TUESDAY 10 NOVEMBER 1998

MAJOR GENERAL A SHARMAN, MR B SALZMANN, MR D EVANS, MR N PREST AND MR D GARLAND

  60. You state clearly that you understand the reasoning and objectives behind the proposal to control intangibles but have doubts about the proposals in detail and call for delay as you do over brokering and trafficking. Is it not a bit of a cop-out on your side?
  (Mr Prest) This is a difficult area. It should be recognised that until not very long ago the export of intangibles of any sort, if we disregard weapons of mass destruction and one or two specific areas for the moment, in the general field of defence equipment, export of intangibles was not controlled at all until—I cannot quote you the exact date—only in the last ten years. It used to be physical goods only. Drawings and data and supporting documentation were not controlled. The provision was then introduced to control intangibles in physical form—if that is the correct expression—being documents and computer disks of data which physically have to pass through the ports which could be licensed. What the White Paper is now saying is that other intangibles, e-mail and fax, could relay the same information and are not licensed. It says that this is obviously inconsistent and we should do something about it. I think this is an area where the White Paper is thin and a lot more thought needs to be put in to what they are trying to control and how it should be controlled because the potential is almost endless. We are a multi-national business. In Alvis we have manufacturing operations outside the UK in Singapore, United States, Germany, Norway, Sweden and perhaps one or two others. We are regularly transferring technical data of one sort or another. This is not classified but it is company technical data by e-mail, by fax, between engineering departments because one company is acting as a sub-contractor to another company in our group. The process of opening out export control to transfer of that data is not a small undertaking. The White Paper talks about one extra person in the licensing authority at £25,000 a year. I sniggered when I saw that. I do not see what basis they have to estimate that on. Potentially this is a very big subject which has not been properly thought through in terms of the limits which should be applied. They are obviously planning to draw it quite broadly. To make it workable they then have to introduce some very large exceptions in open general licences to the way that reputable multi-national companies transfer information between sites in countries say in the western alliances which are all politically favourable to the UK interest. They would have to introduce some very large exceptions for data transfer of that sort, which is not mentioned in the White Paper. This is a large subject and they need to think a bit more about what the objects of control are because classified information is legally controlled anyway. To some extent there is duplication here: somebody who transferred classified information to a non-authorised recipient would be breaking the law anyway. A fair amount of technical data is caught by that. Technical data in other vital areas, weapons of mass destruction and so on, needs to be very tightly controlled obviously in many forms. I wonder whether the practical objects of controlling other data are really that important, taking into account also the role of the Official Secrets Act. I think it needs to be viewed a good deal more. The assumption that somebody can actually do something useful with data without more input, build an equipment with no components ... A piece of defence equipment is a complicated sub-assembly drawing components from many sources which would themselves then have to be licensed. You cannot simply get into production of something because you have sent a set of blueprints over an e-mail. It needs a lot more thought as to what the true objects of this are and then to try to frame legislation around them and have a control mechanism which is non-burdensome to industry, of which there is no sign in the White Paper at the moment. Theoretically it could be extremely burdensome.

  61. You are saying nobody could just go and produce super guns because they have the plans and the drawings.
  (Mr Prest) That is a very good example. They had to order a forging from Sheffield.
  (Major General Sharman) We understand and have no difficulty with the principle behind what we believe the drafters intended. When we first saw it we were not that concerned other than for the sort of reasons that Mr Prest has described. Interestingly it was when we learned of other completely non-defence organisations who began to express concern that we started to think about it seriously and the implications for ourselves, but also the great concern that suddenly there would be all sorts of people who were not involved in defence exports, doctors, scientists, and so on, who might flood the licensing system to the detriment of our business because with only one extra person in the DTI the whole system might grind to a halt. It was not a cop-out. The situation on trafficking and brokering to which you also referred is similar. Again we fully understand and sympathise with the idea of catching the cowboys. That is absolutely fine. What we want is to ensure that the wording which emerges in the legislation finally does not damage legitimate business, given the way in which the global nature of business is now conducted with most companies having representatives in their overseas countries and so on. By all means catch the cowboys but do not damage legitimate business.

  62. There is just the problem of who the cowboys are.
  (Major General Sharman) They are not members of the DMA.

  63. In terms of the delays in getting licences which you complained about at some length, is it a very recent phenomenon in general? In general terms are you seeing some improvement in the speed of the process?
  (Mr Evans) Personally, no.

  64. You are not seeing any improvement in the speed of the process.
  (Mr Evans) No. The statistics I provided are over the immediate last 12 months. I have not gone any further back.
  (Mr Prest) Delays are not actually a new phenomenon. The system has been cumbersome for many years. There was a marked slowdown in 1997 under the new Government but quite understandable. Evidence is that the rate of turnround in licences has increased substantially in 1998 compared with 1997. Our view is that it is still too slow.

  65. You have said in your evidence, "We believe that Industry cannot be made more responsible for end-use control than it currently is". Do you not believe that there is some responsibility upon the industry to provide more information? For example, if you are looking at component suppliers, individual firms putting together an assembled whole product, is there not some responsibility for you to provide better information about end-user purpose instead of just relying upon the end-user essentially?
  (Mr Prest) I am not sure I fully understand the question.

  66. You have said that you do not believe you can be made more responsible for the end-use control than currently applies. I am asking whether you do not feel that there is responsibility upon the industry to provide greater information, particularly when you have a number of components coming together into one whole vehicle for example or one whole piece of equipment. Do you not think there should be some more responsibility upon the industry to provide that information rather than just saying OK, end-use certificate, that is the certificate we have?
  (Mr Prest) The first responsibility of industry should be to comply with the law. Secondly, from the DMA point of view, we would encourage our members to comply with the spirit of the law, that is to say if they had some specific—

  67. I was not necessarily talking about the spirit of the law. I was asking whether you do not believe that there is perhaps some moral responsibility in one aspect and also in terms of providing more detailed information to assist monitoring end-use.
  (Mr Prest) There is a system of end-use certificates presently which industry complies with when requested to do so by the DTI. Your question is whether industry should do more than that.

  68. No, I am asking you whether you think industry should do more in terms of providing greater details and not just be reliant upon end-user certificates and the veracity of them.
  (Major General Sharman) That surely is what the licence system is there to do. Industry is encouraged strongly to export by the Government, so it must accept, assuming it is not dealing in an illegal way, that this is legitimate trade, that it has been helped and encouraged and assisted to by Government. Sometimes the Government's foreign policy may be wishing industry very strongly to do it. Any company of course is perfectly entitled to make its own moral judgements about what it does. I do not think it is in any way immoral for a company, having got its end-user certificate, then to apply for a licence and assume reasonably that if the licence is granted all the issues have been considered. It is not qualified to judge the national interests, the stability of a region, otherwise you would be asking companies to make judgements which they are simply not qualified to make ...

  69. If there were the imposition of greater end-use controls, what aspect do you think would be acceptable to you? What would be acceptable to your association if there were to be greater controls on end-use certificates?
  (Major General Sharman) I do not quite know what you are envisaging.

  70. A strengthening.
  (Major General Sharman) At the end of the day all we can do is to ask more questions of the customer really. It certainly would not be appropriate for industry to start spying or looking at military installations or whatever to find out. All it could do is to ask more questions of the customer and I do not believe the difficulty then of making judgements as to what that country may subsequently do in terms of passing those on to other countries subsequently is a reasonable thing to expect industry to do.

  71. That is the job of Government.
  (Major General Sharman) That is the job of Government. It is particularly interesting if you look. I am always struck by the fact, that one of our major competitors now in the world market is South Africa. South Africa developed an indigenous arms industry because it had sanctions imposed against it and it created a defence industry. Now under Nelson Mandela and as a democracy it is a burgeoning exporter and interestingly now a supplier to the UK Ministry of Defence. Industry could not have made any judgements about when it was right to stop and start and so on. It was quite right that industry complied with the law and the rules and the embargoes which applied and sought licences as it continues to do. It is a thorny area.

  Chairman: Thank you very much gentlemen; it is very helpful to get your concerns. If there is anything you would like to send us in addition to what you have already provided then we should be more than happy to receive it and look at it. Thank you very much for this morning.