APPENDIX 12
Memorandum from the Campaign Against Arms
Trade
1. The Campaign Against Arms Trade (CAAT)
welcomes the fundamental review of the workings of the Export
Credits Guarantee Department, and, in particular, that the Secretary
of State for Trade and Industry wants the review to look at how
the ECGD can help the Government achieve its wider, sustainable
development commitments.
2. In making the UK's Mauritius Mandate
commitments, the Chancellor of the Exchequer said that he would
"ensure that export credits for poor, high indebted countries
will only support productive expenditure". (HM Treasury press
release, 10 August 1997.) Arms purchases are the ultimate non-productive
expenditure, absorbing resources that the buying country might
otherwise use for productive, civil projects.
3. CAAT is opposed to all military exports,
but recognises that, despite their negative effects on development,
human rights, security and the economy, the trade in them will
not end overnight. However, CAAT is seeking an immediate end to
government assistance, including the support given by Export Credit
Guarantees, for the export of military equipment. It is against
this background that CAAT makes this submission.
4. The ECGD aims to operate on a break even
basis, but, in the last resort, any shortfall would come from
the UK tax-payer. This makes the ECGD's activities a matter of
proper concern to UK citizens.
5. Many people question the UK's involvement
in military exports. An independent survey prepared for the Ministry
of Defence in July 1998 showed that 62 per cent of those interviewed
felt that the UK should sell military equipment only to close
allies. The same survey showed that 41 per cent of the public
are opposed to all arms exports, a figure which rises to
47 per cent amongst women. The percentage opposing arms exports
would almost certainly be greater if it were not commonly, but
erroneously, believed that such sales are necessary to boost employment
in the UK.
6. The Centre for Defence Economics at the
University of York (Defence Committee Second Report into "The
appointment of the new Head of Defence Export Services",
24 March 1999) has estimated that the financial benefits of arms
exports to the UK economy amount to £203 million a year,
while the subsidy costs £431 million, a net cost to the tax-payer
of £228 million. The subsidy includes an estimated £239
million for ECGD costs attributable to arms exports. This figure
is based on £823 million average annual net cost (including
losses) of ECGD activities over the last 10 years, and assumes
that the 29 per cent of ECGD business that related to the arms
trade also represented the proportion of ECGD military-related
costs.
ECGD'S MISSION
AND BUSINESS
7. Currently, the ECGD exists "to help
exporters of UK goods and services to win business, and UK firms
to invest overseas, by providing guarantees, insurance and reinsurance
against loss". The critieria for assessing potential business
are purely financial. This results in projects, including military
ones, which have a negative impact on development, environment,
human rights and security being supported.
8. The percentage of Export Credit Guarantees
given in respect of military exports far exceeds the percentage
of such exports to the total of all exports.
| Total ECGD cover |
Military exports as percentage of total visible exports
| Military ECGD cover as percentage of total
| Total military ECGD cover |
| 1997-98 | £3.4 billion
| 2.7% | 22.4% | £763 million
|
| 1996-97 | £2.6 billion
| 2.0% | 14.4% | £374 million
|
| 1995-96 | £4 billion |
1.4% | 21.0% | £841 million
|
(ECGD Annual Report; Letter from the House of Commons Library,
16 June 1999).
This can, in large part, be explained by the nature of military
exports, which comprise comparatively few, high monetary value,
contracts for items such as aircraft and tanks.
| Aircraft | Ancillary equipment
| Artillery/
missiles | Naval vessels
| Communications/
radar | Vehicles
|
| 1997-98 | 31.0% | 1.3%
| 16.4% | 0.3% | 15.0%
| 36.0% |
| 1996-97 | 58.2% | 5.8%
| | 1.0% | 12.2%
| 22.8% |
| 1995-96 | 71.0% |
| 16.0% | | |
|
(ECGD Annual Reports).
9. In the financial year 1997-98, British Aerospace received
cover for military contracts with Saudi Arabia and Qatar totalling
£2,132 million. The total cover for the top 10 companies
was £3,630 million, and this included another £94 million
for Matra BAe Dynamics' military exports to South Korea and Kuwait.
This means that companies in the BAe group accounted for 61 per
cent of the cover awarded the top 10 companies in that year. (Hansard,
21 April 1999.)
10. The regional breakdown of ECGD support for military
exports is:
| Americas | Asia
| Europe | Far East
| Middle East | |
| 1997-98 | 7.8% |
| 3.5% | 14.2% | 74.5%
| |
| 1996-97 | | 6.0%
| 4% | 38.3% | 55.3%
| |
| 1995-96 | | Balance
| | 53.0% | 27.0%
| |
11. The destination of all UK military exports was:
| Latin America and Caribbean
| NATO and other Europe | Asia and Far East
| Middle East and North Africa | Other Africa
| |
| 1998 | 1.0% | 44.0%
| 9.0% | 45.0% | 1.0%
| |
| 1997 | 3.0% | 32.0%
| 8.0% | 56.5% | .5%
| |
| 1996 | 3.0% | 31.0%
| 18.0% | 47.0% | 1.0%
| |
(MoD's UK Defence Statistics 1999).
12. Although the regions are not defined in the same
way in the two above tables, it can, nonetheless, be seen that
the Export Credit Guarantees, which are already disproportionately
supporting military exports as against all exports, are further
concentrated on assisting sales to the Middle and Far East.
13. The following tables detail the amount guaranteed
to military exporters in the last three financial years on a country-by-country
basis. Many of these countries are of concern to those working
on development and human rights issues.
| Country | Amount guaranteed in £million
| Country | Amount guaranteed in £million
|
| 1996-97 | | 1997-98 continued
| |
| Bahrain | 1.4 | Oman
| .9 |
| Indonesia | 143.6 | Qatar
| 222.9 |
| South Korea | 13.6 | Saudi Arabia
| 225.0 |
| Lithuania | 1.5 | Thailand
| 27.3 |
| Qatar | 5.5 | Turkey
| 35.6 |
| Saudi Arabia | 225.0 | United Arab Emirates
| 9.8 |
| Singapore | 18.6 | USA
| 58.3 |
| Turkey | 2.0 |
| |
| | 1998-20.1.99
| |
| 1997-98 | | Brazil
| 29.3 |
| Egypt | 8.8 | Brunei
| 580.0 |
| Greece | 18.7 | India
| 14.3 |
| Indonesia | 16.5 | Indonesia
| 5.8 |
| Italy | 2.7 | Italy
| 1.5 |
| South Korea | 62.4 | Oman
| 21.1 |
| Kuwait | 55.7 | Sweden
| 4.1 |
| Lithuania | 4.8 | USA
| 6.9 |
(Hansard, 25 and 26 January 1999).
IRAQ
14. Following the 1988 cease-fire in the war between
Iran and Iraq, the ECGD considered that the UK needed to be in
a position to take advantage of what was expected to be a rebuilding
of the Iraqi economy, and that exports credits should be provided.
The ECGD said that "sales of large defence equipment should
not be exported at the expense of projects for civil business."
However, the ECGD wanted to continue "the present arrangement
whereby up to 20 per cent of . . . credit facilities may be used
in respect of non-sharp arms business". (Report of the Inquiry
into the Export of Defence Equipment and Dual-Use Goods to Iraq
and Related Prosecutions, D3.172) "Non-sharp is presumably
what the then Government described as "non-lethal" weaponry.
15. On 21 June 1990, just before Iraq invaded Kuwait,
the then Secretary of State for Trade and Industry, Nicholas Ridley,
told Prime Minister Margaret Thatcher that the ECGD's exposure
in Iraq was £1 billion. (As above, D3.184)
16. After the 1991 Gulf War, Iraq was certainly not going
to pay its debts, and the "Sunday Times" reported on
7 July 1996 that the ECGD had persuaded a number of UK banks to
issue 25 writs claiming more than £400 million from the Iraqi
Government. At that time, the UK Government confirmed that about
£26 million was outstanding in respect of equipment with
a military application, particularly communications equipment,
the export of which was underwritten between 1987 and 1990.
17. The experience with Iraq shows clearly the financial
risks, as well as the dubious morality, that is inherent in the
underwriting of exports to military dictators.
INDONESIA
18. In 1993, the ECGD underwrote the sale of 24 British
Aerospace Hawk aircraft to Indonesia. In 1996 it provided cover
for a further 16 Hawk jets. The sale of these aircraft was always
controversial, as the Indonesian Government's human rights record
was abysmal and it remained in occupation of East Timor which
it had invaded in 1975.
19. The then Conservative Government justified the sale
on the grounds that the Hawks were simply training aircraft, and
that the Indonesian authorities had given assurances the jets
would not be used for internal repression. This was despite numerous
eyewitnesses accounts of Hawks in action against villages in East
Timor. Indeed, Robin Cook, then Shadow Foreign Secretary, stated
in the House of Commons in 1994: "Hawk aircraft have been
observed on bombing runs in East Timor in most years since 1984."
20. In July 1999, reports, subsequently confirmed by
both the UK Labour Government and the Indonesian military, told
of a Hawk being flown over Dili in the build up to the UN referendum
on independence. The UK Government sought fresh assurances that
the Hawks would not be used in East Timor.
21. The export licence for the 16 Hawk aircraft was announced
in November 1996, but delivery did not begin until April 1999.
In September 1999, the deal was suspended for four months by the
UK Government following the Indonesian military-inspired violence
which erupted in East Timor following the vote for independence.
At the time of writing about eight of the Hawks remain in the
UK.
22. In September 1998, following the economic crisis
in the Far East, the UK and Indonesia's other major creditors
agreed to reschedule Indonesia's debt. The bilateral debt agreement
between the UK and Indonesia covered £260 million worth of
debt, 75 per cent of which related to military contracts signed
prior to 1 July 1997 (Hansard 11.11.98).
23. A year later, the ECGD said that Indonesia has remained
up-to-date with its interest payments on all contracts. The ECGD
is paying claims in respect of the amounts of deferred principal,
but the rescheduling agreement had allowed for the recovery of
this. £48 million had been paid out for military claims by
the end of July 1999, and more payments were expected during the
following nine months. (Letter from the EGCD Director, External
Relations, 28.7.99).
24. If the suspension of the Hawk sale becomes permanent,
it is likely there would be major financial ramifications for
the ECGD and, potentially, the UK tax-payer.
25. CAAT would argue, however, that even if Indonesia
does eventually repay the principal, and there is no cost to the
UK tax-payer, the ECGD should not have underwritten this deal.
From the start, it has been controversial on human rights grounds
and has brought the ECGD and the UK Government into disrepute.
The financial wisdom of it would also appear questionable.
SOUTH AFRICA
26. Despite reductions from the originally announced
order, in September 1999 the South African Government confirmed
major arms purchases from European companies. These include eight
British Aerospace/SAAB fighter aircraft, and 12 British Aerospace
Hawk 100 fighter trainers.
27. The arms were largely sold to South Africa on the
promise of offsets, that is, the European companies investing
in South Africa and generating 65,000 jobs there. About 20 per
cent of the offsets would be in military production, the rest
in civil industry. There is considerable scepticism about this,
particularly from academics studying similar arrangements elsewhere.
The experience is that such schemes do not produce anything like
the number of jobs promised.
28. It is worth noting, in passing, the seeming contradiction
that UK export credits will be supporting a deal which, ostensibly,
is creating jobs overseas. The ECGD is set up to support UK business,
but it could be inferred that this support is for the shareholders
in UK companies, and not UK workers.
29. The South Africa Government is likely to have been
further persuaded by generous financial arrangements. The payments
will extend over a long period, in some cases 14 years. The terms
of the loans are said to be "highly attractive to the South
African Government." In the UK these are being underwritten
by the ECGD (Jane's Defence Weekly, 22.9.99).
30. A number of organisations within South Africa, including
church, human rights and gun control groups, have formed the Coalition
for Defence Alternatives. They believe their Government's massive
weapons procurement programme will further aggravate the poverty
of most South Africans. The South African organisations say the
purchase will severely undermine their country's economy, and
most especially its economic and social development.
31. By under-writing the South African arms deal the
ECGD is supporting a non-productive investment, something it has
been suggesting to its overseas counterparts should not be done,
see International Aspects below. The scale of this project may
also limit opportunities for UK civil exports to South Africa.
DEBTS
32. There have been a number of claims made relating
to military guarantees. According to the ECGD (Letter from the
Director, External Relations, 28.7.99), besides the Indonesia
claim mentioned above, claims have been made for £253 million
from Jordan, £88 million from Algeria and £46 million
from Egypt. All are said to be in respect of business underwritten
a number of years ago, and their recovery is being pursued through
the Paris Club of official creditors.
33. Additionally, since 1986-87 the Ministry of Defence
has made contributions to the ECGD to provide interest rate support
for military exports to Jordan. Additionally, in the years 1986-87,
the MoD made payments to provide similar support for Oman. The
contributions totalled £10,553,000 between the years 1986-87
and 1997-98. Further payments totalling £141,000 are forecast
for the years 1998-99 and 1999-2000, after which the contributions
will cease (Hansard 18.1.99). It is not clear what the arrangements
with Jordan and Oman are, and whether or not they will refund
the monies to the MoD at any stage.
34. Some of the recent Export Credit Guarantees have
been issued to support military to debtor countries. Brazil which
owes £523.7 million for military and civil goods is particularly
noteworthy in this respect. It would be interesting to see the
financial justification for providing cover for £29.3 million
of military exports in 1998-99, when it owes so much from the
past (Hansard, 25.1.99 and 26.4.99).
COHERENCE WITH
OTHER GOVERNMENT
DEPARTMENTS
35. Chancellor of the Exchequer, Gordon Brown, told "Channel
4 News" on 11 June 1999 that governments granted debt relief
have "got to use the money for economic development, for
education, for health and not waste it on corruption or bureaucracy
or military arms . . .". Clare Short, the International Development
Secretary, in a speech launching "Security Sector Reform
and the Elimination of Poverty" on 9 March 1999, said that
it is "important the developed countries—such as the
UK—do not encourage excessive levels of military spending,
either by an irresponsible approach to the export of arms or by
irresponsible use of export credits."
36. CAAT has welcomed these recent acknowledgements by
members of the Government that arms purchases cost money that
should be used for sustainable development. Furthermore, when
the weapons are actually used, they can set back development by
decades.
37. The inter-departmental Export Guarantees Committee
considers the political, economic, financial and commercial factors
that relate to markets where the ECGD might provide support. It
is not clear whether these factors, as described, include development,
environment, human rights, and security issues.
PRINCIPLES OF
GOOD GOVERNANCE:
ACCOUNTABILITY, TRANSPARENCY
AND PREVENTION
OF CORRUPTION
Lack of accountability
38. The ECGD is accountable to Parliament and the public
through the Secretary of State for Trade and Industry.
39. The members of the ECGD's Advisory Council, according
to its own Annual Report "are drawn from senior levels of
the banking, commercial and industrial sectors". This is
a very narrow circle, and many members have links with companies
which receive ECGD support. There are no representatives of development,
human rights or environmental organisations who might bring a
different perspective to the Council's deliberation.
40. The Advisory Council's minutes are not made public.
Secrecy
41. Despite the UK Government's commitment to open and
transparent government, the ECGD remains one of the most secretive
and unaccountable of all UK government departments.
42. Even parliamentarians seeking information have gone
without answers. For example, Cynog Dafis MP requested a complete
list of ECGD export credits and insurance agreements since 1995.
In response, the Minister for Trade said: "ECGD does not
report individual guarantees without consent of the firms concerned
and, in view of the number of guarantees involved, disproportionate
cost would be involved in obtaining this" (Hansard, 11.2.99).
43. The information that, to date, is in the public domain
is inadequate for informed debate. This is unacceptable for a
public body.
44. The obsessive secrecy sometimes rebounds on the ECGD.
Headlines claiming, erroneously for the moment, that the public
is paying for sales to Indonesia would be less likely to occur
if the processes of the ECGD, and greater detail about specific
underwriting arrangements, were in the public domain.
Prevention of corruption
45. The UK has signed the Organisation for Economic Co-operation
and Development's 1997 Convention on Corruption and Bribery. This
obliges signatories to adopt national legislation which makes
it a crime to bribe foreign public officials.
46. The World Bank has instituted measures to crack down
on bribery. It has adopted guidelines pledging to "declare
a firm ineligible, either indefinitely or for a stated period
of time, to be awarded a bank-financed contract" if the firm
is found to have "engaged in corrupt or fraudulent practices
in competing for, or in executing, a bank-financed contract."
47. Currently, the ECGD does not appear to have a policy
on action to be taken against companies found to have bribed overseas
officials.
International aspects
48. The UK Government has pressed overseas Export Credit
Agencies (ECA) to agree not to support "non-productive"
investments, which CAAT assumes would include arms sales. It has
stopped short of taking unilateral action on this.
49. There are campaigns in other industrialised countries
pressing their governments to include development, environment,
human rights and security criteria when considering applications
for export credit guarantees. Such campaigns, which include those
working to end the international arms trade, are growing in momentum,
and have led to ECA reforms now being placed firmly on the international
policy agenda. No less a figure than Michael Camdessus, Managing
Director of the International Monetary Fund, has expressed his
support for "abolishing the provision of export credit for
military purposes." (Speech, Washington DC, 28.9.99)
50. Unilateral changes in the ECGD's conditions for support
are, therefore, unlikely to adversely affect UK competitiveness.
On the contrary, UK companies would be at an advantage as they
would be able to plan for the future under a clear framework that
included the non-financial guidelines which will, sooner or later,
also encompass their competitors.
RECOMMENDATIONS
(a) Mission Statement. The current Mission Statement
should be amended so that its aims are not purely financial. A
possible wording is: "The ECGD's mission is to support the
export of UK goods and services and investments overseas that
meet the highest standards consistent with environmentally sustainable
and equitable development, adherence to human rights and the promotion
of good corporate governance. The provision of guarantees, insurance
and reinsurance against loss will be made in an open, transparent
and publicly accountable manner. No support will be given for
non-productive exports."
(b) There should be no ECGD cover for military equipment
or goods. No ECGD cover should be made available for goods
being purchased by overseas military or security forces, or armaments-manufacturing
bodies. This would include cover for the construction of military
bases.
(c) The Export Guarantees Committee should have a
clear remit to include development, environment, human rights
and security concerns. It should check that projects to be
given Export Credit Guarantees are not indirectly assisting overseas
military or security forces, or armaments-manufacturing bodies.
(d) The ECGD must be made more accountable by:
— broadening the base of the ECGD's Advisory Council,
to those with an expertise in development, environment, human
rights and security issues. The members of the Advisory Council
should be approved by the Trade and Industry Select Committee;
— requiring the ECGD to report annually to the UK
Parliament, and for the Government to hold a debate on the report.
(e) The ECGD must be made more transparent by:
— advance notification of pending applications,
detailing the type of project, the amount guaranteed, the companies
involved, the country involved and likely development, environment,
human rights and security impacts;
— release of all documents relevant to the development,
environment, human rights and security impacts of ECGD-supported
projects and the dissemination of translations in the languages
of project-affected people;
— a presumption in favour of disclosure, as against
the commercial confidentiality of companies;
— a requirement on the ECGD to consult with affected
communities and interested pubic interest groups prior to any
decision being taken on approval of a project and to demonstrate
how account has been taken of the issues raised.
Such greater transparency would enable Parliament and the
public to monitor Export Credit Guarantees to ensure that no military
exports were covered.
(f) The ECGD must make greater efforts to prevent
corruption by:
— considering the past development, environment,
human rights and security record of companies applying for ECGD
credits and investment guarantees;
— requiring UK companies receiving ECGD support
to agree to meet the same environmental, labour and development
standards in other countries as they would be expected to observe
in the UK;
— cancelling all cover for companies which have
been proved to have been involved in bribery or corrupt practices
and disbarring them from future support for a minimum period of
10 years;
— requiring the ECGD to ensure that the contracts
which it supports have been awarded through an open tendering
process.
(g) The UK Government should press Export Credit
Agencies overseas to adopt high common, mandatory development,
environment, human rights and security standards. It should
call on them not to give export support for military and security
goods as in (b) above, but international agreement on this should
not be a precondition for unilateral action by the UK.
Campaign Against Arms Trade
October 1999
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