APPENDIX 13
Memorandum submitted by the Society of
British Aerospace Companies Ltd.
The SBAC welcomes the opportunity to comment
on the White Paper on Strategic Export Controls. We note that
the paper answers many of the criticisms levelled by Sir Richard
Scott in his report. It is further clear that many of the points
made by our members on the previous government's consultative
document on strategic export controls have been accepted and are
reflected within the body of this Paper. Notwithstanding, our
detailed comments are attached and they include several areas
for concern, albeit the primary issue is one of practicality rather
than dispute.
The major of these is the introduction of controls
for intangible technology transfers. Likely to take place to a
far greater extent than tangible transfers, an informal survey
amongst our members suggests that the ratio of intangible transfers
to tangible is very conservatively 4:1. When seen alongside the
need for newly consolidated corporate partnerships to have on
line cross border communications, and companies with sites or
project teams in several countries requiring instant electronic
data transmission; we suggest it will be a
virtual impossibility to implement without
some form of self regulation. It is also difficult to believe
that any realistic appraisal has been carried out to determine
the amount of DTI resource required to control and police this
change.
Other areas of concern are the licensing process
and end user undertakings, however we hope you find these comments
constructive and we would be very happy to engage with you in
any further deliberations as to how industry can help in this
Paper's implementation.
DETAILED COMMENTS
ON THE
WHITE PAPER
FROM THE
SBAC
Parliamentary Scrutiny (2.1.4)
The decision not to subject licence applications
or granted licences to parliamentary scrutiny is strongly supported,
however there is some concern that in certain cases the ramifications
of proposed Export of Goods Control Orders (EGCO) amendments may
require an Industry challenge. In this instance 40 parliamentary
days is a relatively short time for industry to collect views,
arrive at a consensus, register that response at the appropriate
government level, and initiate effective dialogue. If there is
to be a negative resolution procedure, we feel it appropriate
that there should be an obligation on the DTI to have consulted
industry and trade bodies in the lead up to an amendment. This
should take place in any event no later than notification to Parliament,
so that MPs can be briefed by their constituents.
Transfer of technology by intangible means (3.2)
The white paper makes no distinction between
export destinations, and appears to overlay its bureaucratic burden
too indiscriminately. There are several areas where we have concerns
primarily with implementation. These are:
The need to regulate intangible transfers
work with the prime contractors as they form ever-closer union
with European defence contractors. Already regulated by stringent
controls on exportation of classified data, literal compliance
with the proposed restrictions could stultify the integration
of European Defence concerns thereby defeating the Government's
own strategic industrial objectives. Ongoing efforts to harmonise
the exchange of technology within the merging defence firms in
the UK, France, Germany and Italy could be frustrated should the
definition of "document" include cross frontier
inter departmental communications within newly consolidated companies.
It is strongly recommended that an across the board process be
evolved for absolving these corporate bodies from such requirements.
Reliance could be placed upon existing security controls when
either the countries concerned are EC or NATO members or there
is in place an inter-governmental MOU to regulate such matters.
However it is possibly an area which lends itself to self-regulation
by responsible corporate bodies if complete absolution is found
impracticable.
The introduction of new legislation
to provide it with the power to control the transfer of technology,
whatever the means of transfer, is going to render industry liable
to increased costs to document and record the control of electronic
data transmission.
Its proposal to make it an offence
to disclose oral information regarding technology related to weapons
of mass destruction and long range missiles is fully supported
although thought to be currently covered by the Official Secrets
Act.
The suggestion that at some future
date controls on oral disclosures with regard to other types of
technology might be introduced is considered impractical. It is
difficult to comprehend how both the Government could police and
Industry could comply, with theoretically each individual disclosure
requiring a licence.
Companies need to forward technical
information between their sites. This may be done by letter or
memo as a conventional document, but increasingly companies are
communicating electronically. These are perfectly legitimate internal
business activities, which must be recognised as such. With companies
sited globally what controls will the government impose between
these sites; further what controls between project teams from
the same UK base Company. Again this is an area where self-governance
by credible corporate companies would be appropriate with government
audits to ensure the companies are adhering to the rules.
There has to be far more clarification
on how these new controls are going to be monitored and policed.
At Annex A it states that the DTI estimates the impact of these
new controls will cost them £25,000 per annum. It is considered
that the resource of one new member of staff (on which this is
based) is totally inadequate given the undoubted far greater numbers
of intangible transfer license requirements to tangible. Further
the introduction of new controls without the adequate resource
to deal with them would lead to procrastination in a licensing
process that has current difficulties achieving its own set targets.
Trafficking and Brokering (3.3)
Whilst welcoming the introduction of controls
to prevent the involvement of persons in the UK or UK persons
abroad in trafficking and brokering in controlled goods to countries
that are subject of embargo, there are concerns that legitimate
business between global corporate companies will be effected by
regulations introduced to counter the rogue trader.
Ratings Advice (4.2)
The rating system provided by the Export Control
Organisation has been a useful tool in advising companies of the
need for a licence for a proposed expert. However we feel there
is a case for rating procedures to be legally binding, where the
applicant has provided the required written information (both
accurate and comprehensive) and subject to there being no change
in law relevant to the application. Certainly it is entirely rational
to make "no license is required" (NLR) decisions legally
binding in order that there can be a degree of certainty for the
business community. By the same token licences requiring decisions
and denial (4.5) should be subject to judicial review.
Power to require information from companies where
this is needed to meet the UK's international obligations (4.3)
Information reported to the Government must
ensure that it does not compromise commercial confidentiality.
There could be problems in providing information to the Government,
and even greater problems in giving the Government freedom to
pass information on. The Society has already made its views clear
to the Cabinet Office in the context of the Freedom of Information
Green Paper. If the Government requires statutory powers to demand
information, this must go hand in hand with some right of appeal
against redisclosure where the firm's essential interests could
be jeopardised (see 2.1.7). The Government will also be aware
that the right to demand information in these sensitive areas
can be a two edged sword. Occasions have arisen where Government
has found it convenient to plead absence of a legal right to demand
disclosure; thus sparing itself the necessity to make embarrassing
or inappropriate revelations under the sanction of some international
requirement to which they have become a party.
Time limits for processing licence applications
(4.4)
It is noted that there is nothing in the White
Paper calculated to improve the licensing procedure. Whereas it
is appreciated that the White Paper was not intended to specifically
address this area, it should be realised that some SMEs have lost
defence exports due to delays; and in some cases this has lead
to them leaving the defence market altogether. Efforts to suggest
a fast track system always run into difficulties. The restrictions
themselves are not of significant concern and as in the case of
taxation, where self assessment has become the norm, it is suggested
that here again there is an argument for self regulation. A proven
track record of compliant behaviour could lead to accreditation
with the DTI, and spot audits could then verify continued compliance.
This would substantially reduce the need for so much costly form
filling and recond retention.
As regards the comprehensive review of the licensing
procedure proposed at 4.4.2, there are currently moves afoot for
Industry to enjoin with the relevant Government Departments to
facilitate the process.
Return to the original overseas supplier of materials
and components (not covered by the White Paper but relevant to
the Licensing Procedure)
On occasions goods are returned for a number
of reasons, principally for repair and return for replacement.
Other technology and raw material for the production of the goods
supplied is obviously already available to the original supplier,
however the need to follow full individual or open individual
licensing procedures seems unnecessarily onerous. In particular
it is particularly difficult obtaining end user undertakings from
businesses, which are not customers in the normal course of events.
Whilst it is accepted that there is the need for strategic goods
to be controlled, even when returned to the original suppliers,
it should be possible to frame an OGEL for such circumstances.
Such a licence would prove invaluable in reducing the workload
of export manufacturers and would further help expedite the licensing
process (reducing current unacceptable backlogs).
There is still great disappointment amongst
our members that default licensing is not to be given even a trial
period.
Appeals (4.6)
The introduction of a formal appeals procedure
is most welcome with the additional recommendation that a judge
to bring some independent clarity to the review process chairs
the appeals committee.
End Use Monitoring (5.2)
In effect, the end user undertaking is a piece
of paper supplied by the customer purely stating the intended
use of a product. In reality it guarantees nothing and should
goods be diverted or misused government has no extra-territorial
powers to prosecute the customer. It also gives the hapless exporter
little recourse to his customer. It is therefore recommended that
to make an end user undertaking more effective and provide greater
security for the exporter, the government should seek a procedure
whereby the customer's government or local chamber of commerce
endorses the end-user declaration. This in much the same way as
"Certificates of Origin" or carnets are currently guaranteed.
To this end, the undertaking would need to have a harmonised international
recognised format. A great many international trade documents
are standardised across the worldthere is therefore no
reason why this should not also be the case for an end-user undertaking.
To prevent the process being overtly time-consuming, the end user
statement would require enhancements where needed to be applied
multilaterally.
1 October 1998
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