Select Committee on Defence Minutes of Evidence

Annex A

Q1.  What does the MoD consider to be the principal mechanisms by which the Framework Agreement will deliver each of the eight objectives set out in Article 1 of the treaty, and by what indicators will the MoD assess the successful achievement of these objectives?

  A1.1  The principal mechanisms being considered for each objective in Article 1 are set out below:

    —  Article 1(a). The Framework Agreement and subsidiary international agreements and arrangements will establish a governmental framework to facilitate restructuring of the defence industry in Europe. In general, MoD will use, or amend, existing national regulations, procedures and policies to deliver the objectives of these international instruments;

    —  Article 1(b). The modalities of ensuring timely and effective consultation over issues arising from the restructuring of the European defence industrial base are still under discussion. MoD envisages that there will be two principal mechanisms: an international arrangement for governmental consultations; and a voluntary code of conduct for encouraging industry to inform governments in advance of any restructuring;

    —  Article 1(c). The nations are examining a variety of methods to achieve a security of supply for defence articles and services. These include legally binding agreements, specific contractual conditions for security of supply and option licences. They are likely to be underpinned by a Memorandum of Understanding (MoU);

    —  Article 1(d). Transfers between participating Partners and their industries of licensable military goods and technology in the context of approved joint development and production programmes will be simplified by the introduction of Global Project Licences. Advance agreement by partners in a joint programme of approved destinations for onward export to third countries of jointly developed and produced military goods will provide a firmer planning basis for defence exporters. The scope and requirements of the Global Project Licence to enable national implementation and the modalities for timely and effective consultation on proposed export destinations are still under discussion;

    —  Article 1(e). Exchanges of classified information will be facilitated through the amendment of security regulations and procedures and by the comprehensive promulgation of these amendments throughout government and industry;

    —  Article 1(f). Greater co-ordination of joint research activities will be fostered by developing a closer relationship between the Research Directors of the six LoI nations, and at the project level by use of more flexible arrangements, an example of which is the draft EUROPA MoU. (see also A12 below);

    —  Article 1(g). A number of mechanisms to achieve this objective are outlined under Articles 37 to 41. In addition the six Defence Ministries are committed by Article 42 to develop a mechanism by which each nation's IPR contract provisions will be harmonised. This mechanism will take the form of a further intergovernmental arrangement establishing common practices. This will simplify IPR negotiations between the Parties and their industries, and between the Parties themselves, where co-operative programmes are concerned;

    —  Article 1(h). As set out in Article 45-46, regular and comprehensive exchanges of documents and other relevant information, and more systematic consultation will be the key mechanisms. These and other mechanisms yet to be agreed will be embodied in a MoU.

  A1.2  In general, success will be measured in two stages. In the short term by our success in establishing a framework within which trans-national defence companies can restructure and operate effectively. This will require the introduction of the simplified export licensing procedures, security regulations, etc. In parallel, this framework must allow the six governments to broaden and deepen their equipment co-operation activities. The longer-term measure of success will be the maintenance of an efficient and effective European defence industry, and the generation of harmonised requirements which ultimately lead to increased co-operation in research, development, procurement and logistic support.

  Article 3 of the Agreement states that the Executive Committee (ExCo) is responsible, inter alia, for executive-level oversight of the Agreement, monitoring its effectiveness, and providing an annual status report. Nations have yet to agree on how best to fulfil this obligation. That said, the MoD believes that the ExCo will have to develop performance indicators in each of the six areas. For example, one indicator of success in handling of technical information could be reduced negotiating periods for both contracts and inter-governmental arrangements.

Q2.  In what ways does the treaty differ from the provisions contained in the "Letter of Intent" signed by the six signatories on 6 July 1998? In negotiating the Framework Agreement treaty, what particular provisions did the UK government seek to have included or excluded?

  A2.1  The Letter of Intent (LoI) was a statement of political intent. It defined the scope and principles which should guide the negotiations to develop a co-operative framework within which the restructuring of European defence industry could take place. Following signature of the LoI, expert working groups were formed to examine the areas of security of supply; export procedures; security of classified information; treatment of technical information; research and technology; and harmonisation of military requirements. They devised a number of practical measures to address the concerns highlighted in the LoI, and these have been incorporated into the legally binding Framework Agreement. The Agreement indicates also the areas which need further work. A more detailed LoI/Framework Agreement comparison by subject area is set out below:

    —  Security of Supply. The LoI outlined the strategy for achieving security of supply, which is now reflected in the detailed legally binding provisions of the Agreement. Moreover, the Agreement enshrines a commitment to consult in a wide variety of circumstances when a nation's security of supply may be affected. It also commits the Parties to develop further measures to achieve security of supply.

    —  Transfer and Export Procedures. The Agreement sets out specific measures to facilitate transfers of military goods and technology for approved joint development and production programmes and subsequent exports of the resulting military goods to jointly agreed destinations. The Agreement commits Parties to undertake further work to simplify transfers of sub-systems and components outside the framework of approved joint programmes and also to streamline national licensing procedures in respect of transfers to other Parties of nationally produced military goods and technology.

    —  Security of Classified Information. The LoI identified the main areas that required revision, as agreed with industry. Part 4 of the Agreement and the related Annex identifies the specific changes required.

    —  Defence Related Research and Technology. The Agreement adds substance to the broad principles outlined in the LoI and sets out a strategy for enhancing co-operation in this field.

    —  Treatment of Technical Information. The Agreement expands upon the LoI's provisions by specifying measures to provide for the release of government information to the industries of other LoI nations, as it would to its own industry; by waiving the requirement for industry to assign ownership of technical information as a condition of restructuring; by clarifying the use of government owned information; by waiving assignment levies in respect of restructuring; and by committing to harmonise IPR contract provisions and streamline the patent applications process.

    —  Harmonisation of Military Requirements. The Agreement builds upon the LoI, by setting out more detailed objectives, and specific measures.

  A2.2  The objectives and scope of the Framework Agreement were dictated largely by the Letter of Intent. Accordingly, the governments had achieved a broad consensus on the contents of the Framework Agreement before the negotiations started. During the Framework Agreement negotiations the only additional points which the MoD sought to include, or emphasise, were:

    —  In the field of export procedures, the MoD ensured agreement of permitted export destinations would be made by consensus decision by partners participating in a joint programme.

    —  Each party should treat the defence industries of the other Parties as it treats its own industry when considering the release of Government owned technical information. This was achieved by Article 37.2.

    —  Ownership of technical information would be retained by industry and the sequestration of that information by government would not be a condition of restructuring approval. This was achieved by Article 38.1.

    —  Adequate protection of commercially sensitive information—which was deemed essential if we were to retain the confidence of industry. This was achieved by Part 8.

  MoD is content with all of the treaty's provisions. The UK government did not seek to exclude any of the provisions in the Agreement sitting before Parliament.

Q3.  How does the MoD envisage the Framework Agreement being turned into more specific measures? Is the Agreement likely to be the foundation for a single more specific treaty later on, for example, or a series of ad-hoc measures? What is the MoD's estimate of the timescales in which more specific measures will be introduced? What progress has been made, or is in prospect, in establishing the "Executive Committee" (envisaged by Article 3) to take this work forward?

  A3.1  The Framework Agreement contains a number of specific practical measures that will benefit government and industry. These can be implemented by translating them into national regulations, procedures and policies. In those areas where the treaty, indicates that further work is necessary, specialist working groups will be formed to negotiate specific measures.

  A3.2  There are no plans for another more specific treaty in the future. The governments intend to examine a series of ad hoc measures that may be recorded in a new agreement, or an amendment to existing agreements/arrangements. For example, the security provisions contained in the treaty will be reflected in bi-lateral General Security Arrangements between the Parties. For the purpose of harmonising the IPR provisions of the LoI nations, a further governmental arrangement will be drafted by the working group examining treatment of technical information. We expect also to conclude new MoUs on the harmonisation of military requirements and security of supply.

  A3.3  The MoD estimates that a number of the measures contained in the Framework Agreements can be implemented within about a year. This is an ambitious target, and some of the measures are very complex. Certain measures can be expected to take longer; especially those that require further legally binding agreements, changes in national laws and regulations, or negotiation with industry.

  A3.4  An Executive Committee (ExCo), established under the auspices of the Letter of Intent, has already started to take this work forward. On 26 September 2000 the ExCo approved detailed work programmes to implement each area of the Framework Agreement. A new ExCo will replace the existing ExCo once the Framework Agreement enters into force. The new ExCo terms of reference are being drawn up by the six nations. As the Agreement enters into force when the first two nations have completed the ratification process, the ExCo will initially have two members and four observers. The observers will become members once they have ratified the Agreement. This new ExCo will oversee the implementation of the Agreement.

Q4.  In what ways does the Framework Agreement provide greater security for supplies from other countries than is currently available?

  A4  Industrial restructuring, rationalisation and downsizing may lead to the closure of manufacturing capacity in one country in preference to existing capabilities in another. Governments need to accept that it is no longer possible to rely solely on their national defence industry to meet the full range of defence equipment requirements. Nations are becoming mutually dependent. Consequently, security of supply must be sufficient to give governments confidence that they can meet their future military commitments in peacetime and in times of crisis and armed conflict.

  This Agreement will reassure nations by committing the Parties not to hinder unnecessarily the supply of defence material to the other Parties; to consult on any merger or acquisition of defence companies that may threaten security of supply; and to work together to provide supplies from national stocks, to ensure the correct prioritisation and allocation of supplies, and, where necessary, to reconstitute supply facilities.

Q5.  How does the MoD anticipate the provisions of Article 12 of the treaty operating, including the procedures for negotiating global project licences and the scope of such licences? In what circumstances will individual governments be able to withhold transfers of defence articles to another signatory country, when (a) the item is needed for use by another signatory and (b) when the end-user is a third-party country? What provisions are there in the Framework Agreement to provide security for supplies from another signatory country when such equipment transfers are not linked to "co-operative armament programmes"?

  A5.1 & 5.2  The MoD is still discussing with its partners the scope and requirements of the Global Project Licence to enable national implementation and the modalities for the agreement of proposed export destinations by participants in co-operative armaments projects. The conditions for granting, withdrawing and cancellation of Global Project Licences will remain the national responsibility of participants in the programme. However, the commitments in the Agreement to prior consultation and agreement of permitted export destinations by participants is designed to ensure that potential concerns about destinations are resolved by consensus agreement before Global Project Licences are granted. Article 13 outlines the procedures that would be followed in the event of significant changes in the internal situation of a previously agreed export destination. Transfer of nationally produced defence goods and technology to other Parties for their own use or re-export to a third party country will remain subject to national export procedures.

  A5.3  Article 6 commits the Parties not to hinder the supply of defence articles and services produced, assembled or supported in their territory to the other Parties regardless of whether such transfers are linked to co-operative armaments programmes. This commitment is, however, subject to national licensing procedures. Article 17 commits the Parties to make their best efforts to streamline national licensing procedures for transfers of nationally produced military equipment to another party.

Q6.  Article 7, Para three of the treaty states that individual countries may agree with "transnational defence companies" the strategic activities and assets that will be retained on national territory. What criteria will be used in determining the meaning of such "strategic" necessity? Will such criteria be determined multilaterally or unilaterally by each individual government?

  A6.1  The MoD keeps under review the defence industrial capabilities that it wishes to see sustained in the UK. In doing so, the department focuses primarily on defence related considerations. In determining whether the retention of an indigenous capability or technology was a strategic necessity the MOD's principal criterion would be whether it was needed in order to guarantee our ability to meet a critical operational requirement or unique national commitment.

  The Department of Trade and Industry has primary responsibility for considering the government's position in relation to the formation of transnational defence companies, but takes full account of the MoD's views on the implications for competition and national security. The intention of Article 7 is that before the formation of a transnational defence company, each nation should define which of the company's activities it considers to be of strategic importance to retain on its own territory. This will clearly involve consultation with our partners.

Q7.  Why is it necessary to introduce provisions on exports in the Framework Agreement, when the signatories are already covered by the EU code of conduct on defence exports? In what circumstances, and in what ways, could export policies agreed for a specific "co-operative armament programme" (under Article 13) differ from existing national export rules or the EU code of conduct?

  A7.1  The provisions on exports reflect the Parties' understanding that permitted export destination for jointly developed and produced military goods will be agreed by consensus by all the participants in the programme and not solely by the final exporting partner. Consultation on potential permitted export destinations will take full account for the Parties' international commitments including the EU Code of Conduct criteria.

  A7.2  Article 13 provides for the agreement by participating partners of permitted export destinations by consensus. The discussions to achieve this consensus will take into account national export control policies and the EU Code of Conduct criteria with a view to ensuring consistency. In the event that a proposed export destination was incompatible with the national export control policy of a participating Party, then it would obviously not be possible to achieve consensus on it as a permitted export destination.

Q8.  Under what circumstances will an individual signatory to the Framework Agreement be able to prevent defence exports to third parties? To what extent could such vetoes be based on national (rather than multinational) criteria or different national interpretations of the Framework's provisions?

  A8.1  Article 13 provides for consensus agreement of permitted destinations for exports of jointly developed and produced military goods from approved programmes. Participants in such a joint programme can prevent exports by withholding their agreement to the inclusion of particular destination on the list of permitted export destinations.

  A8.2  Article 13 states that consultations between participants in a joint development and production programme on permitted export destinations will take into account, inter alia, the participants' national export control policies. The extent to which such consultations will be influenced by national export control policies remains to be seen, We would hope to avoid different national interpretations of the provisions of the Framework Agreement. Article 60 commits the Parties to resolve any dispute about the interpretation or application of the Agreement by consultation or any other mutually acceptable method of settlement.

Q9.  How do the provisions in the treaty on security of classified information (Part 4) differ from the UK's existing practices? Do the treaty provisions require changes in existing procedures for protecting information obtained from third-party countries, and (if so) what are the changes and have such countries (including the US) given their approval to the provisions of Part 4?

  A9.1  Whilst retaining adequate security protection, the provisions in the Agreement relating to classified information have removed some unnecessary restrictions, particularly in the area of international visits. Existing international procedures require notification and acceptance of visits on a government-to-government basis, which can take several weeks to process. Under the Agreement, visits involving discussion or release of information classified Confidential or above, but which has already been agreed by the owning government as shareable, may be undertaken without government clearance. Instead, details of the visit and visitor will be communicated on a company-to-company basis.

  Two other measures that will greatly assist industry are the agreement that Confidential information may be carried by commercial couriers, in exceptional circumstances; and the approval of commercial encryption for transmission of Restricted information.

  A9.2  The Classified Information provisions apply only to national information belonging to one or more of the LoI Parties. They do not apply to Classified Information belonging to third party countries.

Q10.  In what sorts of circumstances would the MoD seek not to disclose "technical information" to other signatories, or their defence industries, as envisaged under Article 39 of the treaty? Does Article 37 Para 2 of the treaty oblige the MoD to offer the technical information it may vest in New-DERA also to research organisations in other signatory countries?

  A10.1  Article 39(a) provides for the disclosure of Technical Information to the other Parties and their defence industries solely for assessment purposes and sufficient to assure themselves that the creation of a particular transnational defence company is not against their overall defence interests. We do not anticipate that the information necessary to discharge this obligation will be of significant commercial value. It might include, for example, quality assurance and logistic support information. Each request for such information will be considered on its merits, and it is not sensible, therefore, to speculate on those circumstances when we might decline disclosure.

  On Article 39(b), the information sought may be for the purpose of commercial manufacture or development. In such cases, agreement of the government concerned to the use of that information may be dependent on some quid pro quo from the recipient transnational defence company, eg rights to information relating to future improvements to the equipment. Without such a quid pro quo, the information would not be released.

  A10.2  Article 39(b) commits the Parties to the principle that defence companies within the LoI countries should enjoy equal access to information necessary to formulate a tender or execute a contract, subject to security and export control regulations. The Framework Agreement does not require disclosure of information owned by New-DERA, once floated, because the information will not be government-owned. However, MoD will retain sufficient rights in information owned by New-DERA, and funded by MoD, to enable MoD to meet its international obligations, and more relevantly in this case, to ensure that industry (including TDCs) has available the necessary information to tender for or to perform an MoD contract.

Q11.  How would the role of the organisation envisaged under Article 48 of the treaty differ from that of OCCAR? What advantages or disadvantages of one or other organisation absorbing the role of the other in due course have you identified?

  A11.  The role of the organisation envisaged under Article 48 of the treaty does not differ from that of OCCAR. Indeed, OCCAR is among the options being considered. Other possibilities are use of a host nation (one nation procuring a specific product for the other nations), and a European Armaments Agency (EAA). The host nation procurement model remains a possibility but the general opinion is that an organisation tailored to collaborative defence equipment procurement would be preferable. Much work remains to be done before the EAA concept is implemented and the size and diversity of its membership raise questions about its applicability to the Framework Agreement. On balance, the working group is likely to recommend the OCCAR route, although this would require arrangements to allow participation by non-OCCAR members, or expansion of OCCAR to include all Parties to the Framework Agreement.

Q12.  What are the expected benefits or disbenefits of establishing the Research & Technology organisation envisaged by Article 32 of the treaty, as compared with those of the programmes of the WEU's Western European Armaments Group? What factors would be likely to determine whether research is done under the auspices of one organisation rather than the other? Why might the prospects for successful collaborative research be better under the treaty than previously under WEAG, and to what extent are these provisions contingency measures in case WEAG is wound up?

  A12.  Article 32 does not assume the creation of a new international Research & Technology (R&T) organisation to either contract or manage R&T projects. The six nations intend to consider whether or not existing organisations can be used for this purpose. The Western European Armaments Organisation (WEAO) Research Cell is one such organisation. A key factor is the existence of an appropriate legal relationship between the international organisation and all the six nations that will allow central contracting on behalf of the nations. A new R&T MoU named EUROPA has been drafted and provides a mechanism that will embrace both the general R&T requirements of the Western European Armaments Group (WEAG) as a whole, and the particular relationship between the six LoI nations, using the WEAO Research Cell as the primary contracting agency. It would not, however, prevent the use of other contracting mechanisms on a project-by-project basis, when these were considered more appropriate.

Q13.  What are the MoD's plans for moving towards holding international competition for its research work (in compliance with Article 33 of the treaty)? To what extent would any such move depend on reciprocal changes by the other parties to the treaty? Is there scope for OCCAR to take on the R&T role envisaged by Articles 31 and 32 of the Framework Agreement?

  A13.1  Competition is already used very widely in international research co-operation, particularly in existing multilateral European fora, and will be firmly established as the preferred method for letting R&T contracts under any new R&T MoU agreed among the six LoI nations (including the EUROPA MoU).

  A13.2  In international co-operation, all the Parties concerned must be willing to adopt a common approach to the use of competition. Article 33 states that competition should be the preferred method. Competition is not mandatory, however, if better value for money can be achieved by other means.

  A13.3  Whilst we would envisage that OCCAR might in the future, in some circumstances, be used as a contracting agency by those Parties to the Agreement who are also Member States of OCCAR, or have an appropriate legal relationship with OCCAR, such decisions would be made on a case by case basis.

Q14.  What progress has been made, or is in prospect, in establishing the operational requirements "master plan" envisaged under Article 46 of the treaty?

  A14.  We expect the cornerstone of the "master-plan" will be a database structure, used for the exchange, storage and analysis of equipment planning information. As well as being a source of background information, this "master plan" database would be used as a tool for identifying and progressing potential opportunities for co-operative projects. The MoD has the lead in defining the database structure and the level of detail it should contain. The database will contain information from across the whole range of military capability requirements. The starting point is a database already developed by the harmonisation working group, which will be augmented by features drawn from WEAG and NATO documents.

Q15.  What courses of action (and redress) are available to the signatories in the event of a breach of the provisions of the treaty by any of the other parties?

  A15.  Article 60 commits the Parties to resolve any dispute about the interpretation or application of the Agreement by consultation or any other mutually acceptable method of settlement. The nations would clearly try to resolve any dispute about a possible breach of the treaty by consultation. Legal redress may be of academic importance when national security is at stake. Nevertheless, if the dispute could not be resolved or was outside the scope of Article 60 then there are a number of legal remedies.

  When a state is injured by a breach of a treaty, the injured state may demand a cessation of the breach; may request guarantees of non-repetition; and may request "satisfaction", for instance, national compensation or an official apology. Compensation, in particular for any economic loss caused by the breach which is suffered by a national of the injured state, and especially where those nationals may be companies, may also be sought.

  Restitution may also be sought from the offending state, ie the re-establishment of the situation in which the injured state would have been but for the breach. For instance, the wrongful withdrawal by one Party of a licence generated under the treaty allowing companies registered in another Party to provide certain military goods, might be followed by a demand from the injured Party to reinstate the licence and pay compensation for the economic loss caused by the wrongful withdrawal.

  If the breach of the treaty is "material", then the provisions of the Vienna Convention on the Law of Treaties 1969 come into play. These provide for a variety of action including, inter alia, suspension of all, or part, of the treaty, either between the defaulting Party and the other Parties or between all Parties. (A "material" breach in this context means a repudiation of the treaty which is not sanctioned by the Vienna Convention or a violation of a provision essential to the achievement of the object or purpose of the treaty.)

  A party may also respond to a breach by countermeasures, by which the injured Party responds to a breach of a treaty by refusing to comply with its own obligations. This is an unlawful act, but loses this unlawful character since it is response to a prior unlawful act. Another option is a retorsion, ie a response to an unlawful act that does not involve any unlawful act. An example of which might be the cancellation of a Ministerial visit. Retorsion ensures that the offending Party is aware that its breach of its obligations is being taken seriously.

Q16.  What is the anticipated timetable for ratification and implementation of the treaty and its separate provisions?

  A16.1  The treaty was laid before Parliament on 1 November and will complete the normal 21 sitting days around the end of November. Following the Early Day Motion (numbered 1130, tabled 8 November), the Ponsonby Rule period will be extended for a reasonable period in order to allow the Defence Committee to report. The UK ratification procedures will take three to four weeks. The MoD wishes to ratify the treaty as soon as possible, not least because the treaty enters into force for the first two nations 30 days after they have deposited their instrument of ratification. France and Germany have informed us that they intend to deposit their instrument of ratification by January. Our aim is to ratify early in the New Year.

  A16.2  As stated above in A3.3, the MoD estimates that the implementation of many of the measures set out in the treaty should be completed within 12 months. We recognise, however, that other more complex measures, especially those requiring legislative changes, could take significantly longer to implement.

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