Select Committee on Defence Fifth Report

THE ANNUAL REPORT FOR 2000

The Big Picture

42. In 2000, the Annual Report reveals, 8371 SIELs were issued, sixteen were revoked, and 191 applications for SIELs were refused.[78] (The comparable figures for 1999 were 8967, eight and 128.[79]) During the year, 419 OIELs were issued or amended (to enlarge them to include additional goods or destinations) including some which were already in force[80] (the comparable figure for 1999 was 449[81]). A further 57 were amended to reduce their scope, and eight applications for OIELs were turned down (though some of the proposed exports may have subsequently succeeded in being authorised as SIELs).[82] (The comparable figures for 1999 were fourteen and two.[83]) 33 appeals against the refusal of a SIEL were entered. The original decision was upheld in fifteen cases and overturned in two. Sixteen appeals were deemed not to raise any new matter, and were therefore not considered.[84] (The comparable figures for 1999 were 25, eighteen, six and one.[85])

43. A refusal rate of around 2% for SIELs and OIELs, and a success rate of around 7% on appeals, could indicate either that manufacturers are fairly sensible about not trying on hopeless applications or that the system is lax. We are confident that the former is the case not the latter. These statistics demonstrate the considerable investment which is made in operating the licensing system[86] and, we hope, its deterrent effect. They also indicate the relatively small numbers of contentious cases—a matter we return to below in our discussion of prior scrutiny.

44. For the first time, this Annual Report includes information on the number of small arms covered by individual SIELs.[87] We welcome this, and these details have indeed provoked us to ask further questions in some cases. It also includes details of surplus small arms destroyed by the UK.[88]

45. The Annual Report for 2000 was published in July 2001, but it was not laid before Parliament until 18 December, and was not therefore readily available to Members for almost six months after publication. We also note that the Export Control Bill[(as did the draft Bill) includes provision for the Secretary of State to lay before Parliament—

... a report on other matters [than export of objects of cultural interest] relating to the operation of this Act (and any order made under it) during the year.[89]

We welcome the intention to put the Annual Report on Strategic Export Controls on a statutory basis. We also welcome the new statutory requirement for it to be laid 'as soon as is practicable' after the end of the year in question.

Our Approach

46. We have followed fairly closely the pattern of our predecessors' inquiries into past Annual Reports. When we first met in this parliament as the Quadripartite Committee, on 18 December 2001 (longer after the publication of the report than we would have wished, due to the disruption of the general election), we agreed a list of written questions for submission to the Government, arising out of our preliminary examination of the 2000 Annual Report. These were broadly divided under the headings—

Application of the criteria to individual cases and countries


General questions relating to the 2000 report


Format of the report


Administration of the system of licensing

Our questions (sent on 15 January 2002) and the Government's replies (received on 26 February) are published as Appendix 6 to this report.[90] As will be seen, at the Government's request many of the answers cannot be published because the Government considers that to do so would breach undertakings of confidentiality, or reveal politically sensitive material, or in a small number of cases potentially compromise the security of the UK or friendly countries. We discuss this below.[91]

47. On 21 March we took oral evidence from the Foreign Secretary on the basis of these written answers. Some of that evidence was taken in private, and the transcript of the public session, and the censored transcript of the private session, are also published with this report.[92] We followed that session with a further series of written questions, to which responses were received on 17 April.[93]

48. In addition, we received solicited and unsolicited submissions from a variety of sources, in particular from Saferworld,[94] the UK Working Group on Arms[95] and the Campaign against the Arms Trade.[96] We are grateful for these. We would encourage all interested parties to communicate with us their concerns relating to matters covered by our inquiries. It is essential for these Annual Reports to be subject to as wide and as close scrutiny as can be achieved. We also received over 60 letters from individuals or families and small groups, all concerned with the proposal to license the export of an air traffic control system to Tanzania.[97] This is a topic we deal with at some length below.

49. The remainder of this section of the report deals with the issues raised by our inquiry in the order of the headings set out above.

Application of the Consolidated Criteria to Individual Cases and Countries

GENERAL

50. Twenty-eight countries were covered by our initial set of written questions under this heading.[98] None of the answers we received (including those given in confidence) raised matters which we believe seriously call into question whether the criteria were applied by Ministers appropriately. In the light of Criterion Two (respect for fundamental freedoms and human rights in destination countries) we pursued two particular applications, relating to Sri Lanka and Zambia, with further written questions.[99] The replies were reasonably reassuring. In their report on the 1999 Annual Report, our predecessors had commented—

In January 2001 it was reported that ... the Minister for the Cabinet Office, in the course of an official visit to Jamaica, had announced that a licence had been granted for export of 400 handguns and ammunition for the Jamaican Police Force, on the basis of assurances that the police would receive training in methods of non-lethal apprehension of suspects ... The Foreign Secretary agreed that it was potentially the sort of agreement which could be applied to other circumstances ... We warmly welcome the introduction of a conditional end-use regime, whereby the recipient country is committed to specific improvements in its human rights performance. We recommend a thorough evaluation of the outcome of the licence for the Jamaican police so that the practice can be extended to other countries where the UK quite properly feels obliged to refuse a licence.[100]

In both the cases relating to Sri Lanka and Zambia, we expect some monitoring of end-use to assure the Government that undertakings are being honoured and human rights violations are not occurring, and we recommend that the Government report to us on this monitoring.

51. In oral evidence with the Foreign Secretary, we pursued some broader questions which arose in relation to four particular countries which are giving rise to concern.

CHINA

52. An EU arms embargo applies to China, because of its record of internal repression and human rights abuses, and Criteria One and Two are therefore engaged. The UK (the only member state to publish its national interpretation of the terms of the embargo[101]) interprets the ban to include a bar on the export of—

-    Lethal weapons such as machine guns, large calibre weapons, bombs, torpedoes, rockets and missiles;


-    Specially designed components of the above and ammunition;


-    Military aircraft and helicopters, vessels of war, armoured fighting vehicles and other such weapons platforms;


-    Any equipment which might be used for internal repression.

In addition, all defence exports to China are assessed on a case by case basis against the other criteria. We sought details of all military list exports to China, which were supplied to us in confidence.[102] None gave rise to further concern.

53. Although Criterion One is clear, and its interpretation ought not to give rise to much debate, the terms of international agreements and obligations are rarely unambiguous. In their report on the 1999 Annual Report and related matters, our predecessors commented—

In July 2000 we recommended consideration of a stricter interpretation of the arms embargo on China than that currently operated. If it is now the case that other EU nations are relaxing their interpretation of the 1989 embargo, that lends force to the need for a common interpretation.[103]

In a letter dated 16 October 2001, the FCO told us—

... we promised to update you on our discussions with EU partners about the possibility of agreeing a common interpretation of the arms embargo against China ... consultations have shown that there is no consensus of changing the present situation, whereby each member state interprets the embargo in its own way ... However, we remain satisfied ... that there is no substance to the suggestion that some member states are relaxing their interpretation of the embargo.[104]

54. We pursued this matter with the Foreign Secretary on 21 March. He told us that, although there were difficulties in applying the embargo consistently, undercutting (where a member state allows the export of goods to an end user of a kind which another member state has refused to license for export) was not an issue, and the development of the EU Code of Conduct was helping—

Under the rules of the Code of Conduct, when any Member State issues an export licence for a transaction essentially identical to one that has previously been denied by another Member State, it will first consult the Member State that issued the denial. Although, as a result of that consultation, we are not obliged then to follow the denial, the process of consultation in itself obliges Member States to look that much more carefully at their export procedures, and it is not something that is done lightly to undercut a denial. The fact is that there have been relatively few cases year by year where these consultations have had to take place. It has happened in a relatively small number of cases. So I think that is one piece of evidence that in fact the guidelines, the criteria, are being applied pretty consistently across the EU.[105]

55. Although the evidence is reassuring, we recommend that the Government should continue to encourage our EU partners to follow the UK's lead in publishing their national criteria for the application of the China embargo.

INDIA AND PAKISTAN

56. India and Pakistan stand out as the countries which attracted the most rigorous attention from Ministers in relation to proposed exports in 2000. For India, 72 SIEL applications were refused and one was revoked. Two OIEL applications were also refused. For Pakistan, 52 SIEL and three OIEL applications were refused.

57. Tensions between India and Pakistan have meant that the region raises particular sensitivities about the application of Criterion Four. The Foreign Secretary told us that the security situation in the region had—

... varied from month to month, day to day ... it was in the middle of 1999 that Kargil took place, so it was very serious at that time. There were then some negotiations between India and Pakistan in the east and it has been going up and down ... In the last three months, it became serious after the terrorist attack on the State Assembly in Srinagar on 1 October and a lot of diplomatic and other efforts were put in to try and reduce the tensions, including action which was taken by President Musharraf to ban a number of Pakistani­based terrorist organisations which were almost certainly behind that attack. Then ... on 13 December there was the attack on the National Parliament ... in Delhi and tensions then rose ... It is a serious situation and it is one obviously we take account of in determining whether licences should be issued. I am well versed in trying to make judgments in respect of Criterion Four ... by definition, arms are materials designed to be used in an aggressive manner because these are instruments of violence, but this is about whether the export would be used aggressively against another country or to assert by force a territorial claim.[106]

58. We asked the Foreign Secretary if concerns over regional stability could be reconciled with the well-publicised efforts to sell British-made Hawk trainer jets to the Indian Government. While he refused to be drawn on that particular proposed contract,[107] in general terms he commented—

Unless we make a decision that we are going to pull out of defence industries, then what we have to do, it seems to me, is to make judgments on a case-by-case basis in the round against these criteria but against the fact that, if the criteria are met in a sense that the export appears to be one that is not caught by the criteria, then it is an export of defence material which ought to be made. I do not believe that the licences whose issue I have been a party to have contributed to a breach of Criterion Four because otherwise I would not have made the judgments there. I agree there have been some licences which I have refused in respect of both Pakistan and India where, amongst other criteria I think have been potentially in breach, Criterion Four has been one of them.[108]

59. After the military coup in Pakistan in October 1999, our predecessors commented—

We do not doubt that it was right to have taken time since October 1999 to have assessed the behaviour and intentions of the new regime before deciding on outstanding export licence applications ... The episode does however expose the difficulties in seeking to conduct a national policy in the absence of a formal embargo ... We urge the Government to initiate discussions with our EU partners to establish a common position on defence and defence-related exports to Pakistan, so that there can be no question of advantage being taken by other member states of the suitably cautious approach being taken by the UK.[109]

Similar considerations seem to us to arise in respect of the oscillating state of tension between India and Pakistan at present.

60. After we took evidence from the Secretary of State in March, the tension between India and Pakistan over the conflicting territorial claims to Kashmir escalated further, causing major international alarm. There were suggestions that the Government had instigated an embargo on exports to the region in late May, but these were denied by Ministers. The Foreign Secretary, however, told the House on 10 June that he had not approved any licence applications in relation to India and Pakistan in the preceding two months.[110] But he went on to say that no applications had been blocked.[111] Explaining this apparent contradiction in a letter to the two Members to whom these answers were given,[112] the Foreign Secretary explained that he had not personally approved any licences for exports to India and Pakistan, but that in the two month period to which he referred, 140 SIELs and 8 OIELs had been issued in respect of India and 15 SIELs and 3 OIELs in respect of Pakistan. Further information was given in a written answer to Menzies Campbell QC MP on 13 June, relating to the period from December to May. This revealed, among other things, that between December 2001 and April 2002, 101 SIELs relating to aircraft and related equipment designed or adapted for military use were issued in respect of India (including 43 in March alone), and 30 SIELs relating to the same category (ML10) of goods were issued in respect of Pakistan in the same period.[113]

61. We do not find these answers and explanations given by Ministers wholly convincing or reassuring. We conclude that if the situation in India and Pakistan in the Spring of this year did not fully engage Criterion Four, it is difficult to conceive of circumstances short of all out war which would do so. But Criterion Four is not activated only by the actual existence of armed conflict—it is of course engaged as a conflict prevention measure, and applied as such by the Government. The stand-off over Kashmir should in our view have led to its application with very great rigour, and we are surprised by the indication in the Foreign Secretary's letter that he was not personally involved in the approval of all applications to export military goods to the region during the period of greatest regional tension. While in the period covered by the Annual Report for 2000 the flow of conventional arms to India and Pakistan seems to us to have been appropriately controlled by case-by-case consideration, we are concerned that in recent months there is little real evidence of the terms of the Criterion being applied in proportion to the rise in regional tension. We also believe that when the situation had deteriorated as far as it had in the Spring, the Government should have been prepared to initiate moves to secure some international agreement on regional arms control.

62. The more long-term and frightening problem in the region is the continuing nuclear arms race between India and Pakistan. Criteria One and Seven are therefore also engaged, in addition to Criterion Four. On 10 October 1998, the then Minister of State at the Foreign Office, Tony Lloyd MP, announced that—

... following the recent Indian and Pakistani nuclear tests we have decided that it is appropriate to introduce some additional measures. All export licence applications (ELAs) for items listed on the Nuclear Suppliers Group (NSG) Dual-Use List will be denied to nuclear and nuclear-related end-users in India and Pakistan, as will all other goods to these end-users which could contribute to the Indian and Pakistani nuclear programmes. This will mean that some amendments will be required to existing open general export licences, which will be made in due course. All contacts by British nuclear scientists or nuclear industry personnel with Indian and Pakistani counterparts will be discouraged, and all visits by Indians or Pakistanis to UK nuclear facilities will be prevented. As the recent actions by both countries have demonstrated a lack of commitment to the principles of non-proliferation, and have adversely affected regional stability, we will consider all export licence applications concerning either country with particular vigilance.[114]

This was elaborated by a further statement by Mr Peter Hain MP on 3 July 2000—

Where a licence [to export to India or Pakistan any goods or technology that are listed as subject to control] is required then ... we will not allow the export of items listed in the Nuclear Suppliers Group Dual-Use List to nuclear or nuclear-related end-users in India or Pakistan, nor any other goods to these end-users which could contribute to the Indian and Pakistani nuclear programmes. The exception is equipment which would not normally require an export licence but is deemed licensable under the WMD end-use controls and where the initial concerns about WMD end-use are not subsequently substantiated.[115]

On 15 March this year, the Minister of State at the FCO, Mr Ben Bradshaw, made a further statement—

The events of 11 September highlighted the fact that some terrorist groups will use any means to achieve their ends. We know that Osama bin Laden and the al-Qaeda network have shown an interest in developing chemical, biological and nuclear weapons. To ensure that such ambitions are not realised, we are encouraging all countries, including India and Pakistan, to take all steps necessary to ensure the better physical protection of their nuclear assets. We will be encouraging both countries to consider measures which contribute to the safety and security of their nuclear programmes. Bearing these factors in mind, and consistent with our obligations under the Non-Proliferation Treaty, we have revised our policy as follows:——


we will continue to deny all export licence applications (ELAs) for items listed on the Nuclear Suppliers Group (NSG) Dual-Use List to nuclear and nuclear related end users in India and Pakistan. We will consider all applications for other items assessed as licensable, including those licensable under the WMD end use control, with particular vigilance in making licensing decisions on a case by case basis. Licences may be issued if there are no end use concerns. Consistent with our obligations under the Non-Proliferation Treaty, licences may also be issued in exceptional cases where the Government is satisfied that the proposed exports will contribute to the physical protection or security of civil or military nuclear facilities or assets in India and Pakistan;


we will continue to discourage contacts by UK nuclear scientists or those working in the UK nuclear industry with their counterparts from, or personnel who we know are likely to work in, nuclear or nuclear related organisations in India or Pakistan. We will also discourage visits by such counterparts and personnel to UK nuclear facilities. However, this will not apply where such contacts would contribute to the safety and security of India and Pakistan's nuclear programmes, or further the UK's non-proliferation objectives, consistent with our obligations under the Non-Proliferation Treaty.


Since carrying out their nuclear tests in 1998, neither India nor Pakistan have demonstrated sufficient commitment to meet their obligations to reduce nuclear tensions set down in UNSCR 1172. We are now encouraging both countries to engage in a bilateral dialogue on nuclear confidence building measures.[116]

63. It is in the nature of dual-use items that their control is not readily susceptible to any embargo arrangements, unless they are to be applied with the disregard for potential legitimate civil end-uses that the international community has been forced to adopt in relation to Iraq. As the Foreign Secretary observed in relation to India and Pakistan—

... quite a lot of these refusals are for dual use, which by definition are bound to involve questioning not just about the goods themselves but also about their use. That is where it becomes rather more argumentative, although I think the system works very well. At any one time, the number of refusals as a proportion of the total number of applications does vary according to local circumstances specifically. It may be ...that over a period there are certain lessons to be drawn about how the criteria are applied or drafted from a high number of refusals or the need better to brief potential exporters. I accept that. This whole thing is an iterative process.[117]

The vast majority of refusals relating to India and Pakistan recorded in the 2000 report were on end-use grounds. We discussed these matters at some length in private session.

ISRAEL

64. The current situation in Israel and Palestine clearly requires close attention to the applicability of Criterion Three to any applications to export controlled goods to the region. In their report on the 1999 Annual Report, our predecessors noted—

In the wake of the violent disturbances in the second half of 2000 in the Israel Occupied Territories of the West Bank and Gaza, and the deployment against civilian insurgents of Israeli military forces and their military equipment, attention has turned to the extent to which UK-supplied military equipment may have been used by Israeli forces ... UK defence trade with Israel is very small ... The UK has not sold main equipment such as tanks, aircraft, warships or technology since May 1997. It has sold small arms and ammunition.[118]

The second intifada (including the appalling suicide bomb attacks) has continued, and Israel's aggressive attempts to suppress it have also continued and intensified. Some days before we took evidence from the Foreign Secretary, it was reported that the UK Defence Attaché in Israel had observed, on 29 January, the use by Israeli forces in the Occupied Territories of armoured personnel carriers created from modified Centurion tanks exported to Israel between 1958 and 1970.

65. The FCO wrote to the Committee on 21 March giving the background to the situation.[119] The Foreign Secretary told us in evidence—

We have to await the response of the Government of Israel before we make judgments about whether the undertaking was given in bad faith. It could have been given in good faith but we are checking. We want proper recognition that the Centurion tanks had been cannibalised in this way. However, whatever judgment we come on to as to that, the simple fact of the matter is that the undertakings which were given by the Government of Israel on 29 November 2000 that, as you say, none of the UK-originated equipment has been used by the IDF in the Occupied Territories, turns out not to be the case and I take that extremely seriously ...[120]

On 15 April, the FCO wrote again, informing us that—

The Israeli Government has said that the assurances given on 29 November 2000 were in good faith ... they did not accept that [the use of the APCs] was a a breach of the assurances given and they have not committed to stop using the APCs in the OTs. Accordingly we will continue to assess export licence applications ... to Israel on a case-by-case basis against the consolidated ... criteria. But in doing so, we will no longer take the Israeli assurances given on 29 November 2000 into account.[121]

66. The Government's statement of 15 April would appear to suggest that no weapons, equipment or components which could be deployed aggressively in the Occupied Territories would, for the time being at least, be licensed for export from the UK to Israel. We recommend that the Government in its response to this report confirms this is the case.

67. However, that policy's apparent clarity was altered by an announcement made by the Foreign Secretary on 8 July 2002 in a written answer, in which he announced a decision to grant a licence for the export to the USA of certain components for incorporation in F-16 aircraft which were destined for export to Israel. It is reported that similar aircraft have been used in recent attacks on targets in the Occupied Territories. We discuss the implications of the announcement of 8 July, which has wider implications than for exports to Israel, in the next section.

General Questions relating to the Annual Report for 2000

68. We asked a number of questions about the general issues arising from the information in the Annual Report for 2000, including that contained in the discursive material published in addition to the tables of licences granted and refused.

REFUSALS AND REVOCATIONS

69. In 2000 sixteen SIELs were revoked, and 191 applications for SIELs were refused.[122] (The comparable figures for 1999 were eight and 128.[123]) 57 OIELs were amended to reduce their scope, and eight applications for OIELs were turned down.[124] (The comparable figures for 1999 were fourteen and two.[125]) We sought and received (mostly in confidence) information on a large number of these. Nothing we were told gave us grounds for concern.

70. The Annual Report analyses refusals and revocations of SIELs by grounds.[126] It is worth noting that more than half the increase in refusals compared to last year (207 compared to 136[127]) is accounted for by the non-proliferation criterion and the remainder by the regional stability criterion. We sought and received (in confidence) information on these refusals by destination.[128]

APPEALS

71. We sought information on the appeals refused and upheld in 2000. This was provided. In one case we sought further information. We comment on the administration of the appeal system in a later section.[129]

72. In their report on the Annual Report for 1999, our predecessors discussed at some length the overturning on appeal of a refusal to licence certain military goods for export to Morocco relating to the supply and refurbishment of artillery. The appeal was upheld, they were told, on the basis of advice from the UN. Our predecessors commented—

We fully appreciate the difficulty in which Ministers were placed by the United Nations coming to the conclusion that refurbishment of the guns in question was force-neutral. The UK must have regard for the duly authorised international authority in making licensing decisions ... It is, however, for UK Ministers and not the UN Secretariat to decide on arms export licences. We have at least as much confidence in the judgement of Ministers in such cases as we do in that of the UN. We would have shared the reluctance of Minsters to agree to the proposed refurbishment. If it had remained right in their judgement that the licence should be refused, despite the views of the UN, the appeal against refusal could and should have been turned down, even if that ran a distant risk of judicial review.[130]

73. There were moves in 2001 by certain NGOs to seek judicial review of the decision to uphold the appeal, though eventually these were abandoned, apparently because they were out of time. The information we received in confidence from the Government on the appeals determined in 2000 did not suggest similar problems arose in relation to any of these.

CHANGES IN CONTROLS

74. We sought an explanation from the Government for the reasons for changes made to the lists of items subject to control.[131] None appeared to us controversial.

US CONTROLS ON IMPORTS (ITAR)

75. During its recent visit to Washington, the Defence Committee discussed the lack of progress on the International Trade in Arms Regulations (ITAR) on a number of occasions. American interlocutors agreed that there was no justification for the bureaucracy and delays which the present system causes. They accepted that it was a barrier to British industry's engagement in the American market and that this was unfair. The Annual Report states that the 'new US Administration under President Bush has indicated its commitment to take this work forward'.[132]

76. In oral evidence we sought further information on the progress of these negotiations. We were told—

The discussions with the United States on this issue are continuing. They are continuing constructively and amicably. The issues still to be finalised and discussed are some of the technical points relating to the compatibility of our export licensing regulations with the proposal of the United States to allow unclassified equipment to come to this country. So we are still in negotiations with them but the negotiations at the moment are going well.[133]

77. Negotiations on the International Trade in Arms Regulations are vital to ensuring that the UK defence manufacturing industry is operating in a fair international environment. Their resolution should be pursued as a matter of urgency.

Format of the Report

GENERAL

78. We raised a number of questions about the format of the Annual Reports. The Defence Manufacturers Association (DMA) raised with us informally the idea of a "reciprocal" report on defence imports. The Government is not considering including such information in the Annual Reports,[134] and we would be inclined to agree that it would rather muddy the waters. Information on these is included in the annual Defence Statistics, published by the Defence Analytical Services Agency. These show that imports of defence equipment in 2000 (the latest data available) were worth £1.66 billion, mostly military aircraft and associated parts.[135] This compares with exports of £4.41 billion in 2000— £1.72 billion of 'identified' defence equipment exports plus £2.69 billion of aerospace equipment exports which are not separately categorised as military or civil items.[136]

79. The DMA also suggested that the Annual Reports might include information on withdrawals of applications, "as a possible measure of business lost through delays in granting licences". Such information would only allow meaningful conclusions to be drawn if the reasons for withdrawal were given. Since these would have to be given by the applicant, they would be subjective and unverifiable. We again consider that the inclusion of such data would be risky for the integrity of the reports. However, we would welcome an annual memorandum from the DMA giving their assessment of the number of and reasons for withdrawals of licence applications.

80. The adoption of the EU Code of Conduct has been accompanied by the development of arrangements for exchange of information on refusals and revocations of licences (also known as "denials") between EU member states in an effort to minimise so-called "undercutting" (that is, where one member state allows the export of controlled goods to an end user of a type which another member state has refused to allow to be supplied). We have made some comments on this above. The Annual Report includes a report on the operation of the EU Code of Conduct.[137] We welcome the inclusion of the report on the operation of the EU Code of Conduct for the first time in the 2000 Annual Report in response to our predecessors' recommendation.[138] It should be included in future reports.

SIX-NATION FRAMEWORK AGREEMENT

81. The problems faced in exercising effective control over the re-export of UK-manufactured components which are incorporated in equipment finally assembled elsewhere is one which we discuss below in some detail.[139] However, there is a particular issue relating to the effect of the so-called "Framework Agreement", a treaty designed specifically to facilitate such multi-national collaborative defence procurement projects between its European signatories. In their report on the 1999 Annual Report, our predecessors requested the inclusion of a note in the next Annual Report on the implications of the Six-Nation Framework Agreement on European Defence Industrial Restructuring for reporting of exports of controlled goods.[140] For the purposes of transparency of controls, the essential issue is that the Agreement will create a new instrument to be known as a Global Project Licence (GPL) which will permit the export of the end products of such collaborative programmes by any of the partners[141] to any country on a list of "permitted destinations". This means that UK-manufactured products could, for example, be exported from Sweden, and there would be no record of this in UK Annual Reports. As Saferworld puts it—

The Framework Agreement establishes simplified licensing procedures for the transfer of controlled parts and components between six EU Member States in order to facilitate their entering into the joint production of military equipment. Accordingly, since the responsibility for issuing export licences lies with the authorities where the finished product emerges, there is a danger that arms containing UK-manufactured components could be exported to sensitive destinations from other EU Member States without the knowledge of the UK parliament or public. In order to ensure that HMG's commitment to transparency is upheld under the Framework Agreement, all exports of jointly produced goods, regardless of the country of final export, should be recorded in subsequent Annual Reports on Strategic Export Controls.[142]

82. The note requested by our predecessors was included in the 2000 Annual Report.[143] We sought further information on the nature of the information which will be given. It was not clear from this exactly what level of transparency would be achieved.[144] We asked for further clarification, and the Government's supplementary memorandum indicates that decisions on key issues such as the detail to be specified in GPLs and the period of validity have yet to be decided.[145] Lists of permitted export destinations for products jointly produced by the Agreement signatories will be classified as commercial in confidence because "they could alert international competitors to the market opportunities".[146] Only companies and partner countries involved in particular projects will have access to the relevant list. However, the Government pointed out that GPLs themselves and any other licences related to Framework Agreement projects will be published in the Annual Report. All Framework partners are EU members, and so all re-export applications will be subject to the EU Code.

83. The Defence Committee was assured during the course of its inquiry into the Six Nation Framework Agreement that there would be no reduction in transparency in licence applications as a result of the terms of the Agreement and this was confirmed by the previous Foreign Secretary in evidence to our predecessors.[147] Until the precise terms of the GPLs are known, we cannot be certain that this will be the case. We will continue to monitor the use of Global Project Licences and the information given about them in future Annual Reports.

DATA ON MILITARY LIST RATINGS

84. The introduction to the 2000 Annual Report notes that—

... this year for the first time a summary description is provided for all items covered by licences issued for the period ... This change makes the report significantly more transparent in respect of dual-use items ... Because of the increased detail provided ... no information is provided on the ratings of the items licensed for export.[148]

85. Saferworld took issue with this claim of greater transparency. In a letter to us they welcomed the publication of the Government's 2000 UK Annual Report on Strategic Exports, which they described as the most detailed Annual Report on arms exports that has been published, but argued that—

... the ML ratings make a useful contribution to the "user-friendliness" of the report, as they are useful in alerting observers to certain categories of goods which may raise concerns; it can be difficult to locate such types of item in amongst the often extensive lists of summary descriptions, especially as the imprecise nature of many of the descriptions makes evaluation difficult. As such, we consider this omission as a significant backward step and would recommend that the summarising country-by-country tables of SIELs issued under each ML rating should be reinstated in the 2001 report ... A more transparent system of reporting would require that for each licence issued, both the ML rating and a summary description of the items for export be included, with the description precise enough to enable a judgement to be made as to whether the export meets the export guidelines. For example, whereas the description "machine gun" does meet this test, "aircraft spares" or "electronic equipment" could both include a range of equipment that could be relatively benign, or equally could be very sophisticated and of potential concern ... future Annual Reports should use the most precise ML rating possible through the use of sub-categories. For example, the licensing of cargo parachutes would carry the rating ML10.a.2.[149]

86. We raised this with the Government in a written question. They responded that they—

... did not intend to reduce the transparency of the Annual Reports by removing the military list ratings of items licensed for export. The Government judged that the inclusion of summary descriptions of these items provided more transparency than the military list ratings, since the summary descriptions can be readily understood by non-specialist readers without reference to the military list. The inclusion of military list ratings as well as summary descriptions would have significantly increased the size of the report, making both its internet and printed versions more unwieldy, and increasing the cost to the reader of the printed version. It is too late to include military list ratings as well as summary descriptions in the next Annual Report, production of which is already well under way. However, the Government is willing to consider including both these types of information in future reports if the Committee wishes, on the understanding that this might have implications for the cost and accessibility of future reports.[150]

We accept that the change was made in good faith, and that the arguments put forward by the Government against reverting to the old format carry some conviction. We also accept that it is too late to make changes to the 2001 report. It may be that some useful compromise could be found which would meet the needs of both sides—for example by publishing the information as a memorandum to these Committees. But the resource implications would have to be taken fully into account. We recommend that the Government and Saferworld (and other interested parties) should consult further on this question of the inclusion of ratings in the reports and report to us the outcome of those discussions by the end of this year.

CONFIDENTIALITY

87. There is inevitably a constant tension between the consumers of the Annual Reports and the Government about the amount of information that is disclosed about individual licences. Saferworld comments—

... it is still not possible to fully assess the implementation of the Government's export policy because information on the value of each licence, the end-user in the recipient country, and details of export licences refused are not published. The lack of detail on end-users is a major problem as there is a big difference between exports of small arms to a repressive police force in a developing country and to wardens in a game park.[151]

88. Much of this information is provided to us on request, but in confidence. It is not always apparent what the underlying principles of classification are when information is provided to these Committees in confidence, and we recommend a restatement of these in the Government's response to this report. We would also recommend that the Government, in its response, sets out its preliminary assessment of the implications of the Freedom of Information Act for what it will be required to disclose about licences, and any implications this may have for the Annual Reports.

89. We now turn to the administration of the licensing system by the Export Control Organisation.

Administration of the Licensing System

SIEL PROCESSING

90. The Government remains committed to its target for processing of SIEL applications within 20 working days of receipt of the application and all relevant supporting evidence,[152] but progress towards this target has been very slow. Performance against the 70% target rose from 52.1% in 1997 to only 57% in 2000. The Government could only provide an estimate of performance for 2001, suggesting marginal improvement in 2001, possibly up to 60%.[153]

91. We asked what was hindering progress towards meeting the Government target for SIEL processing, but did not receive a definitive answer.[154] We were told that government departments were reviewing their arrangements for SIEL processing and that the FCO and the MoD were enhancing their IT systems for this purpose. The DTI is developing the capability to enable exporters to submit applications via the Internet, which is to be welcomed in so far as it additional flexibility to exporters, but it is not at all clear what beneficial impact the form in which an application is received has on processing times. After all, the introduction in 1999 of the ELATE system, which allowed exporters to submit applications on disc, had no significant effect on turn-round times in 2000. What was not addressed in the Government's response was whether the ECO was sufficiently resourced to have any realistic prospect of ever achieving these targets.

92. Delays in processing of applications can adversely affect the companies concerned and it essential that such effects are minimised. Performance of the Export Control Organisation continues to be below acceptable standards. The Government should take urgent steps to improve performance, particularly in view of the extra demands which may be made of the system as a result of provisions in the Export Control Bill, once it becomes an Act.

PROCESSING OF APPEALS

93. Our predecessors examined the problem of turnaround times for appeals at some length in their report on the 1999 Annual Report.[155] They recommended—

... a rethink of the target of 30 working days for settling appeals against refusals and renewed efforts to meet an achievable but challenging target. We also reiterate our opinion that a procedure be established through which companies would at least have the chance to answer the departments' doubts or concerns.[156]

94. The Government's target of providing a decision on appeals against refusal of an SIEL within 30 working days from receipt was not achieved in any of the 15 eligible cases[157] received in 2000. We asked by how far departments were overshooting their own deadlines for processing of appeals, but the Government did not provide that information, limiting its response to the observation that this varied from case to case and that the complexity of cases for which appeals were lodged meant that the process could be lengthy. We had been told that the Government is "continuing to review the appeals target", but that, while this review was in hand, the Government "cannot yet say when it will be finished".[158]

95. We remain concerned about the delays in settling appeals against refusals of applications for SIELs Given that our predecessors recommended a rethink of the appeals target in their report last year, and urged renewed efforts by the Government to meet an achievable but challenging target, we are disappointed at the lack of progress in the Government's review.

END-USE MONITORING

96. We referred above to the need for end-use monitoring of certain exports which have been licensed.[159] There is no system for routine monitoring to verify the proper use of goods exported under SIELs. The Government justify this on the grounds that end-use monitoring would be disproportionately resource-intensive.[160] We were told that specific commitments to end-use monitoring are rare but that, under certain limited circumstances and where practicable, monitoring of equipment in the recipient country could be undertaken where this would help to minimise the risk of diversion. In the main, the Government relies on overseas posts to investigate any allegations of misuse of defence equipment of UK origin. The Government cited the recent example of Israel (which we discussed above), where UK-built Challenger chassis have been adapted for use as armoured personnel carriers by Israeli security forces, as evidence of the success of its approach. The Foreign Secretary remarked—

I think, as long as you have a system of licensing, which I strongly support, we should all be concerned about circumstances in which, either inadvertently or advertently, the undertakings which governments give about end use could be broken ... In the world in which we live you are not going to be able to end up with a situation—perhaps you could do but it would be extremely expensive and I am not sure it would achieve more than we currently achieve or are able to achieve—where you have a system of end­use monitors ... But within the availability of resources, which is a crucial issue, and what is practical, of course we should strive for means by which we improve the overall regime. I do not argue with that.[161]

97. While we accept that routine end use monitoring could be very expensive, we recommend that the Government should consider the production of clear guidelines for, and clarification of, the circumstances under which end-use monitoring should be undertaken.

98. We now turn to some more general policy issues which arise from our consideration of the Annual Report for 2000, and events which have occurred in the time since the end of the reporting period.

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78   see Annual Report 2000, p 11 Back

79   see Annual Report 1999, p 12 Back

80   see Annual Report 2000, p 11 Back

81   see Annual Report 1999, p 12 Back

82   see Annual Report 2000, p 11 Back

83   see Annual Report 1999, p 12 Back

84   see Annual Report 2000, p 16 Back

85   see Annual Report 1999, p 15 Back

86   About £9 million a year in total according to The Economic Costs and Benefits of UK Defence Exports, Chalmers, Davies, Hartley and Wilkinson, Centre for Defence Economics, University of York, November 2001, para 69 (MoD £1.9 million, FCO £2.5 million, DTI £4.5 million) Back

87   See Annual Report 2000, p 5 Back

88   ibid, p 300 Back

89   HL Bill 75, clause 11 (b) Back

90   see Appendix 6, Ev 25 Back

91   see paragraphs 87 and 88 Back

92   See Ev 1 to Ev 16 Back

93   See Appendix 9, Ev 43 Back

94   See Appendix 3, Ev 18 Back

95   See Appendix 4, Ev 20 Back

96   See Appendix 5, Ev 25 Back

97   Not printed Back

98   See Ev 25 to Ev 33 Back

99   See Appendix 9, questions 2 and 4, Ev 43 to Ev 44 Back

100   HC (2000-01) 212, op cit, para 41 Back

101   Appendix 2, Ev 17 Back

102   Appendix 6, question 3, Ev 26 Back

103   op cit, para 33 Back

104   Appendix 2, Ev 17 Back

105   Q 7 Back

106   QQ 14 and 15 Back

107   QQ 17 and 18 Back

108   Q 16 Back

109   HC (1999-2000) 225, op cit, para 38 Back

110   HC Deb., 10 June 2002, c 604 Back

111   HC Deb., 10 June 2002, c 607 Back

112   See Appendix 13, Ev 50 Back

113   HC Deb., 13 June 2002, c 1377W Back

114   HC Deb., 10 July 1998, cc 687-8W Back

115   HC Deb., 3 July 2000, c 3W Back

116   HC Deb., 15 March 2002, cc 1296W to 1297W Back

117   Q 20 Back

118   HC (2000-01) 212, op cit, paras 20 and 21 Back

119   Appendix 8, Ev 43 Back

120   Q 11 Back

121   Appendix 10, Ev 48; see also HC Deb., 15 April 2002, cc 722W and 723W Back

122   see Annual Report 2000, p 11 Back

123   see Annual Report 1999, p 12 Back

124   see Annual Report 2000, p 11 Back

125   see Annual Report 1999, p 12 Back

126   see Annual Report 2000, p 15 Back

127   see Annual Report 1999, p 15 Back

128   Appendix 6, question 29(a), Ev 33 Back

129   see paras 90 to 97 Back

130   HC (2000-01) 212, op cit, para 32 Back

131   Appendix 6, question 31 Back

132   see Annual Report 2000, p 7 Back

133   Q 54 Back

134   Appendix 6, question 33 Back

135   UK Defence Statistics 2001, Table 1.14 Back

136   ibid, Table 1.13. The additional dual military/civil aerospace equipment exports are estimated by the Society of British Aerospace Companies Back

137   see Annual Report 2000, Appendix E Back

138   ibid, pp 337 to 341 Back

139   see paras 136 to 146 Back

140   HC (2000-01) 212, op cit, para 17 Back

141   France, Germany, Spain, Sweden, Italy and the UK. Back

142   Appendix 3, Ev 18 Back

143   see Annual Report 2000, pp 6 and 7 Back

144   Appendix 6, question 32, Ev 34 Back

145   Appendix 9, question 7, Ev 45 Back

146   ibid Back

147   First Report from the Defence Committee, Session 2000-01, The Six Nation Framework Agreement, HC 115, paragraph 18 and Third Report, Session 2000-01, Strategic Export Controls: Annual Report for 1999 and Parliamentary Prior Scrutiny, HC 212, Q 72 Back

148   see Annual Report 2000, p 12 Back

149   Letter from Saferworld to the Clerk, dated 26 April 2002 Back

150   Appendix 9, question 6, Ev 45 Back

151   Appendix 3, Ev 18 Back

152   see Annual Report 2000, p 297 Back

153   Appendix 9, question 8(a), Ev 46 Back

154   ibid Back

155   HC (2000-01) 212, op cit, paras 45 to 48 Back

156   ibid, para 48 Back

157   Cases where new information was provided to support the appeal. Back

158   Appendix 9, question 10, Ev 46 Back

159   see para 50 Back

160   Appendix 9, question 10, Ev 46 Back

161   QQ 12 and 13 Back

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Prepared 19 July 2002