X LICENSED PRODUCTION OVERSEAS
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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