Select Committee on Trade and Industry Minutes of Evidence


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.


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 world—there 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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