over the phraseology which Parliament is entitled to scrutinise and amend if it thinks fit: otherwise Parliament would in practice be repeating its flawed grant of powers given 60 years ago in an emergency. Even Charles I might have blushed at asking Parliament for powers and proposing to set out later the purposes of such powers in subsequent secondary legislation. We welcome the opportunity to be provided soon for parliamentary scrutiny of the purposes of export controls, and urge Ministers to go the extra distance to provide an opportunity for proper examination and debate. We recommend that the principal list of purposes be set out in the primary legislation: and that power be given to Ministers to amend that list by secondary legislation subject to subsequent ratification by Parliament using the modified affirmative procedure as proposed in the White Paper for agreeing the original list.

Scrutiny of destination of exports

37. Orders made under the 1939 Act, and the Dual - Use Regulations made under the European Communities Act, set out in exhaustive detail the categories of goods which require an export licence, as will the combined Orders envisaged as being made under new legislation. They are however generally silent as to permitted or prohibited destinations. The 1994 Order includes one curious heading — former Group 3 of Part I of Schedule 1 — prohibiting the export of various heavy vehicles to the former Yugoslavia and other provisions relating to controls on the export of aircraft and some other goods to specified countries including Libya, Iran and Iraq.[31] In general, however, control of destinations is composed of several different but overlapping layers, subject to widely varying degrees of parliamentary scrutiny.

(a) United Nations binding sanctions regimes are normally given effect in the UK and Crown Dependencies and Dependent Territories by Orders in Council under the United Nations Act 1946.[32] Such Orders are laid before Parliament but are subject to no parliamentary procedure. There are eight currently in force.

(b) Sanctions decided upon by the EU under its Common Foreign and Security Policy, of which there are currently seven, of varying levels of complexity, are generally first given effect by EC Regulations and then brought into UK law by secondary legislation. In the most recent case, the imposition of an EU embargo on the Federal Republic of Yugoslavia in relation to equipment which might be used for internal repression and a moratorium on export credit, one statutory instrument was made under the 1939 Act prohibiting the export of certain goods specified in the relevant EC Regulation, and was of course not laid before Parliament. A second instrument, making it an offence to infringe that prohibition and providing for a licensing and enforcement regime, was made and laid under the European Communities Act, subject to negative procedure.[33] The recent amendments to the system for handling European Business should in due course ensure some possibility of parliamentary scrutiny of EU decisions to impose sanctions, albeit we suspect often after they have been decided.[34]

(c)There are two embargoes as a result of OSCE decisions, on Armenia and Azerbaijan, subject to no parliamentary scrutiny.

(d)The UK and other nations also operate embargoes at a national level, such as the arms embargo on Argentina in force since April 1982, now under review. In July 1998 it was also announced in a Written Answer that all export licence applications for dual - use items on the Nuclear Suppliers Group List would be denied to nuclear and nuclear - related end - users in India and Pakistan, as well as other goods.[35] None of these national embargoes has required legislation or parliamentary authorisation.

38. In seeking an appropriate degree of parliamentary scrutiny of secondary legislation on export controls, the absence of any equivalent level of scrutiny over the geographical application of controls comes sharply into focus. At a simple level, it is not easy to discover what embargoes are in place, let alone what policies exist in relation to particular countries. The Scott Report reveals the reasons behind the delay in publishing to Parliament the Guidelines on defence sales to Iran and Iraq. We do not know how many similar guidelines are currently in force. If recent amending Orders had been laid and subject to parliamentary scrutiny, Parliament would at least have had a theoretical opportunity to consider matters such as the lifting of the ban on aircraft exports to South Africa and Syria. Were it, to be decided however, to lift or modify the embargo on Argentina, or to adjust the application of the embargo on one (or both) of the countries subject to an OSCE embargo, Parliament would we hope be informed by Written Answer, but would have no more of a formal role than it had over the imposition of an embargo. There are gaping holes in the system of parliamentary accountability governing the framework within which licences are granted, and in particular the geographical application of controls. Replacement of the 1939 Act will go only some way towards improving the situation.

Parliamentary scrutiny of operation of system

39. The 1996 Green Paper sought suggestions for improvements in the information published on strategic export controls, and drew attention to the results of the MOD review of information provided to Parliament on the export of arms and defence - related equipment.[36] Beyond that, it did not envisage any significant changes in parliamentary scrutiny or the provision of information. The responses included a number of proposals for greatly enhanced scrutiny, including for systems of prior scrutiny by Parliament and others of applications for licences, through some form of public register of such applications. Many drew on equivalent systems of prior scrutiny and approval in the USA and Sweden.[37] Exporters on the other hand expressed concern at the prospect of information on planned exports being made publicly available, principally because overseas customers often express a wish for their purchases not to be revealed.[38] The 1998 White Paper announced the Government's view that there should not be "parliamentary scrutiny of individual applications either before or after the decision on whether to grant a licence has been taken."[39]

40. The voluntary sector expressed in its submissions to the DTI following the White Paper and in oral evidence to us its disappointment at the rejection by the Government of proposals for some form of prior scrutiny of licence applications, and by implication a power of approval or disapproval. AIUK suggested that in cases such as the supply of armoured personnel carriers to Indonesia "there should have been a very good informal public debate before any licence application was granted."[40] Saferworld emphasised the potential deterrent effect on officials and Ministers of the possibility of having to justify a decision to Parliament, leading them to "err on the side of caution".[41] The DMA on the other hand was relieved that there would not be "opportunities for unrepresentative pressure groups unduly to influence policy or decisions", avoiding "being swept along by the idealistic and emotive arguments of a vocal minority". It felt that the White Paper had "exactly the right balance of openess and Parliamentary scrutiny".[42]

41. We accept the Government's view that a system of registration of, and parliamentary and public access to, the thousands of applications every year would not only be administratively onerous, but of doubtful value. It would be unusual within the existing informal division of powers between Parliament and the Executive for casework of this sort, much of it by its nature containing commercially and diplomatically sensitive material, to be seen in advance by Parliament. There would also be some risk that Parliament could be presented in some way as having at least tacitly endorsed an application technically laid before it, and on which it had failed to register any reservations. On the sort of hard cases referred to in oral evidence to us we doubt if it would be helpful to have a formal parliamentary input prior to decisions. We are content at this stage to continue to leave individual decisions on export licences to Ministers who are accountable to Parliament, in accordance with constitutional conventions.

42. Ministers can however only be properly held to account for their decisions if Parliament is in possession of the full facts, and has access on request to detailed casework on decisions taken by Ministers and those responsible to them. That requirement is not met by a statistical abstract of decisions, however useful that may be in providing a broad picture of the licensing process. Such figures, which have been published annually for some years in the Annual Report of the ECO, form no more than the necessary starting - point for parliamentary scrutiny. Nor can Parliament depend on answers to a random series of parliamentary questions from individual Members. What is required is a system of parliamentary scrutiny which combines the greatest possible access to the details of decisions taken — licences granted, refused and delayed — with safeguards to protect commercial confidentiality in the interests of individual exporters and customers legitimate demands for confidentiality. As BASIC put it in its 1996 submission "The Government has itself set guidelines for arms exports; it should make it possible for those outside the executive to judge whether those guidelines are being followed."

43. We cannot therefore accept the bald proposition advanced in the White Paper that there should be no parliamentary scrutiny of individual applications after a decision has been taken. It must be open to Parliament, preferably through some form of committee, to test individual licences, or refusals of licences, against the Government's own criteria, the EU Code of Conduct and indeed any other criteria it wishes. That need not lead to public identification of individual companies, or indeed individual overseas destinations. It is also important that any system should not disadvantage UK exporters as against their competitors. The EU Code provides for a remarkable degree of communication at a confidential level between Governments. It would be useful if it could be extended to provide for a common standard of transparency within each state, to assuage the anxiety expressed in the White Paper that countries "would seek in future to buy equipment from countries which would not disclose details of individual contracts."[43]

44. We do not propose in this Report to seek to establish in detail either the desirable content of the forthcoming Annual Report, nor the extent to which, or means by which, detailed information could be made available to Parliament. In conjunction with other Select Committees, we have proposed on an experimental basis a system of joint inquiry by select committees on the first Annual Report (see para 5 above). The Report of that Committee can be expected to make detailed proposals, based on experience, as to how the exercise should be managed next time around. It is however likely that any system will have to allow for access, sometimes on a basis of confidentiality, to details of

licences refused, on at least the same basis as details circulated to all EU member states
appeals and their outcome
licence applications which have raised particularly knotty points
licences in particular categories, or in relation to particular countries, as identified by the Committees.

The aggregated information will also have to be disaggregated below the main headings used in the current Military List, and similarly in the listing of Dual - Use Goods, so that needless effort is not devoted to pursuing details of licences of little or no sensitivity.[44]

24. Parliament and the public are entitled to have full confidence that the licensing system is working as intended.[45] The fundamental requirements include a system of access by parliamentary committees to confidential information, and a means of reporting the results of scrutiny of that information to Parliament without breaching confidentiality. We share the view expressed that the existence of a robust system of parliamentary scrutiny can act as a useful prompt to officials and Ministers. We are confident that such a system can and will be developed.

15 Scott Report, C.1. 26 - 27 Back

16 Quoted at ibid, C.1. 33 Back

17 ibid, C.1. 37ff Back

18 ibid C.1. 67 Back

19 Cm 3349, 1.6: Cm 3989, 1.4.1 Back

20 Cm 4056, para 25 Back

21 Trade with Eastern Europe, Second Report of 1988 - 89, HC 51, para 65 Back

22 Cm 3349, 2.6.1 - 2.6.2 Back

23 Cm 3989, 2.1.4 Back

24 Ibid Back

25 The prohibition of the export of microlight aircraft to any non - EU destination in June 1995, by SI, 1995, No 1424, may have been seen as "urgent" Back

26 Cm 3989, 2.1.5 Back