APPENDIX 1
Letter from Defence Manufacturers Association
to the Chairman of the Quadripartite Committee
We have read with great interest the latest
report of the Quadripartite Committee on "Strategic Export
Controls: Further Report and Parliamentary Prior Scrutiny",
which was published on Tuesday 25 July.
As you can expect, the section of the report
which was of greatest interest to us was that on the proposed
system for Parliamentary prior scrutiny of export licence applications
(Sections 80-90, pages xxvii to xxviii), which the Committee has
argued should be introduced with great haste. We circulated details
to our Members, encouraging them to obtain copies of the whole
report. We have since received a large number of comments from
a broad range of British defence companies and individuals who
have practical experience of dealing with export licences. These
are consolidated below.
OVERALL VIEW
We have not received a single supportive response
from any company or individual. There is unanimous feeling against
the proposal, based on practical grounds. DMA Members have, again,
given their full support for the views expressed in our previous
paper to the Committee, as reprinted in the 11 February 2000 Report
of the Committee (pages 59-72). We note from the 11 February Report
from the Committee (paragraph 85) that it felt that:
. . . some of the practical objections made
(by the DMA) suggest that some are more imagined than real.
The view from Industry continues to be overwhelmingly
supportive of our concerns, as previously raised. British Industry
is strongly in favour of an ethical and transparent export control
process. However, many respondents regard the proposals made in
the latest report as representing a major threat to their ability
to engage in the export of legitimate defence capability to many
significant defence markets around the world.
JUSTIFICATION
The Committee's justification of its position
begins (paragraph 81) with the fiercely stated, but, in our view,
lightly argued, contention that:
. . . accountability demands that Parliament
is engaged in scrutiny of arms export licences before as well
as after their grant.
Many industrialists would take issue with this.
The Government is able to take decisions of substantially greater
impact on foreign relations and the lives of people overseas (eg
the intervention in Kosovo) without prior Parliamentary scrutiny.
There appears to be no current legislative basis for the proposals.
We would seriously question the Committee's
assertion (paragraph 80) that:
The nation as a whole feels an exceptional
degree of engagement with such decisions.
We would contend that, despite the highly vocal
lobbying of some NGOs, and contrary to their assertions, there
is not a wellspring of UK public opinion demanding the changes
envisaged.
DELAYS
Whilst we noted that the Committee stated in
its report (paragraph 90) that the proposed system:
. . . would introduce no delay of any significance
in the granting of export licences,
the fact that the Committee felt the need to include
in the wording of this phrase the words . . . of any significance
. . . is disturbing to Industry, as it implies that the Committee
recognises that some delays may result. What may seem to be an
insignificant delay from the Committee's perspective, may not
be seen in the same light by the companies involved, which could
lose orders as a result. It is stretching belief to say that scrutiny
by a Parliamentary Committee would not impose delays of any
significance. If the Committee is to provide truly effective
scrutiny, and second guess Ministers' decisions, then significant
delay is bound to occur.
Our Members are convinced that the proposed
system would result in further delays to the UK's export licensing
system. Delay in the existing system is the aspect that causes
the greatest frustration. We have been asked by our Members to
seek the strongest possible guarantees from the Government that
any such system, if introduced, would result in NO additional
delays.
CUSTOMER DELIVERY
EXPECTATIONS
Increasingly in the commercial world, as in
many other areas of life, there is an expectation of rapid service.
Defence customers around the world, including the Ministry of
Defence (UK), whose SMART procurement maxim is "Better, Faster,
Cheaper", are not exceptions to this. Customers frequently
spend a long time deliberating about a decision, and leave little
time to spare for the manufacturer to meet their deadlines. If
a supplier cannot meet a deadline, customers will increasingly
look elsewhere. This is especially so for small value items and
spares for equipment. In the experience of many UK companies,
the customer's expectation for delivery can frequently be four
weeks or less. The smaller the size of the project, the greater
the customer's expectation for immediate delivery. If UK Industry
gains a reputation for not being able to meet such tight schedules,
its competitive position will be seriously undermined.
WORKLOAD
The issue of the potential workload on the Committee
must again be highlighted. With the imminent advent of controls
on intangible transfer of technology and the resultant increase
in applications, we believe that the potential workload on the
Committee would be even higher than it currently believes. This
alone could make Parliamentary scrutiny unworkable. We believe
that there would be an exceptionally large workload on the Committee,
with a considerable number of licence applications (possibly an
average of some 50-60 applications received at Stage 1 alone every
working day) and a very wide scope of information needed in order
to assess properly any applications that were considered to be
contentious.
A number of our Members have highlighted the
experience in Germany during the 1990-91 Gulf Crisis, when the
Chancellor insisted on seeing every military export licence application.
As a result, we understand that Germany's exports of military
equipment almost completely ceased, to all practical intents and
purposes, until this edict was rescinded.
We believe that the proposed system would result
in significant additional staff work by the already stretched
resources within the DTI, MoD(UK), FCO and DFID, as well as Industry,
in presenting applications and supporting information to the Committee.
We believe that it would be unfair for the Committee
to make decisions on export licences, especially in cases of possible/likely
refusals, unless the companies involved were allowed to make representations
in support of the applications—this in turn would add to
the workload and the time needed to assess individual cases.
We are convinced that the sheer scale of the
workload required has not been properly taken into account, both
on officials and on the members of the Committee.
CONFIDENTIALITY
The Committee stated in its Report (paragraph
90) that:
Our proposed system poses no threat to either
the commercial confidentiality or the competitiveness of British
companies.
Industry has strong concerns about the essential
issue of confidentiality. Inherently, the more people who see
any document, including an export licence application, the more
confidentiality is put at risk. The threat is not just that of
confidential information leaking to non-UK firms, but also to
other British companies. Government officials are (generally speaking)
trusted by industry with confidential information, because they
are seen as disinterested and impartial. Clearly it would be essential
under any new system for this confidence to be maintained.
We note that the Committee has stated (paragraph
84) that:
The information in Stage 1 notifications would
be confidential to the Committee.
However, NO similar reference is made to the
information provided in Stage 2, and we would question the reason
for this omission. Indeed, the specific mention (paragraph 86)
of a desire by the Committee that the information that it is provided
with for Stage 2 should be non-classified and the reference
(paragraph 89) to possible Special Reports to the House and Parliamentary
debates on particularly contentious applications could easily
result in confidentiality being compromised.
If the introduction of the system proposed results
in customer knowledge that the application might be made public,
this could prove to be a major disincentive to buying British.
Some important customer nations could find it an affront to national
pride to have their countries' procurement decisions subject to
possible parliamentary debate in another country.
PARLIAMENTARY RECESSES
We noted from the Report that the Committee
had recognised the essential need for the export licensing system
still to function during the long periods of Parliamentary recess
(paragraph 85). However, there is no explanation of how this system
might work. The report notes that the Committee ". . .
would have to have arrangements in place . . .", indicating
that the Committee has not yet worked this out. In addition, we
note that this statement only refers to the Stage 1 process, and
there is no similar mention of the Stage 2 process also having
safeguards in place to ensure that Parliamentary recesses do not
interfere with the expeditious processing of applications. This
suggests that it is unrealistic for such a system ". .
. to be put in place forthwith..." and to commence operation
" . . . as from the beginning of the next Session of Parliament."
TECHNICAL KNOWLEDGE
Industry questions whether the members of the
Committee have the necessary technical knowledge to scrutinise
licences without the advice of the Government officials who are
examining an application. Seeking such technical information (eg
what the item is and what it does), would duplicate existing strands
of the system and introduce further delays.
STAGE 2 SELECTION
We note from the latest report (paragraph 85)
that the proposed system would involve the selection by the Committee,
in Stage 1, of those export licences that they wanted to see more
information on at Stage 2. However, the report does not clarify
how this selection process would take place, ie what proportion
of the Committee will be required to agree on stage 2 assessment.
Would it require a majority of the whole Committee, or just a
majority of one of the constituent committees, or just a certain
percentage of the members of the Committee, or just one member?
Again, this undermines the potential for a system ". .
. to be put in place forthwith . . ." and to commence
operation ". . . as from the beginning of the next Session
of Parliament."
STAGE 2 PROCESS
We are concerned at the statement in the report
(paragraph 86) that:
The Committee would require Stage 2 notifications
not fewer than 10 working days prior to the intended issuing of
the licence.
This statement suggests that the current system
is not fully understood. Government officials do not know 10 working
days before a licence is issued that they are going to approve
it. Once the ministers or officials have decided that an application
should be approved, the issuing of the licence takes place immediately.
If it is the case now that officials are able to predict at least
10 working days beforehand that a particular licence should be
issued, Industry would certainly like to know about it.
In order to accommodate this wish by the Committee,
the DTI's Export Control Organisation would have to delay the
issuing of a licence—and such a delay, of 10 working days,
would not be regarded by Industry as . . . no delay of any
significance.
It is worth noting that the target turnaround
timescale for uncirculated export licence applications by the
DTIs Export Control Organisation is, itself, 10 working delays,
reflecting the urgency with which licences need to be processed.
REFUSALS
We note from the report (paragraph 87) that
the Committee seems only to be interested in licences which are
going to be approved, and not to want to concern itself with any
that might be refused. This suggests a pre-judgement by the Committee,
which is not supportive of Industry.
COMPARISONS
As already stated in our previous paper to the
Committee, comparison of our system with those of other nations
is flawed. The Committee gives two examples of nations that allow
Parliamentary scrutiny—the vast majority do not.
Sweden's defence exports are a fraction of those
from the UK—on average there are nine times as many applications
per day in the UK as there are in Sweden. Comparison with the
system in France would be much more appropriate and here there
is no Parliamentary scrutiny.
The USA, on the other hand, is in the unique
position of having a sufficiently large domestic market to support
a vibrant defence industrial base, even in the absence of exports.
As a result, defence exports are viewed in the USA as being desirable,
but not essential, and primarily, an instrument of foreign policy.
In comparison, the British Defence Industry comprises a much larger
proportion of the UK's overall manufacturing base and exports
a much higher proportion of its output—without significant
defence exports, it would rapidly decline. Many UK defence companies
would not be viable if they had to rely only on sales to MoD(UK).
A contraction of the UK Defence Industry could
result from the disruption of exports, and this would ultimately
not only impact on employment and the UK's balance of payments,
but also have strategic implications from the loss of indigenous
defence industrial capability. The introduction of additional
bureaucracy and delay into the UK export control system could
have much more profound and damaging effect than in either of
the two countries that the Committee has used for comparison.
TIMESCALE
We are concerned at efforts to press the Government
to rush into action on this. To ask that such a system be brought
into being before . . . the beginning of the next Session of
Parliament is unacceptable in our view. There are many issues
to be addressed and many concerns that Industry has on this proposal,
which should be carefully considered and discussed before such
a step is taken. The Committee in forming its views seems not
to have consulted adequately with industrialists on the potential
impact of prior Parliamentary scrutiny on their export activities.
CONCLUSION
We must emphasise that the British Defence Industry
needs export outlets for its products for its very survival. This
has been especially so in recent years in which the UK has been
reducing its own defence budget. Should exports be impeded, there
would be a consequent reduction in research and development and
production activities, which would make the UK's defence capability
increasingly dependent on the USA and Europe. We believe that
the practical problems arising from the proposed system would
inflict significant damage on the UK's Defence Industry's competitiveness,
particularly because of the inevitable delays and increased bureaucracy
that would ensue.
We would welcome the opportunity to explain
and discuss further the concerns that Industry has with the Committee,
if this would be useful.
25 September 2000
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