Select Committee on Foreign Affairs Seventh Report


100. The question of licensed production overseas of goods which if produced in the UK would require licensing was raised in evidence from NGOs to the Trade and Industry Committee in 1998 and in responses to the 1998 White Paper. The main cases cited were the production in Turkey of vehicles based on Land Rovers and their sale to other countries, and the production under licence, also in Turkey, of Heckler and Koch firearms. The Committee suggested that the issue be raised within the Wassenaar Arrangement. The Government undertook to consider this along with other representations received.

101. In our Reports we have sought some solution to the problem presented by the possibility that UK companies wishing to export to destinations which the UK would not permit may seek to establish a licensed manufacturing operation abroad under a different and potentially laxer regime, which would then permit such exports. In our February 2000 Report we called for the issue to be "vigorously pursued in the appropriate international fora" and "to be given a far higher priority by the Government, if necessary by the passage of legislation".[163] In response, the Government recorded that it had initiated a discussion in the Wassenaar Arrangement and had sought information on the practices of other states. In our July 2000 Report we welcomed this response and looked forward "to the production of legislative proposals at an early date".[164]

102. Cm 5091 repeats the reminder that "the key items needed to establish licensed production overseas are...already subject to export control requirements". It does however state that it is concerned that "exports of military equipment produced overseas under licence from a UK company should not be used to undermine international embargoes to which the United Kingdom is a party". It proposes

  • to make more explicit the need to declare when applying for a licence if the goods are for use in production overseas, and if so to describe the goods to be produced;

  • to take the lead in consulting with EU partners on inserting an explicit reference in the EU Code to common standards on consideration of applications for the export of production equipment or technology;

  • to consider either taking legal powers to impose on UK companies a contract clause prohibiting export of products produced under licence form being exported to international or possibly national embargoes or

        requiring an end-user undertaking to that effect before the granting of a licence.

103. There is not as much information available on the subject as we would have wished. There is no indication on the face of the paper as to the use made of the study of the experience of other nations referred to in the July 2000 Response to our February 2000 Report. The Secretary of State was not able to give any examples of cases which had caused him concern.[165] The UKWGA raised the example of Simba armoured vehicles assembled at Subic Bay in the Phillippines.[166] The Foreign Secretary's oral evidence of 30 January 2001 had stated that this did not in fact involve production under licence but assembly from kits, which had required licensing. [167]

104. Part of the evidence from UKWGA suggested a very restrictive system on control of licensed production which would even enable the volumes of production to be set by the UK authorities and which would require UK permission for any re-export.[168]Such a regime would reflect the practice of the US Administration, which has in the past imposed strict controls on exports of goods produced under licence from a US company.

105. As the DMA pointed out, the prevalence of offset agreements in major defence sales means that licensed production arrangements in the purchasing country are common and be essential in securing a contract.[169] "Licensed production is here to stay if the Government wishes the industry to be able to continue to export in any meaningful way". They expressed concern at the impact on competitiveness of any unilaterally introduced system which obliged UK exporters to insist on "downstream restrictions" which its competitors — other than US companies — did not have to demand.[170]

106. There was little support for either of the options for control of licensed production advanced in the Cm 5091.[171] Neither assurances nor other contractual terms seeking to control re-export would be readily capable of enforcement. As Lord Scott observed, " I do not believe we will be seeing in this country any claims for damages for breach of undertaking in this sort of area".[172] What is required is a system which ensures that the Government knows when a licensed production facility is being set up, and which ensures that the goods produced are not exported to countries or end-users where the UK would not licence them. It may be that the option of bilateral agreements offers a better way forward than obligatory contract terms.[173] We do however continue to believe that some statutory powers may be necessary to control licensed production overseas, and recommend that the Bill provide for such powers to be taken in the future under secondary legislation, to be used only if a non-statutory regime is shown to have failed.

163  HC 225, para47 Back

164  HC 467, para 67 Back

165   Q 243 Back

166   Qq 54-6 and Ev, p 15 Back

167   HC212, Q 56 Back

168   Ev, p 4, para 19 Back

169   Q 90 Back

170   Qq 94-8 Back

171   Q 94 Back

172   Q 190 Back

173   Eg Ev, p 4, para 20: Qq 94ff Back

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