House of Commons - Defence, Foreign Affairs, International Development and Trade And Industry

Select Committee on Defence, Foreign Affairs, International Development and Trade And Industry Third, Second, Third, Fourth Report

THIRD, SECOND, THIRD AND FOURTH REPORTS

The Defence, Foreign Affairs, International Development and Trade and Industry Committees have agreed to the following Report:—

ANNUAL REPORTS FOR 1997 AND 1998 ON STRATEGIC EXPORT CONTROLS

I INTRODUCTION

Origins of inquiry

1. On 1 July 1998 the DTI published a White Paper on Strategic Export Controls, which repeated the Government's undertaking to publish an Annual Report on Arms Exports, and suggested that it was "likely that various Select Committees will wish to examine the Annual Report which, in turn, may lead to a parliamentary debate".[1] In their joint Report on Aspects of Defence Procurement and Industrial Policy agreed on 16 July 1998, the Defence and Trade and Industry Committees expressed the view that some coherent provision should be made for select committee scrutiny of the proposed Annual Report, concluding that "it would be desirable to have some definite mechanism for effective consideration of these matters by select committees".[2] In its Report on the White Paper on Strategic Export Controls agreed on 2 December 1998, the Trade and Industry Committee referred back to the July 1998 joint Report and expressed the hope that the proposals being considered for some form of joint consideration "will bear fruit in due course". The Committee called for a system of parliamentary scrutiny combining "the greatest possible access to the details of decisions taken ..... with safeguards to protect commercial confidentiality", in the belief that "Ministers can 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".[3] In its Report on Foreign Policy and Human Rights agreed on 10 December 1998, the Foreign Affairs Committee supported the development of a Parliamentary mechanism for retrospective scrutiny of export licences. Noting that the subject matter of the proposed Annual Report fell within the province of as many as four committees, it decided to "examine how to work with the other committees with interests in this area to ensure that such scrutiny is conducted as effectively as possible."[4] In March 1999, the Defence Committee published a Report on the appointment of the new Head of Defence Export Services. It noted that the approval of export licences for strategic goods was, and would remain, a vexed area of policy and recorded its intention, with other interested committees, to examine the Annual Reports on strategic export controls.[5] The International Development Committee, in its Report into Conflict Prevention and Post Conflict Reconstruction agreed in July 1999, concluded that determined and principled control of arms exports was a litmus test of the Government's concern to prevent conflict and inject an ethical dimension into foreign policy, and referred to the Committees' joint inquiry into the reports.[6]

Joint inquiry

2. The First Annual Report on Strategic Export Controls, relating to the period between May and December 1997, was eventually published on 25 March 1999. On 20 April 1999 the four Select Committees principally concerned — Defence, Foreign Affairs, International Development, and Trade and Industry — met together for the first time to elect a Chairman, consider the Annual Report and decide how to proceed. Written evidence was sought from the Government and an invitation extended to interested parties to submit evidence. On 17 May 1999 some Members paid an instructive informal visit to the Export Control Organisation (ECO), the branch of the DTI responsible for the processing of applications for export licences. On 15 June 1999 the Committees heard oral evidence from four non-governmental organisations (NGOs) — Amnesty International UK, Saferworld, BASIC and Oxfam. The Committees had hoped to hear oral evidence from the Foreign Secretary in early July and thereafter to report to the House on the 1997 Annual Report in time to influence the content and format of the 1998 Report. That proved impossible. The Committees therefore agreed a Special Report to the House on 15 June 1999, describing their work so far and indicating their intention to hear oral evidence in the autumn from the Foreign Secretary and thereafter to report to the House on both the 1997 Annual Report and the forthcoming 1998 Annual Report. The oral evidence from the NGOs and some written submissions, including evidence from Government provided thus far, was printed together with this Special Report.[7] Oral evidence was heard on 3 November 1999 from the Foreign Secretary, coinciding with the publication of the 1998 Annual Report. Further written evidence has been provided on the 1998 Report by the Government and by others.[8] On 29 November 1999 a delegation of 4 Members from the Committees spent a most useful day in Stockholm, meeting a range of those directly involved in the system in operation in Sweden for the scrutiny of possible arms exports, which had been drawn to our attention by Saferworld and others as an exemplar worthy of study. We are most grateful to all those who made the visit so informative, and hope that it may indeed be the beginning of a constructive relationship between parliamentary bodies responsible for the scrutiny of arms exports.[9]

Debate

3. Although no explicit undertaking was given in the 1998 White Paper to find Government time for a debate on the Annual Report, it is noteworthy that the parliamentary debate foreseen in the White Paper was presented as an important component in the proposed increase in the degree of parliamentary accountability for arms exports. We recommend an annual debate on the Government's Annual Report on Strategic Export Controls and reports thereon by Select Committees, to be held on a substantive Motion.

Scott Report legislation

4. A number of the issues raised in evidence to us and in this Report require legislative remedy. Four years have now passed since the Scott Report recommended that the outdated and in part discredited emergency wartime legislation under which export controls operate — the 1939 Import, Export and Customs Powers (Defence) Act — be replaced by new legislation to provide a proper framework for such controls. The recommendation was accepted by the then Government. Progress since has been leaden. The Trade and Industry Committee reported its hope in December 1998 that time would be found for largely uncontroversial legislation, if not in the 1998-99 session, then at least in the next one. On 3 November 1999 the Foreign Secretary told us that he could not anticipate the Queen's Speech, and noted that there had been "an exhaustive process of consultation".[10] The absence from the Speech of 17 November 1999 of any reference to the Bill indicated that no place had been found for it in the 1999-2000 legislative programme. Press briefing has suggested that a draft bill is in the offing. If that is the case, we hope that it will be published as soon as possible so that prompt and thorough parliamentary scrutiny this session can provide for a swifter passage thereafter. A small ray of light was provided with the announcement on 16 December 1999 that the Government would, following a recommendation from the Trade and Industry Committee over a year ago, elect to lay before the House Orders made under the Act.[11] This means that it is at least known to Parliament that such orders have been made. Two such orders have been laid so far.[12] It does not however provide the degree of parliamentary control which the Committee recommended, let alone that which Sir Richard Scott recommended; that can come only from primary legislation. We are dismayed that the Government should not have afforded greater priority to bringing forward a Bill to implement the recommendations made four years ago in the Scott Report.

Scale of UK defence exports

5. The two Annual Reports are evidently intended to provide for transparency and accountability of the Government's policy on exports of arms and other controlled goods. They do this by setting out in a brief first part the policy framework within which licensing decisions are made, and then listing under the countries of destination the export licences given. Further sections give details of actual exports, reprint the official "Military List" of controlled goods as laid down in secondary legislation and set out in detail the embargo and sanctions regimes currently in force. The contents of the Reports reflect the principal features of UK defence exports:

Global reach: UK companies export to over 140 countries in every part of the world, with significant markets in both North and South America, Africa, the Near and Middle East, Asia and Australasia as well as Europe.[13]
Scale: The UK is the world's second largest exporter of defence equipment (securing about a quarter of the world market). It has the second largest defence industrial base as a percentage of GDP, employing some 350,000 people, and exporting some 40 per cent of its output. It is particularly strong in aerospace and defence electronics, and also in a number of highly specialised sectors such as defence against chemical warfare and explosive ordnance disposal.[14]
Complexity: around 10,000 individual licences are granted each year for military and dual-use goods, the latter category covering a range of goods of technical complexity which could be used for military purposes. There are also over 500 new or amended open licences given each year to exporters in respect of both classes of goods, most covering a range of goods and a number of countries. A "licence" can therefore vary from a temporary licence to export a World War II machine gun to Morocco for a film set to an open licence to market the latest military aircraft and components to a dozen or more countries.
Diversity of coverage: over 1,500 individual licences and 250 open licences a year are issued for exports to the USA; for some smaller countries there is only one individual licence issued all year.
Value: the value of an individual licence can vary from many million pounds to under a thousand pounds. They are issued without charge.
Process: the application for a licence may not be the first point of entry into the system. Experienced exporters will already have tested the waters semi-officially by submitting a pre-application "Form 680" to MoD, which is circulated within Whitehall to produce an opinion as to whether an eventual licence application is likely to succeed. This spares companies wasted effort in marketing goods which will in the event not be licensed for export to the country or end-user in question. There is apparently no record of the frequency with which a Form 680 approval is eventually followed by refusal of a licence.[15] Furthermore, we understand that hundreds of applications for licences are received which the DTI's ECO assesses to be unnecessary, since the goods concerned do not need a licence. The ECO also operates a rating system under which exporters may discover in advance whether a particular item is licensable. None of this burden of work is reflected in the Annual Reports; to that extent, voluminous as the Reports are, the data therein represent only a part of the Government's licensing activity.

Purpose and scope of inquiry

6. The size and nature of UK defence exports, and the significance to the UK economy of the defence industries, are of a scale and significance to warrant parliamentary scrutiny of themselves. The Government's decision to publish formal criteria for the grant of export licences and the establishment of the EU Code of Conduct on Arms Exports provide an additional powerful justification for such scrutiny.[16] The fundamental purpose of our inquiry into the first two Reports has been to set in motion a process of translating the theory of parliamentary accountability into practice, so that Parliament can be assured that the declared policies of the Government are reflected in practice. We have taken the Annual Reports as defining the scope of our inquiries. We have in the first place scrutinised them through a process of sampling —

we have sought sufficient details on various categories of individual applications (refusals, appeals against refusals, selected licences to particular countries) to assure ourselves that there was nothing evidently untoward about the decisions made and to gather an impression of the system of licensing in its stickier points
we pursued policy towards Indonesia in some detail in advance of and during the November 1999 oral session with the Foreign Secretary and have sought similar information in respect of China and Hong Kong in relation to the 1998 Report
we have obtained from the Government brief statements about the operation of policy in respect of some individual countries.

The results of this are recorded in Part II below. In Part III we have examined some policy issues raised in the Reports or arising from our scrutiny. In Part IV we make proposals on the presentation and contents of future Reports. We can see the value in making some changes to the contents of the Annual Report to make the task of parliamentary scrutiny easier, and to avoid ill-founded public concerns being raised over particular licences as a result of publication of incomplete information. The more transparent the annual Reports, the greater the reassurance they will give to those concerned. In Part V we set out our preliminary views on the future system of parliamentary scrutiny. We also publish an Annex setting out in brief the salient features of the strategic export licensing system.

7. We have not trawled the Reports in search of evidence of flagrant breach by the Government of its own criteria; neither cursory scrutiny nor detailed examination of the licences on which we procured further information has provided such evidence, and we should have been amazed if it had. We have not set out to discover error or to explore every minor internal inconsistency in the data presented, although it has been noticeable that the process of responding to our questions has had the incidental benefit of revealing errors and omissions in both Reports. We have not sought to question in broad terms the merits of either the new criteria announced in July 1997 or of the UK conducting an extensive trade in defence exports. The Annual Reports provide the necessary factual foundation for those engaged in such issues to advance discussion beyond generalities. We have not sought to see the detailed assessments available to Ministers on which they base decisions to permit or deny an export licence in cases presenting real difficulty — for example, of the integrity of a purported end-user, or the risk of diversion of goods for internal repression. Were Parliament to establish a committee with the remit of examining export licences, it would no doubt wish to seek a view of the detailed assessments made available to Ministers on individual licences; without such information individual grants of licences cannot be described as having been scrutinised as fully as they have been within the machinery of Government.

Licensing process

8. While our visit to the ECO provided a useful insight into the routines of handling applications, and the necessary background to our inquiries, we have not taken detailed evidence on the process of licensing, a matter covered in some detail in the December 1998 Trade and Industry Committee Report. The Annual Reports contain less detail on this process than did earlier ECO annual reports, in particular on the extent to which the ECO fails to meet its targets for decision on the different categories of licences. The Trade and Industry Committee was given a table showing for each month the number of applications received and the percentage on which work was completed within the 20 working days target for those circulated for advice from other departments and the 10 working days target for non-circulated applications.[17] These figures showed a steady failure to meet targets, and by extension a long if not readily quantifiable tail of applications stuck in the system. The Committee recommended that " vigorous steps be taken to give [in the Annual Report] a rounded picture of the ECO's performance not only in relation to its own targets, but showing the full extent and nature of the waiting-list of applications". The Government's response stated that "Data on processing performance will be included in the forthcoming Annual Report on Strategic Export Controls and in future reports."[18] The only figures given in the 1997 and 1998 Reports are the bald annual figures on the percentage of cases processed within the department's targets — 61% and 79% for uncirculated cases and 47% and 52% respectively for the circulated cases — and figures on rating advice.[19] We recommend that future Annual Reports include more data on the administrative performance of the Export Control Organisation and the other departments involved in the export licensing process, including the pre-licensing process. We hope that these figures show continuing improvement.

1 Cm 3989, 2.1.7 Back

2 HC 675 of session 1997-98, paras 61-62 - henceforth "HC 675" Back

3 HC 65 of session 1998-99, paras 5 and 18-24 - henceforth "HC 65" Back

4 HC 100 of session 1998-99, paras 142-149 - henceforth " HC 100"; see also pp cxi-cxiii Back

5 HC 147 of session 1998-99, para 2- henceforth "HC 147" Back

6 HC 55-I of session 1998-99 - henceforth " HC 55" Back

7 HC 540 of session 1998-99 - henceforth " HC 540" Back

8 This evidence is referred to as " Ev, pp..", and Questions to the Foreign Secretary as "Q ...". The oral evidence from the Foreign Secretary and some written evidence was originally published in December 1999 as a separate document (HC 541-i), and is republished with this Report. Back

9 See recommendation of the Trade and Industry Committee to this effect, HC 65, para 7 Back

10 Q 85 Back