APPENDIX 7
Memorandum submitted by The British Defence
Manufacturers Export Licensing Group
The members of the Trade & Industry Committee
will, undoubtedly, have seen in the media recent reports of the
"freezing" of export licence application processing
for Pakistan. An article in The Guardian of 12 January
2000 stated that:
"Although no arms embargo was formally imposed
by Britain, the foreign office confirmed . . . that no new applications
for export licences had been approved since the coup."
The article reported on the problems being experienced
by British companies with obtaining export licences for supplying
defence equipment to Pakistan, since the military coup in October
1999. The article quoted that there are some 80 export licence
applications for Pakistan which have been "frozen" in
the system since that date.
We fully understand and appreciate the political
sensitivities that have arisen since the coup and the very careful
consideration that must now be given to each licence application
for Pakistan. However, this state of affairs has exacerbated the
problems and uncertainties that United Kingdom defence companies
have been experiencing for some time now, not only with regard
to the Pakistani market, but also with India. Yet both countries
have been identified by the MoD (United Kingdom's) Defence Export
Services Organisation (DESO) as highly valuable priority markets
for United Kingdom Industry to target, and are also important
and long-standing customers of many United Kingdom firms.
The problems that United Kingdom companies have
been experiencing with India and Pakistan have increased since
the Spring 1998 nuclear tests in both nations. Firstly, the Government
decided to examine more closely and carefully all licence applications,
resulting in a considerable slowing down of the licence processing
system. Secondly, the United States embargo on both nations has
considerably affected United Kingdom companies seeking to supply
equipment with any United States-sourced components or sub-systems.
This has resulted in extreme dissatisfaction to the Indian and
Pakistani customers and the practical realisation that many United
Kingdom firms affected may think twice in future before involving
United States sub-contractors in their projects, if possible.
Our member companies have been reporting for
some time now that export licence applications for both India
and Pakistan have regularly taken at least 3 to 4 months (ie some
3 to 4 times the DTI's stated target turnaround times) to process,
even for small quantities of spares (eg c£1,000 worth) for
non-offensive items. Many report that they are " . . . currently
experiencing considerable delays . . . ", with all licence
applications for India and Pakistan seemingly subjected to intense
(and time-consuming) scrutiny by the Technical Rating section
within the DTI's Export Control Organisation, and then, again,
by officials within the MoD (UK) and FCO.
These long delays take no account of the competitive
pressures on suppliers where speed of delivery can be an essential
criteria in the winning of business. Customers become increasingly
frustrated, letters of credit expire and business is lost, along
with international goodwill.
Now, on top of these problems, comes the report
of an actual "freeze" on licence applications for Pakistan.
We are not yet sure of the scale of the problems being caused
for Industry or the value of the business that is at jeopardy,
but do know, from comments received from Member companies that
there is extreme frustration, and some companies have already
lost important business. Members now report that, where they had
licence applications already in the system for 3 to 4 months before
the October 1999 coup and which have now been caught up in a "freeze",
they have been waiting for some seven months.
Companies fully understand the problem being
faced by HMG and the diplomatic sensitivities that the imposition
of a formal embargo can cause. But many Members would prefer to
see the imposition of an embargo rather than an unofficial "freeze".
At least they would know exactly where they stood in a clear-cut
situation.
Overseas defence contracts take a long time,
and much effort, to win. The costly and resource-intensive marketing
commitment required to pursue and win export contracts ties up
valuable and limited company resources, especially for small firms
involved in niche areas. They find that the current case-by-case
basis for assessment which might, eventually result in a negative
decision when a decision is actually made, is worse than an outright
refusal right at the start.
All types of material are being caught up by
the current "freeze", which affects not just weapons
systems or equipment that might upgrade Pakistan's military capability,
but also non offensive material. One such case concerns a licence
application for the supply of naval safety equipment.
The problems do not just relate to export licence
difficulties. Many companies have reported several (and, sometimes,
all) shipments they make to India and Pakistan being unjustifiably
held up by HM Customs Enforcement officers—despite being
accompanied by DTI letters stating that the goods do not require
an export licence.
The only beneficiaries appear to be our overseas
competitors, who will be able to pick up not only the immediate
business in question, but also the much larger follow-on contracts
that frequently result. Members report that other defence exporting
nations have shown little inclination to follow the UK's example
on Pakistan, but are carrying on as normal. This includes some
of the UK's EU partners, such as France, which is currently pursuing
major contracts for the supply of Mirage 2000-5 fighter aircraft
and endeavouring to complete an on-going programme for the supply
of 3 x Agosta B diesel-electric submarines. A number of our Members
have reported that their European competitors have been shipping
similar products to Pakistan without, they believe, any end-user
declarations or licences. When they have reported this inequality,
HMG officials have been disinterested.
The situation is particularly frustrating in
that, if licences were actually refused, our EU competitors would
be restrained from pursuing those opportunities, by provisions
of the EU Code of Conduct on Arms Exports, without reporting it
to the UK Government.
The "freeze" on Pakistan is but the
latest in a number of occasions when officials and Government
Ministers, presented by a difficult and politically sensitive
decision on an export licence application, appear to decide that
they should prevaricate rather than make a decision, one way or
the other.
In the meantime, companies that have licence
applications "trapped" in the system are subjected to
stonewalling by officials. The officials at DESO and the DTI,
especially, are generally sympathetic but unable to help when
companies try to find out what the latest situation is. This lack
of response from HMG exacerbates further the existing general
lack of transparency of the system. Officially HMG position has
not changed, but to all intents and purposes this is clearly not
the case. This indecision by HMG results in frustration for the
company, and annoyance for the customer, who cannot be given any
advice on how the licence application is progressing.
UK Industry needs and requires to be given deadlines
for the processing of licences. With the current UK open-ended
system in normal circumstances, companies can generally use the
DTI's 20-working day target timescale as a rough guide. When unofficial
"freezes" are imposed companies are left completely
in the dark. This prevents short-term decision making and adversely
affects UK Industry's long-term chances in the relevant overseas
markets. The risk is of the UK gaining a reputation as an unreliable
and untrustworthy supplier, to the long-term detriment of the
British economy and employment. Any perception by potential customers
of difficulties in obtaining export licences can be hugely detrimental
to UK Industry in pursuing potential opportunities in a highly
competitive marketplace. What is needed is proper, effective and
positive decision-making by HMG, especially in "difficult"
cases, rather than prevarication and indecision.
7 February 2000
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