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

IV PRESENTATION AND CONTENT OF ANNUAL REPORT

General reaction

64. There has been a general welcome for the publication of an Annual Report, from the Defence Manufacturers Association, who described it as "a very worthwhile publication" to the Campaign Against the Arms Trade who described it as a useful tool for encouraging greater debate.[122] The Reports provide a far greater level of transparency on the licensing of arms for exports than has hitherto been the case in this country, replacing the relatively inaccessible and generally less detailed annual reports of the ECO, which concentrated on the administrative process of licensing rather than the licences themselves. They are also by common consent the most transparent reports of their sort in Europe, and are already being used as a benchmark in other countries. The production of the Reports by the departments involved has already stimulated improved record-keeping, by both the ECO and HM Customs and Excise.[123] We also have little doubt that a heightened awareness on the part of Ministers and officials of the possibility that their decisions will be challenged will have contributed to even greater care on their part to ensure that decisions made conform to the criteria. That the format and contents of the Reports are open to improvement is self-evident, and we have devoted some effort to identifying useful changes which could be made. Critical evidence and comments printed with this and our earlier Special Report will no doubt have been taken to heart by the departments concerned. It must however be recognised that the Reports represent a major step forward.

Delay

65. The first Annual Report was finally published in March 1999, 15 months after the end of the period to which it relates. While there were no doubt good reasons for at least some of the delay, and teething troubles in producing facts and figures from different Government departments, it cannot be said to have got the process of regular reporting off to a flying start. It is therefore all the more frustrating to record that the 1998 Report was not published until November 1999, more than 10 months after the end of the year to which it relates, and on the very day on which we had long arranged to hear oral evidence from the Secretary of State. He told us "people have sweated blood and worked nights to get this out in time for this hearing. Indeed in some ways this hearing has been useful in that it has provided a very clear deadline which we had to meet ..".[124] We can only contemplate with some anxiety the likely date of publication if there had not been such a hearing fixed. The Foreign Secretary noted the reduction from 15 months to 10 months in the time taken to produce the second Annual Report and expressed the hope that the delay could be further reduced.[125] Much of the data in the Reports is now electronically recorded, and open to gradual and cumulative assembly. The antiquated process of assembly from every Customs outlet of figures on the value of arms exports is apparently being improved.[126] The delay in publication of the 1997 Annual Report was unacceptable. We propose a target for future Annual Reports to be available within four months of the end of the year to which they relate.

Presentation

Country tables

66. The Annual Reports provide a great deal of partly digested material for the intended user. They are long and rather unwieldy documents, requiring a working knowledge of the licensing system and a copy of previous reports for purposes of comparison. Most of the data is organised by country of destination rather than by, for example, particular categories of goods. Searching for particular categories of licences is thus relatively labourious. The Military List descriptions are at least arranged alphabetically within the entry for each country, presumably with a view to assisting such a search, although as several NGOs pointed out, that cannot guarantee that goods which are essentially the same are not listed under different descriptions. The principal presentational failure identified by witnesses was the need to look in at least six different places to get an overall picture of licences granted or refused in respect of any one country. Saferworld presented a template for a clearer system.[127] Our experience suggests that most readers of the Report are indeed interested in one or more individual countries. It would make evident sense to organise the information accordingly, while still making it possible for those undertaking other types of analysis to obtain the required data. It is in our view important to recognise that the Report is not intended to be a technical document accessible only to a few devotees, but designed for a wider audience. We recommend publication of a table for each country combining to a greater degree than at present information currently spread through several tables of the Annual Report, including information on actual exports.

OIELs

67. The 1997 Report had Tables on OIELs which were particularly difficult to use, which lacked in some cases the necessary interpretative material and which on further examination turned out to contain significant inaccuracies.[128] The 20 pages devoted to new or amended OIELs in the 1998 Report are in some respects even more difficult to use,[129] partly because of the sheer number — 566 OIELs issued or amended, covering Military List and dual-use goods. There are four separate tables — Tables 2A and 2B on Military List and Dual-Use OIELs by country and broad category, Table 3 (9 pages long) providing a 9-page key to Table 4, which in turn provides a numerically-coded list for each country. Many of the numerical codes have the same verbal description. The first entry in Table 2A is for Algeria, showing 3 OIELs covering military goods, under 3 ratings — ML10,11, and 13. If one seeks from Table 4 some idea as to what these OIELs cover, there are only two numerical headings, 17 (body armour and its components) and 46 (components and technology for communications equipment). ML10 covers aircraft equipment; it is not plain what this OIEL covers. This randomly selected example could no doubt be repeated. OIEL information is by its nature complex. Some further consideration must however be given to presenting it more clearly, perhaps by reference to the OIEL itself rather than by countries of destination, and possibly by limiting the information provided on the bulk of OIELs which are granted in respect of NATO and other allied states.

Accuracy

68. Given the delays in production of the 1997 Report caused in part by the need to correct inaccuracies detected in the data supplied by HM Customs, and the problems with inaccurate data set out in the written parliamentary answer of 30 October 1997,[130] we were dismayed that our written questions to the departments should have revealed yet further inaccuracies in the published data. Our written questions on the 1998 Annual Report have revealed further inaccuracies. DTI have twice noted that "human error cannot be eliminated altogether in the compilation of such a large body of data".[131] While that is indisputably true, it is of real concern that, for example, the refusal of 12 licences should have been omitted in error from the 1997 Report. We also noted that goods listed in the 1997 Report as having been licensed for export to Turkey — " rifles, telescopic sight" — were in fact refused a licence: a decision of more than passing interest. A 1997 licence for military imaging equipment listed under China should have been shown under Taiwan.[132] There was not in fact a licence given in 1998 for the export of demolition charges to North Korea.[133] If we had not sought more detailed information on certain licences, it can only be assumed that significant errors in compilation and listing would have remained undiscovered. It is essential that users of the report have confidence in its accuracy; we look to those responsible to ensure a high standard of accuracy in future.

Descriptions

69. The country-by-country entries in Table 1 provide summary descriptions of Military List goods in respect of which SIELs have been granted. No such descriptions are supplied in the case of goods for which a SIEL has been refused. There is no attempt to describe dual-use goods, whether a licence has been granted or refused. There was criticism from the NGOs of these omissions and of the weak generic descriptions used. Amnesty International UK for example find it excessively difficult, as a result of vague or ambiguous terminology, to discover what has been licensed for export to certain countries.[134] Saferworld suggested that "the summary description of equipment licensed for export should be detailed enough to enable the implementation of policy to be judged ".[135] We recognise the difficulty in many cases of providing a clear but brief description of dual-use goods beyond the coding used in the publicly accessible secondary legislation. Our study of Indonesian licences confirms the legitimate public interest in knowing the nature of the licences sought and refused in respect of that country in 1997 and 1998. Having obtained details of all licences refused, we can see no good reason not to publish the same level of summary description of licence applications refused as is published for those granted, and indeed some good reason to show more detail, as indicating the nature of decisions taken by Ministers. We recommend that henceforth summary descriptions be published of Military List goods for which a licence has been refused.

Volume & value

70. The principal criticism made by NGOs of the 1997 Report was that the absence of indications of either the volume or value of goods in respect of which licences had been granted made it virtually impossible to evaluate the significance of the published data. The country-by-country entries in Table 1 list goods as either singular — "submachine gun" — or plural — "shotguns". The only 1997 licences in respect of Malawi, for example, are 3 SIELs for "shotguns", but there is no way of knowing if that covers 3 or 3000. The 1998 Report shows a similar entry. In the absence of information on either the volume or value of goods licensed, it is impossible to judge the significance of the licences for the recipient country's economy or for the possible significance of the use of the goods in conflict or human rights abuse. As BASIC put it, many observers will assume a "worst case scenario"; "obscurity will only lead to suspicions of deliberate obfuscation".[136]

71. Against this desire for more details on licences granted must be set the legitimate concerns expressed on behalf of exporters by the DMA. They told us that "we would not wish this desire for greater openness to go any further than has been the case with the First Annual Report. Going any further than this could cause Industry much greater problems, and seriously impinge upon commercial /security sensibilities with customers and competitors".[137] The DMA drew attention to some cases in the 1997 Report where a connection could readily be made between the information on a particular licence and the value of the export, and where the equipment concerned is such as to leave little doubt as to the company concerned. In the 1998 Report this problem has apparently been avoided.[138] It is of course also important to distinguish the legitimate desire of exporters to keep pricing information in confidence from competitors, and indeed to avoid alerting them to unsuspected market opportunities, from a general preference for conducting this (as other) trade in a general atmosphere of confidentiality. In some cases we can well appreciate the desire of a customer that his desire for a particular class of goods should be concealed from, for example, a neighbouring country or indeed some sources in the same country.[139] Against that has to be set the right of UK citizens to know to which countries sensitive goods are being sent.

72. We see a good case for the Report giving some indication of the volume of goods licensed for export, at least by reference to an order of magnitude. Such information is already published on major equipments listed in the annual UN Arms Register; this does not seem to have created insuperable problems for the UK. Table 8 of the 1997 Annual Report records for example the export in 1997 of 23 armoured combat vehicles and 4 combat aircraft to Indonesia, and the same Table in 1998 records the export of 416 cruise missiles to the UAE. This is considerably more informative than recording merely that more than one of each category was exported. Where we have sought further details from the departments on particular licences given or refused, the numbers concerned have been as important as the details of the goods and the proposed end-user details in understanding the decisions reached. The DMA consider that the commercial confidentiality concerns arising "are less substantial than the issue of values".[140] We recommend that in the next Report some indication be given of the numbers of items for which a licence has been given, if necessary as an approximation. For major systems whether or not covered by the UN Register an exact number should normally be given. The principal criterion for determining whether to provide such figures should be the avoidance of misunderstanding, particularly where the decision on the grant of the licence was or might reasonably have been influenced by the quantities concerned, and where there are no obvious grounds of commercial confidentiality. We would be prepared to see this introduced first for licences for non-NATO countries.

73. Saferworld suggested publication of the cumulative value of licences granted in respect of each country, and thereafter that consideration be given to publishing the value in bands of individual licences.[141] For reasons which remain unclear, information on the approximate value of the goods for which a licence is sought is indeed given on the licence application, so that a system of providing either individual or total values would be feasible. We are not convinced that detailed information on value would be of much assistance; indeed it could be positively misleading, since an unknown number of licences granted do not result in any export. We see no overwhelming arguments of public interest for publication of the reported values of individual licences. There is however legitimate public interest in seeing the total value of licences granted to individual countries. We note that the Foreign Secretary provided such information on licences for Indonesia.[142] We have noted that the DMA consider this "the only acceptable way in which this information could be provided".[143] It would be a waste of time to compile such figures for countries with whom we are in close alliance. We recommend that the total value of licences issued in respect of each non-NATO country be given for each calendar year, founded on the values given on the applications, with an exception where the number is so small as to risk a breach of reasonable commercial confidentiality: in other words, where there are only a handful of licences granted. In these cases a "ceiling" figure, such as "under £1 million", should be provided.

End-user

74. No indication is given in the Tables of the end-uses to which the goods referred to are to be put. Witnesses noted that an export of shotguns to, for example, a national park service would be judged differently to one to a para-military police force. As Saferworld put it "in some countries there may be many possible end-users and end-uses of equipment, some legitimate but others which may raise concerns over a possible breach in the export guidelines".[144] If the Reports are intended to enable Parliament and others to monitor the implementation of policies in practice, some indication would be helpful in relation to at least a minority of countries as to the category of end-user. We note that Ministers are willing on occasions to respond to parliamentary questions on licences to individual destinations by giving details of the end-user, as a means of explaining what might otherwise seem to have been questionable decisions.[145] It has to be accepted that it would be impracticable and pointless to try and record the end-user for every licence. We recommend that end-user information be given unless either it is self-evident from the nature of the goods or there is good reason to believe that the licence would have been granted to other end-users in the country concerned.

Exports

75. The tables setting out actual exports of military equipment based on Customs and Excise data and the UK contribution to the UN Arms Register have been harshly criticised. Their compilation has caused problems, set out in the notes appended. In 1997 it was recorded that Table 8 had been compiled from around 42,000 entries and that "a considerable amount of effort had been expended by HM Customs and Excise officials in seeking to provide accurate information". One major problem arises from the discrepancies between the EU Tariff Codes for military goods and the UK Military List of goods requiring a licence. Some goods on the UK Military List are not listed in the EU Tariff Code as military goods, including most security and para-military police goods, and chemicals and explosives. Others are not coded so as to be able to distinguish between civil and military items. As a result the 1997 Report recorded that the Table did not include some Military List goods and that "we are looking at ways of extending the coverage for future reports". The 1998 Report repeats that there have been some difficulties in extracting the type of data required for the Report; further steps had however been taken by HM Customs and Excise to "enhance the quality of the data". In addition to these fundamental problems, other weaknesses in the export information were drawn to our attention. Amnesty International UK suggested that there had been an unnecessary and undesirable level of aggregation of data, in that the heading used in the Table of "other weapons including small arms" was in fact an aggregate of a number of separate headings as set out on page 144 of the 1997 Report, and could usefully have been published in disaggregated form. They suggested that the UK compared poorly with China in this respect.[146] Several witnesses drew attention to the greater degree of such detailed reporting of exports in the USA. The 1998 Report was welcome in showing the full entries from the UN Register; indeed, in the case of exports to Saudi Arabia, a corrected version of the UN Register since the original UK entry was incorrect.[147] We would welcome a degree of co-ordination between EU Tariff codes and the emergence of a common EU Military List of goods so that readers of the Annual Reports — and indeed other similar European documents — could have a greater feeling of well-founded confidence in the figures of defence exports.

76. The information contained in the Annual Report does not purport to be a full record of arms exported or which it is proposed to export. Government transfers are apparently included in the statistics on exports although they do not require a licence. The 1997 Report referred to Government to Government supply agreements, specifying the Al Yamamah agreement with Saudi Arabia and an agreement with Kuwait. The Report also noted the existence of other Government supply agreements covering the sale of surplus equipment by the MoD's Disposal Sales Agency; these are described in that Agency's annual report. It was unclear how far these sales and transfers were recorded in the export figures in the Annual Report on Strategic Export Controls. The 1998 Annual Report clarified the point, explaining that an export licence would normally be required for purchases by foreign governments of surplus equipment, and set out a short Table listing the 5 major transfers during 1998. There is also the possibility of equipment being leased to other countries. The evidence from NGOs drew attention to these matters and to the doubts about the extent to which bodies such as the Crown Agents, British Military Sales and others were or were not covered by the licensing regime. The Reports should in future contain details of sales and other permanent or temporary transfers by Government and its agencies, and also an explicit account of exemptions from the licensing regime.

ECGD

77. A useful addition to the Report would be annual details on the related work of the ECGD in providing guarantees for defence exports. The ECGD is at present under review; the Trade and Industry Committee published a Report on it on 20 January 2000.[148] The Committee reported that defence related exports typically account for around 20 per cent of ECGD's business, which it considered unsurprising given the sizeable share taken by defence-related products in major UK capital exports to relatively risky markets. While noting that there were a number of unrecovered claims in relation to defence projects in addition to recent problems over the Hawks supplied to Indonesia and the Jaguar aircraft supplied to Nigeria some years ago, the Committee concluded that it had no reason to believe that there was a "substantial default rate". Subsequent to the Committee agreeing to its Report, the Chancellor of the Exchequer announced in a speech outside the House an extension of the list of poorer countries for which ECGD would not grant export credit guarantees for "unproductive expenditure".[149] ECGD provided us with useful figures on its support for defence business.[150] In calendar year 1998, guarantees worth almost £740 million were given in respect of defence exports to 11 countries, the bulk of it for Brunei, but also covering the USA, Italy and Sweden. The Annual Reports of the ECGD are notably less informative. It would seem to us that such facts are a significant component of a full report on the sale of defence material, even if outside a narrow interpretation of the Annual Report. We recommend inclusion in the Annual Reports of details of ECGD support for defence exports in the most readily available period of 12 months.

DESO

78. A further organisation whose activities which could usefully be reflected in the Annual Report is the Defence Export Sales Organisation (DESO) of the Ministry of Defence. DESO produces no annual report to Parliament, except in respect of the Disposal Sales Agency which lies within it. The Defence Committee examined DESO's role in its Second Report of 1998-99,[151] in the context of reviewing the appointment of its new head. The Committee's Report reviewed DESO's involvement not only in supporting defence sales overseas but also the lead it takes within the MoD in the export licensing and pre-licensing processes. The Defence and Trade and Industry Committees' joint inquiry had earlier identified mixed views in industry about the efficacy of those procedures.[152] The Annual Report offers a logical way for DESO to be made in some way accountable for its activities, within the national policy context of defence sales. We recommend that the Annual Report include a report of the activities over the year under review of the Defence Export Sales Organisation.

Defence industry

79. The defence industry is not only a vital part of the UK's industrial base, supporting some 355,000 jobs; the net balance of payments for defence equipment is estimated at over £1 billion.[153] Despite an intensely competitive international market following the end of the Cold War, the UK retains a quarter of the world trade in this sector. The MoD also reckon that the effect of spreading overheads over a larger number of unit sales means an annual saving of £350 million to its procurement budget.[154] It is clear that the UK has a legitimate interest in maintaining a healthy domestic defence manufacturing sector as part of its overall security and industrial policy. It also has an interest in ensuring that its Armed Forces are not confronted by rogue forces in possession of UK-manufactured weapons. It has a compelling interest in preventing the proliferation of weapons of mass destruction or their components and precursors. Transparency about arms exports is therefore an important element of our overall aim of securing a safer world. At the same time, however, it should be noted that none of our European competitors have achieved the UK's current level of transparency. There must be limits to the extent to which it can be expected that the UK should go in disclosing information about arms exports when others show little or no sign of following suit. It is important that we do not damage the competitive position of UK defence exporters in world markets. We do not think that our proposals for greater transparency need do so.

122 HC 540, p 67 & p 65 Back

123 Q 89 Back

124 Q 40 Back

125 Qq 74, 87 Back

126 Q 89 Back

127 HC 540, pp 48-49 Back

128 HC 540, pp 75-80 for corrected pages and explanation; see also CAAT, 17 for critique Back

129 Eg Ev, p 48, para 17 Back

130 HC Deb, 30 October 1997, cols 870-871 w Back

131 HC 540, p 69; Ev, p 75 Back

132 HC 540, Ev, pp 74 and 76: see also Ev, p 82 for similar error in 1998 Back

133 Ev, p 84 Back