Examination of Witnesses (Questions 160-177)
THURSDAY 3 APRIL 2003
RT HON
PATRICIA HEWITT
AND MR
GLYN WILLIAMS
160. I entirely take the point that you cannot
reach a judgment on the balance between costs and benefits until
you know exactly what the costs are, but it is perfectly clear
from the examples drawn from companies that many companies see
the potential costs of training per employee being in the range
of £1,000 per employee, they range on either side of that
but they are often expressed in those terms. If the industry is
right and there are 300,000 employees there and about a 27% turnover,
one does not have to arrive at a significant proportion of employees
requiring to train or additional costs per year before the costs
are not measured in hundreds of thousands but measured in millions
of pounds. When you say costs are moderate, what do you regard
as moderate in this context?
(Ms Hewitt) I am not at this point going to try and
put a macro figure on it but what I would say is, first of all,
there is a very high degree of compliance from British companies
with our export control processes. That in turn reflects the fact
that they have already got, for the most part, good systems in
place and trained staff to deal with applications. This is not
a completely new system where you have got to take staff and train
them from scratch to operate a new system. There will certainly
be some changes. There will be situations where an individual
licence will be required where it is not at the moment. There
will be situations where registering under an open licence will
be required where it is not at the moment. There may be some additional
record-keeping—that, as I say, is an open question at the
moment—but I think some of the more frightening figures
that are being suggested, and might be implied by the piece of
arithmetic you have just given, would be wide of mark.
161. If it turns out that a high proportion
of employees would need to be re-trained and that cost £1,000
per head, the costs involved would be excessive and you would
therefore look for a different regime of record-keeping and compliance
in order to bring those costs down? I do not want us to feel that
before the costs have even been genuinely assessed, the Government
has already decided it is going to proceed in this direction anyway
and the costs will fall out as they will.
(Ms Hewitt) We are of course going to implement the
Act. We would not have passed it if we did not intend to implement
it, but we are looking for the simplest and most cost-effective
way of implementing it not only for the companies but for ourselves.
Perhaps Mr Williams would like to add something on that since
he is dealing with it.
(Mr Williams) In the RIA we have tried to estimate
the number of new SIEL applications that we would get under the
new controls on electronic transfers of military goods. We came
up with a fairly low figure of new applications, around 100 to
300 a year, and we based this on looking at the number of SIEL
applications that we get at the moment for exports of military
technology as opposed to military goods which are in the low hundreds,
the rationale being that electronic transfers are going to apply
to military technology obviously in electronic form, so if you
want to use that as a precedent the numbers seem fairly low, bearing
in mind that if you already had an export licence for the export
of military goods that automatically applies to electronic transfers
that take place in respect of those goods as well. What we are
looking at here in terms of the licence applications are the ones
that are in addition, where it is only technology transfers. In
terms of the trafficking and brokering, we looked at numbers of
licences which countries like the United States and Germany had
issued, which are surprisingly low, particularly for the United
States. As the consultation has unfolded industry is clearly telling
us that we have significantly under-estimated the figures and
they are coming up with various scenarios in which licences may
be required. We will have to look at those figures afresh in the
light of their representations.
162. Before we move away from the RIA, the expectation
in the industry, I would have thought one of the aspects to be
considered was the impact on competitiveness, and RIAs are supposed
to have a competition assessment. This does have a competition
assessment but the competition assessment in this context is only
in relation to within the United Kingdom, which for military aerospace
has distinct limitations. From industry's point of view the impact
on the competitiveness of the industry in its genuine market place
is what matters, will you undertake before the full Regulatory
Impact Assessment is completed that the competition assessment
will look at the impact on the competitiveness not just within
the United Kingdom but within the whole of the industry's market
place, so that we know if there are any dynamic effects? That
is the whole point of the assessment, to see if there are multiplier
effects to do with loses of jobs, nd the like.
(Ms Hewitt) We will certainly look at that. The industry
is already drawing that point to our attention. This discussion
absolutely underlines the point I was making earlier about the
practical as well as the in principle arguments as to why it would
be most unwise to try and seek to extend the reach of these controls
extraterritorially to all military equipment and not simply the
three categories that we identified as meriting extraterritoriality.
Assuming that one intended to implement such controls the costs
would be astronomical.
Mr Jones
163. Can I pick up on Mr Lansley's point on
training, obviously industry are concerned about the bureaucracy
this is going to entail. If we are not careful here this is going
to be bonanza time for consultants in terms of trying to sell
various packages. The Department of Trade and Industry are interested
in job creation but I do not think they would like to see that
it creates jobs that are unnecessary and puts unnecessary burdens
on companies. Once you have consulted in terms of what training
is needed for a company, and accepting it might be small in terms
of some of the larger companies, will you be giving guidance or
some type of help, because I would not want to see this as just
being a way of consultants moving in and saying to firms, "You
need X, Y and Z training" when in fact they need very little?
(Ms Hewitt) I have to say that I do not think this
is an area where we will gets lots of training companies or consultancies
moving in, for the simple reason these are highly specialist companies,
working in a very specialised, high technology, competitive, global
market place, who are more than capable. They already meet their
own skills requirements. I agree with your general point, we do
not want to see either jobs or training activities being undertaken
for wholly pointless bureaucratic purposes. The way that we are
trying to design the administration and enforcement of the new
controls is precisely to focus on the real problem areas and ensure
that there is legitimate activity that none of us would have any
concerns about, which can carry on in compliance with the law
but unimpeded by a great deal of bureaucracy.
164. You did refer to the enforcement issues
and the resources involved in enforcement. The RIA refers to the
estimates of the cost to Government departments of the new processes,
I cannot detect there any reference specifically to the costs
of enforcement as such, what resources are going to be devoted
to enforcement?
(Ms Hewitt) I am going to turn to Mr Williams on that
because he runs the section of my Department. We already have
an enforcement team but we may need to increase it.
(Mr Williams) Compliance in terms of cost there are
extra elements, we will need some extra staff to process the new
applications in the first place in all of the departments concerned.
We have a compliance team which visits companies to check on their
compliance with open licences. We may want to augment that team,
going back to the training point, they do not just go in as compliance
officers and auditors they also try to help companies with their
system. We have a help line as well. I have two members of staff
who are at the moment engaging with companies and helping them
prepare. Enforcement in terms of prosecutions is done by Customs
& Excise.
165. Customs & Excise, in the RIA they do
not appear to make references to additional resources for that.
The point is when you come to revise the RIA presumably there
will be some reference to additional enforcement in compliance,
they are not referred to here at the moment?
(Ms Hewitt) We will have a look at that. If you look
at page A 19 and A 20 Customs & Excise say there will be an
additional cost but they estimate it modestly at round 200,000
or 300,000 a year, that includes trade enforcement activities.
Clearly as we get more information from industry if we then think
that we are going to need a larger enforcement team those costs
will be looked at correspondingly and we will need to reflect
that in the revised RIA.
166. At the moment there is some variation in
the extent to which you will get a new licence and the burden
of new applications, how confident do you feel that you will be
able to accommodate the new processes? You make a reference there
that you do not anticipate that the new licensing requirements
should lead to significant delays in the processing of licences.
How confident do you feel you can get that to the point where
there is no additional delay in the processing of licences as
a consequence of the introduction of these new processes because
you anticipated the requirements and the number of licence applications?
There is a damaging consequence to industry if the process is
changed and the whole export licensing system clogs up when we
are just starting to move it in the right direction.
(Ms Hewitt) That is a very important point. Last year
we handled over 10,000 applications. In the past our performance
has not been as good as it should be. What we have done, not just
within my Department, but the Foreign Office and MoD as well,
is to look over the last year at how we can make the whole process
more efficient. Inevitably there is a lot of to-ing and fro-ing
between different government departments and the Foreign Office
and posts abroad, and that is where a lot of the delays come from.
We looked at how we can make it more efficient and we have also
made a huge effort to deal with the backlog of cases that had
arisen. We used to have 104 cases that were over 12 months old,
which, not surprisingly, gave rise to a great deal of frustration
and anger in industry. We now have no cases over 12 months old,
and we are working to get it down to deal with the ones that are
between 6 and 12 months old now. I would be very concerned, indeed,
if we found ourselves back in that situation with a lot of backlogs
of applications. By going through this very careful process of
working with industry to understand how we enforce this in the
simplest possible way and concentrate our efforts on where there
are real problems and on the minority of people who are deliberately
flouting the law, seeking to do things we do not want them to
do, then we can prepare our own system and resources and make
sure that we do not end up with that backlog building up again.
(Mr Williams) I am acutely aware of the dangers that
you point to, if there were to be a huge increase in the number
of licence applications that would give us a lot more work. This
comes back to the theme that the Secretary of State has been emphasising,
that we should not try and bite off more than we can chew, certainly
in the initial phase.
167. When do you think you might be able to
tell us the outcome of the review of the licensing process?
(Ms Hewitt) It has been an on-going review which,
as I say, is already producing results in terms of a faster export
system, but we do have a cross-government review going on and
we should have conclusions by the summer and I will announce them
when we do.
168. Will it be your intention, do you think,
subject to what the review has to say that these new processes
and the outcome of the review would be implemented at the same
time?
(Ms Hewitt) I do not think we have looked at that
yet but that might be desirable.
Ann Clwyd
169. One of the arguments used to us in opposing
prior scrutiny by Members of Parliament is that we would slow
it down. What makes you think we would slow it down even further,
we might assist you in the process of speeding it up?
(Ms Hewitt) That is certainly an argument we have
heard and we have had a look at, but, I am afraid, our experience
is the more people engaged in this the more to-ing and fro-ing
there is and the longer it takes. I fear this is one we are going
to go on disagreeing about for some time to come.
Chairman: On a different matter, Sir John Stanley
and Piara Khabra.
Sir John Stanley
170. Secretary of State, can I turn to what
we have headed "trafficking and brokering logistics"
which basically comes down to transport. This was an issue which
came into very sharp relief in the last Parliament during the
Foreign Affairs Committee's inquiry into the Sierra Leone Sandline
scandal and was taken up by the Quadripartite Committee and the
Quadripartite Committee's report was published on 17 July 2000,
House of Commons paper 467, and it said in paragraph 62: "In
the course of oral evidence from the Minister of State to the
Foreign Affairs Committee on 22 May on developments in Sierra
Leone, reference was made to allegations that arms had been supplied
to the rebels in Sierra Leone from Ukraine, brokered by a Gibraltar
based arms dealer and using a British based airline, Foyle Air,
who made the administrative arrangements for transporting the
arms from Ukraine to Burkina Faso. There is no evidence that the
company was involved in the subsequent transfer of arms via Liberia
to Sierra Leone." Secretary of State, this was no laughing
matter given the fact these were extremely unpleasant rebel forces
and indeed British forces were subsequently deployed and we could
have had the situation where British transport and arms were used
against British armed service personnel. In the later report,
which the Quadripartite Committee unanimously agreed, on the draft
Export and Non-Proliferation Bill in paragraph 99, the Quadripartite
Committee said in its recommendation: "The Bill as presented
should allow for the possibility of the subsequent introduction
of controls on the actual transport of controlled goods and on
those arranging for such transport by an appropriate extension
of the scope of `trade controls' as defined in clause 5."
The Government's response was—and again I quote: "Clause
5 of the Bill provides a broad power which does allow for the
introduction of controls on the transport or arrangement of transport
of controlled goods." I returned to this issue again in my
offering on the Second Reading on 9 July 2001 and I was struck
by the fact that although the Government were apparently going
to be taking powers in what was clause 5 of the then Bill to deal
with controls over transport, the word "transport" did
not appear on the face of the Bill in clause 5 and that remains
the case when we come to what is now Section 5 of the Export Control
Act 2002. I have looked very closely again at Section 5. I have
looked very closely at the definitions. There are various references
to the word "transfer" but I am still at a loss as to
whether or not the Government is intending to bring British-based
companies engaged in the transport of arms, arms which may well
be transported out of a third country to another country right
outside of UK jurisdiction within the ambit of controls. I have
to say on my reading of the Act it does not appear that the Government's
policy intention has been carried through. If you can tell me
I am wrong I should be delighted. I would be very grateful, as
I am sure would the rest of the Committee, for a full explanation
as to whether the wording of Section 5 brings within it companies
such as Foyle Air transporting arms to rebel forces in Sierra
Leone from the Ukraine via Burkina Faso.
(Ms Hewitt) I am not a lawyer and I might let you
have a more detailed note on this but I believe the Act and the
draft Orders we have made do indeed cover transport and precisely
the case that you have just outlined, in other words, a British
transport company that is engaged in the supply of goods that
ends up in an embargoed destination, which is what Sierra Leone
is, because what we have done in the Act and what we have done,
if you look at the Draft Trade in Controlled Goods (Control) Order,
in Section 3 of that where we talk about directly or indirectly
supplying or delivering—
171. Can you give us the page reference.
(Ms Hewitt) It is G2, it is the Trade in Controlled
Goods (Control) Order and it is Section 3 (2) where we talk about
"no person shall supply or deliver, agree to supply or deliver
or do any act calculated to promote the supply or delivery of
restricted goods . . ." et cetera et cetera. That in a sense
exactly parallels what we were talking about earlier on extraterritoriality.
In other words, where there is a supply of arms to an embargoed
nation or a supply of torture equipment or of long range missiles
to any destination, then we will control any activity that facilitates
those activities, and that would include transport but it would
also include the provision of banking or insurance services or
other activities coming from a British company that are ancillary
to those three categories of supply.
172. Are you wholly satisfied that these provisions
will bite when the transport is wholly outside the UK's jurisdiction
and is between two countries neither of which take the transport
undertaking into UK airspace or within UK jurisdiction?
(Ms Hewitt) My lawyers tell me that I should be wholly
satisfied but I will keep probing on this subject. It might be
helpful if we sent you a legal memorandum on how we think the
chain of activity will be caught by the Act and Orders as drafted.
Mr Khabra
173. I was going to ask a similar sort of question.
There have been a number of cases where British pilots and transportation
agents have been implicated in the supply of arms to areas of
conflict and human rights abuses. Under current regulations their
actions do not break UK law. Has the Government got any intention
either to strengthen the current legislation or to introduce new
regulations to stop that?
(Ms Hewitt) Where we are talking about supply of arms
to embargoed destinations or torture equipment or long-range missiles,
then the combination of the extra-territorial controls on trafficking
and brokering and the controls on transport, finance, insurance,
advertising and other ancillary services, I think those two things
between them will catch exactly the kind of activity that you
are concerned about.
Sir John Stanley
174. Following on, Secretary of State, from
what you were saying to me at the end of our last exchange, I
think it would be very helpful to have the benefit of your further
advice and any legal advice you have on this key point, particularly
in the context of the evidence that we took this morning, where
the two non-governmental organisations, I am just doing this from
memory, correct me if it is wrong, said there were quite a considerable
number, in their view, of British companies engaged in this particular
type of arms transportation. I think they gave a figure this morning
in the evidence.
(Ms Hewitt) I will certainly let you have that further
memorandum. Again, I would draw the distinction between a British
company or a UK person engaged in transporting arms to an embargoed
destination. That we will catch. If have you a British shipping
company that routinely carries perfectly legitimate aerospace
components that are being exported under a perfectly legitimate
export licence then we are not going to try and control that activity,
we do not want every shipping company, every airline, every bank
all having to apply for licences under this Act. I think there
are some people who would like us to extend the Act in that way,
but I am glad that you and I do not wish to do so.
Mr Jones
175. Can I clarify something, in terms of exports
to embargoed nations, what about an individual that is working
for a Ukranian air transport company who is involved in that process,
is he or she caught up in the Act in terms of being the pilot
or co-pilot or a load-master, for example?
(Ms Hewitt) I believe they would be because we are
talking there, as I said, about the extraterritorial reach of
the Act to any UK person wherever they are in the world engaged
in these three destinations.
176. Even if they are not freelance, they are
actually working, employees of a Ukranian transport company?
(Ms Hewitt) Let me double check that point, if I may,
and I will come back to you with clarity on that point.
Chairman
177. Secretary of State, can I thank you very
much indeed for coming this afternoon. We will be producing a
report by mid-May on the draft
legislation. We hope you will embrace all our recommendations
with acclamation, and we will be producing that very quickly.
(Ms Hewitt) Can I say, Mr Berry, I am
very, very grateful to the Committee for doing that and doing
it in this time scale. I am not going to promise in advance we
will accept everything you say but I hope we will be able to do
so, and I am sure you will offer us extremely helpful and practical
advice on how we make sure we get this right, because we are all
committed to making this work. Thank you.
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