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4.49 pm

Dr. Vincent Cable (Twickenham): I, too, welcome the new Secretary of State. I also welcome the Bill which, although belated, completes the work on the implementation of the Scott report, following the European code of conduct and the new arms export criteria.

For those who were not in the House when the arms to Iraq scandal erupted, it is a salutary experience to look at some of the documents and remind ourselves how great the scandal was. The export control system had fallen into

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such disrepute that British companies could supply Saddam Hussein with the equipment and technology to develop nuclear, chemical and biological weapons. That was the extent to which the system had become porous.

As the Conservative spokesman, the right hon. Member for Wells (Mr. Heathcoat-Amory) said, the Bill is essentially a framework measure. Like the right hon. Gentleman—although probably for the opposite reasons—we look forward to seeing as much as possible of the secondary legislation. The White Paper, the draft Bill and the consultations were detailed enough to give us a view on how the Bill should be strengthened. We support Second Reading, but like the right hon. Member for Coatbridge and Chryston (Mr. Clarke), we feel that some aspects of the Bill should be stiffened, including prior scrutiny. Lest we forget it, I remind hon. Members that, although such scrutiny has been presented by the Opposition as a slightly way-out proposal, it was recommended by the Quadripartite Committee, which comprised four Select Committees. We also want the Bill to be stiffened in respect of brokerage, extra-territorial application of control, overseas production and end use, and we want more explicit provisions relating to sustainable development—all points that the right hon. Gentleman mentioned.

I should like to put the Bill into a slightly wider context. It is essentially about strategic exports and big arms contracts, but as the right hon. Member for Coatbridge and Chryston said, we know that many of the problems associated with the arms export trade now centre on small arms. Indeed, that is probably more clearly understood now than when the Scott report was published. British firms have been involved in such business. Several hon. Members asked for the names of those firms, but I remember at least two relevant debates in this House, concerning Sandline shipments from Bulgaria to Sierra Leone and the Miltec transactions in support of Rwandan Hutu rebels. There must be many other such examples.

Such trade is big business. I understand that there is a stock of about 500 million small arm units in circulation. As a successful manufacturer, Britain must have a substantial share of the originating materials. Why is that important? It has only just begun to be appreciated—

Mr. Gerald Howarth: The hon. Gentleman says that Britain must have a substantial share in the trade. That is a very serious accusation. Will he specify the nature of the small arms and tell us which British manufacturers he thinks are responsible for allowing this kit to get into the wrong hands?

Dr. Cable: I have just given two examples. Britain has roughly 25 per cent. of the world arms export trade, and simple logic suggests that we must have a substantial component of most segments within it. I am sure that we can discuss the matter in more detail in Committee, but I am surprised that the hon. Gentleman denies the facts.

The importance of the small arms business is that much of the material is highly persistent. Any country that purchases a sophisticated fighter such as the F16, which has about 60,000 moving parts, will be closely tied to the country of origin through maintenance, spares and control. However, even very unsophisticated military operations can keep small arms with few moving parts in circulation for a long time. That is why small arms are a problem and are so destructive.

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My other general point was mentioned by the Conservative spokesman, who gave me a friendly trailer on the way in which the arms business functions in this country. It is tempting to say that such business is terribly important for the British economy. That is partly true, as we have a large share of world trade that is disproportionate to our role in manufacturing in general, and as many jobs are involved, but it must be stressed that this is not normal business. It is not based on free-market transactions between private businesses and private customers, as much of it involves the Government in a supporting and sometimes subsidising role. In the current argot, we could almost describe such business as a public-private partnership, even though, through the mediation of the Export Credits Guarantee Department, the private sector has offloaded many of the risks on to the Government. I introduced the debate to which the right hon. Member for Wells referred. So far from its being hidden, I got my party to endorse the policy at our party conference. The debate emphasised the volume of research that showed the extent to which the British taxpayer subsidises the arms export business.

Research showed that approximately £300 million a year was written off as a result of ECGD defaults on the arms trade alone. In the past few weeks, Saferworld has published some useful work, which was endorsed earlier by Conservative Members. Its thorough research shows that the British public subsidy to the arms export business is considerably greater than £300 million. It employed the simple method of ascertaining the cost of capital and the cost of providing for risk in the market, and comparing that with the cost of borrowing under the ECGD arrangement. On average, the cost to the British taxpayer is approximately £400 million a year, when all support costs are added. That is relevant to the debate because it is linked directly to scrutiny.

As the right hon. Member for Wells suggested, I would have reservations about the Government becoming heavily involved in second-guessing private transactions that risk no damage to humanity. However, the taxpayer is substantially involved in many cases, and it borders on impertinence for British companies to claim that scrutiny is no role for Parliament.

Before plunging into detail, I want to explain my position a little. I have no experience of the parliamentary review process; I did not serve on any of the four Select Committees. I served on the Select Committee on the Treasury, which should perhaps also be one of the main parties to the discussions. I therefore have no experience of the way in which Parliament has reviewed arms exports. However, I have some experience of operating the arms export control system from within Whitehall, albeit a long time ago, in the pre-Scott era.

I was a first secretary in the Foreign Office, and I looked after 15 Latin American countries, which at the time were flush with a lot of cash and regarded as one of the primary targets for the British arms export industry. It is probably fortunate for my subsequent career in politics that my signature does not appear on orders that went to General Pinochet—a different bit of the office was responsible for that—or, perhaps more important, on the papers from the Department that authorised the substantial exports of British hardware to General Videla and the junta in Argentina. That hardware was subsequently used to kill British service men.

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Being part of that process provided me with considerable food for thought about the operation of the arms export control system. There were enormous institutional pressures to promote arms exports. They came from Ministry of Defence sales staff, who of course have a professional commitment to promoting British arms exports; from the then Department of Trade, which operated—perhaps its successor continues to do so—on the basis of the old-fashioned, 19th-century, French mercantilist view that exports are good and imports are bad, and any method of pushing exports must be good; and the Foreign Office, which had a strong belief in Great Britain Ltd., and that what was good for GE-Marconi or British Aerospace was good for Britain.

There were powerful pressures to sell more and get the deals, with British civil servants working behind them, as I did. I did my job, for which I was paid. There was little counter-pressure. The only source of resistance that I recall was the Treasury, which was always a bastion of economic sanity. It pointed out that our method of operation was not good economics and was costly to the British taxpayer.

Mr. George Howarth: I hope that the hon. Gentleman is not suggesting that what is good for British Aerospace is not good for Britain. As I have the headquarters of British Aerospace—as I continue to call it—in my constituency, I can assure him that British Aerospace is a fantastic force for good in this country.

Dr. Cable: I am saying, and have already said, that what is good for British Aerospace is not necessarily good for Britain. It might be, but it is not necessarily.

Mr. Cousins: Does the hon. Gentleman have very much in mind the sales that were made to Iraq—the British taxpayer is still owed upwards of £500 million in respect of export credit guarantees that were never fulfilled—and, with regard to the Conservative Administration, the fact that Saddam Hussein proved to be a very good liar and a very bad payer?

Dr. Cable: The hon. Gentleman is absolutely right, and Iraq is one of the many reasons why the Export Credits Guarantee Department has ended up effectively having to be subsidised by the taxpayer in respect of those defaults. Often with much less publicity, every one of the 15 countries for which I was responsible in my job defaulted on its debt. They were flush with capital in the mid 1970s and they defaulted in the early 1980s. They could not sustain their payments on their export credit guarantees, which had to be rescheduled through the Paris Club. In such circumstances, the credit has an implicit cost.

Only once in my several years in that interesting job was I prevented by the system from approving an arms export. I will tell the story because it is quite instructive to the wider argument. The case was almost comical. We received an application from a small company in the west midlands that wanted to supply an armoured car to Fidel Castro, who had been the subject of several assassination attempts. In view of the other hardware that we were selling, I could see no reason why that sale should not take place, and I approved it and suggested that it was not worth referring to Ministers.

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A few days later, the roof fell in. Minutes came from all over the Foreign Office, from people who had not shown a great deal of interest in our exports to the juntas in Brazil and Argentina, to say that this was outrageous, and that terrible human rights abuses were occurring in Havana; people were dying in dungeons and this really was not good enough. The matter was referred to the Foreign Secretary, who referred it back and said, "We must consult the Americans."

I was asked to draft a letter to the Secretary of State, who was then Dr. Henry Kissinger of all people. A few weeks later, an answering letter arrived. I am sure that it will appear in a few years' time under the 30-year rule. It was something to the following effect: "Dear Jim, Had you not informed me of this transaction, I am almost certain that I would never have become aware of it, but since you have asked my permission, the answer is no." That struck me as one of the most eloquent statements of the Anglo-American relationship that I have ever encountered, but it was also an eloquent description of the way in which the arms control system operated until very recently. If one wanted to export to the communist bloc, the answer was no, and there were COCOM rules to underline that; but it was good and desirable, and to be encouraged, to export elsewhere.

Enough of reminiscences. Let me return to the Bill, and to those bits of it that need to be strengthened. First, as the right hon. Member for Coatbridge and Chryston said, there is the issue of development and the Bill's objectives. In the past few years, the Government have advanced in setting out more explicitly what the aims of arms exports should be and the criteria that should be employed, but they contain nothing that specifically relates to the issue of sustainability, especially where there are cumulatively large exports.

It may be one thing to supply a motor torpedo boat to Peru, but if everyone else is doing it and one's exporters are supplying large quantities of other armaments to Peru, it is likely that Peru will eventually default—as it did—so sustainability is very important. That aspect has been picked up by people such as Mr. Camdessus and the International Monetary Fund, who regard the arms export industry, and especially the subsidising of it, as wholly unacceptable, on the basis that the products exported do not generate income, have no asset value, depreciate very quickly and incur a debt. That is why the sustainability of arms exports, in context, must be part of the review process.

The second issue—again I return to what the right hon. Member for Coatbridge and Chryston said—is the issue of end use and overseas manufacture. In yesterday's newspaper, there was a very good illustration of why end use is an important issue. There was a description, I believe in The Sunday Times, of a Ukrainian gentleman who was responsible for supplying most of the equipment that goes to President Taylor in Liberia and to his friends in the murderous Revolutionary United Front in Sierra Leone. That gentleman operated on the basis of supplying most of the arms to Burkina Faso, and one does not need to be Hercule Poirot to work out that a large quantity of arms going to Burkina Faso is not entirely kosher. Eventually, Interpol reached that conclusion, and it has intervened to stop the trade.

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Unless explicit end-use provisions are in place, it is difficult to trace the paper and exercise the necessary discipline, and the position on overseas manufacture is similar. Unless we include a clause that specifically refers to it, there will be no provision whereby the Government could act in examples such as British armoured cars being manufactured in the Philippines and trans-shipped to Indonesia and Burma. I know that the Chairman of the International Development Committee has been involved with that case.

The third issue is brokerage and the requirement, which has already been set out by my hon. Friend the Member for Richmond Park (Dr. Tonge), that British passport holders living and operating overseas need to be subject to extra-territorial control. Such controls already exist in British legislation, so they are not new.

If hon. Members want a good description of offshore brokerage, there is a fictional but near-real example in the recent Le Carré novel "The Night Manager", which describes a gentleman called Richard Roper who flits between the Caribbean and Switzerland. Of course, Le Carré's characters are based on reality. The novel describes how the brokerage system works and why there must be extra-territorial jurisdiction over those who operate almost entirely outside the UK but trade on British citizenship.

On prior scrutiny, the Government have been disappointing. The Quadripartite Committee strongly recommended that prior scrutiny should occur, but two arguments against it have been advanced. The first is delay, but there is a way to deal with that. The Committee clearly said that it is possible to introduce a two-stage process of rapid screening and more detailed scrutiny of the remainder. That is not an insuperable problem.

The second argument—concerning confidentiality—is more worrying. There is an implication that, somehow, Members of Parliament are not as trustworthy as officials. I find that uncomfortable. Why should not MPs observe confidentiality? Confidentiality is observed by Members in the United States, where such a system applies. One operates in Sweden as well, and those countries are important arms exporters. Why should we not operate such a system in the UK?

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