Examination of Witnesses (Questions 60
- 79)
TUESDAY 13 MAY 2003
SIR RICHARD
EVANS, MR
NICK PREST,
MR JOHN
HOWE AND
MR COLIN
GREE
Q60 Mr Roy: Are any of you gentlemen
hopeful that any further progress can be made or were we just
wasting our parliamentary time when we spoke about this? Would
it be worth our while looking for any advances in the future?
Sir Richard Evans: We absolutely
should not abandon these issues. It is by keeping these issues
on the table and continuing to drive, together with other moves
that obviously have to be made in these territories, that we can
try to get a meeting of minds. If you take them off the table
the one thing you can be absolutely certain of is that is it forever.
I agree with John, if you look down I think you will find there
are some issues but in the context of trading, which is what this
was about, and getting maximum utilisation of the resources that
are available in the most efficient way, we have not succeeded
on it.
Q61 Mr Roy: Is that not you just
going through the motions if you leave them on the table but they
do not work? Who are you trying to appease? What is the point
of doing that if you know that nothing is going to happen?
Sir Richard Evans: I think that
you have got to chisel away at these issues. We have been through
the discussion and debate in the context of the market here in
the UK and absolutely we should not give up on this issue. We
should be using all the resources and all the tools available
to us. It is not as if there are not measures of agreement with
us on some of these issues, there certainly are, and what these
actions that were initiated have done is, first of all, they have
created a greater understanding of what the issues are on both
sides and, secondly, a number of people, because of the understandings
they have now got, are a lot more sympathetic to this issue and
see the value of delivering the output from some of these requirements
than was the case before we began this. We have got to keep on
pushing at it.
Q62 Mr Roy: What about the Declaration
of Principles between the US and the UK? Are they better or worse?
I would suspect that any lay member would have thought in today's
world there is closer co-operation and maybe there is more chance
of carrying this forward between the US and the UK but is that
not the case?
Sir Richard Evans: It depends
at the level at which you address that question. I think I mentioned
this earlier. I would say at the congressional level today it
is more difficult than it was certainly a year ago and, if anything,
in the last few months it has become even more difficult.
Q63 Mr Roy: More difficult?
Sir Richard Evans: Yes.
Q64 Mr Roy: That surprises me.
Sir Richard Evans: Which is quite
to the contrary of what you might expect.
Q65 Mr Roy: That is quite worrying.
Sir Richard Evans: But politics
have a hell of a way of changing. In this world the word "never"
is to be used pretty sparingly.
Q66 Mr Roy: Can I move on slightly
away from the agreement between the six and the United States
and the United Kingdom to the other European competitors and other
countries and ask what your opinion is with regard to what is
needed in order to open up the defence markets of those other
countries outwith the six?
Sir Richard Evans: I would say
two issues. One is accepting a much wider choice in terms of supply,
i.e. opening the borders up to competition. The other is putting
an awful lot more work into creating common requirements, which
takes you back into OCCAR and a lot of the work that has been
going on there. Again, Government, as it has demonstrated, has
got a major role to play in creating harmonisation in the context
of equipment requirements. The benefits of that, when available,
are there to be seen, as has been demonstrated in Iraq, and indeed
in some cases when they are not available Iraq has always demonstrated
the shortcomings that the services have to live with. I do not
know this for a fact but I suspect that the British containment
to the southern part of Iraq was in no small part a consequence
of not having the maximum degree of interoperability and had we
had it, it would have possibly made things somewhat different.
Q67 Mr Howarth: Can we turn specifically
to the ITARs, the International Traffic and Arms Regulations,
that apply to the United States and of which mention has been
made under the reference to the agreement signed in February 2000
between the United States and the United Kingdom, the Declaration
of Principles. What would be the particular benefits to the United
Kingdom, to UK industry, of the United States and United Kingdom
Governments finally negotiating a waiver of the US ITAR regulations?
Sir Richard Evans: I think the
principal benefit would be a much greater degree of interchange
between individuals engaged in our companies on joint programmes.
It does not quite create a common footprint of citizenship but
it goes an awful long way to getting towards it. On both sides
there are clearly always going to be a number of areas typically
classified in terms of the word "Black" where, quite
rightly, any country has to create protections in terms of those
areas. That apart, having the complete ability to have people
treated equally in the context of security is an absolute fundamental
principle. Incidentally, when you look at this issue of consolidation,
consolidation cannot actually take place without it because when
you look at the justification of these deals in terms of getting
much greater utilisation out of the resources, particularly out
of people, unless people can actually be treated as equals other
than for "Black" in the context of the application and
access to technology, the synergies that are required to support
a deal in consolidation terms cannot be generated. That is actually
one of the reasons why American companies should have an interest
in supporting some of the changes that both the ITARs and the
TAAs are designed to bring about because if they actually want
to extend their own footprints outside America in the context
of consolidation it is in their interests as owners of, if you
like, the new entity that the whole of that entity can actually
access on equal terms the technology that is available within
the company.
Mr Green: Can I just add one point
to that. In this whole area we are more likely to make substantive
progress on a project by project basis rather than trying to pursue
generalities, so that it is really important to get it focused
on the specific and make sure that the drive on a project basis
is sufficient to overcome some of the bureaucratic difficulties
that Sir Richard was referring to.
Q68 Mr Howarth: Personally I am acutely
aware of the problems about the JSF, to which Sir Richard referred
earlier. He communicated in an earlier discussion that he saw
the opposition not being so much political as industrial, i.e.
the Americans want to protect their own marketplace, but surely
in the light of the United Kingdom's support for the United States
over Iraq now is the time to drive the bargain. What is being
done? I know the Minister of State of Defence Procurement has
been in Washington to try and drive this. This agreement was signed
in February 2000, for goodness' sake. We are the only nation that
seriously stood by the United States, why are we not getting this
dividend? I leave aside the "Black" programmes, which
frankly ought to be addressed as well in my view as well.
Sir Richard Evans: I have to say
that you are addressing the question to the wrong guy here.
Q69 Mr Howarth: The Secretary of
State comes tomorrow, if you could give us a series of questions
we could ask him that would be helpful.
Sir Richard Evans: I can assure
you that at the industrial level we are doing everything in our
power to support, and in a number of cases to initiate, the debates
and discussions that are necessary to get us to where we need
to go. Certainly to my own knowledge the Secretary of State, MinDP,
PUS, MoD, all the guys who are associated with the lobby work
that is required within the embassy on the Hill are all targeted
and working using all the levers that are available to them, including
those that you have referred to specifically with regard to the
current relationship and the support that has been given for Iraq.
This is a very big mountain to get across. Colin is right, if
we cannot do this on a project by project basis then getting some
sort of generality in terms of coverage on this will be even more
difficult to do.
Q70 Mr Howarth: Do you think that
there is some genuine concern in the United States about export
controls or is it driven by a desire to protect the home market?
Sir Richard Evans: I would not
want you to misinterpret what I said earlier because I was quite
careful to say there was an industrial interest in this but also
a political interest. I think particularly at the political level
there is a very real concern and real belief that leakage does
take place, is a problem and works against the interests of the
United States. I think in some quarters that is a very sincerely
held view.
Q71 Mr Howarth: Before I come back
to who else might be wheeled out to support the cause, are the
United States doing anything to open up their markets to industry
generally? This has been a bit focused on BAE and Rolls-Royce
but Alvis-Vickers have got an interest and Thales, I know you
have got American subsidiaries.
Mr Howe: Yes.
Q72 Mr Howarth: You are a French
company. It is the French company that has got the business in
the United States, not Thales UK as I understand it, and therefore
perhaps it is a different issue.
Mr Prest: There have been some
quite significant UK contributions in US Army programmes over
the years, some of them from the land systems division of British
Aerospace.
Q73 Mr Howarth: Is there anything
that flows specifically from this joint government to government
declaration that has been agreed?
Mr Prest: I would say no. I am
talking over a longer history than that, a much longer history.
Q74 Mr Howarth: Basically no tangible
benefit?
Sir Richard Evans: Let us be very
clear that there is a big difference in the US in the context
of project specific technology and the winning of business. It
is pretty clear to all of us that in order to win business in
the US you have to be prepared to invest sizeable sums of money
into the US market both to acquire and to organically grow a business
base. Certainly in the case of BAE SYSTEMS and in Rolls-Royce
we have done that. We have done it pretty successfully with a
lot of support out of the US Government for the positions that
we have taken and, indeed, that business is growing for both of
us in quite a significant way. In our particular case at the moment
we are something like the sixth largest US defence contractor.
That is a very significant position. That is operating within
the confines of our operation in North America. When you look
at UK acquisitions, where the UK needs to access technology in
order to get best value for those acquisitions, that is where
the problem exists in the US. There is no prevention in terms
of us investing into the US, quite the opposite, our investment
is welcomed.
Q75 Mr Howarth: It is the acquisition
that is a problem?
Sir Richard Evans: It is where
the UK is making specific acquisitions and the—
Q76 Mr Howarth: You are not just
a British company, you are 50% plus owned by—
Sir Richard Evans: We are a British
registered company, the majority of whose shares, or just about
the majority of whose shares today off the register are owned
by non-UK entities. Again, when you look at the global movement
of investments in the markets I do not think that is any great
issue to go by.
Q77 Mr Howarth: I regard you as a
British company anyway, especially since you are in my constituency.
Sir Richard Evans: We do pay tax,
and an awful lot of it, and we pay it to the UK Treasury.
Mr Howe: I just want to make a
couple of points, if I may, because you touched on Thales. Our
own companies in the States do conform to Dick Evans's model.
We have invested significantly in companies there, including some
defence companies, one of which does some very highly classified
work.
Q78 Mr Howarth: When you say "we"?
Mr Howe: We, Thales, as a group.
The group as a whole, not specifically French or specifically
British. What we cannot do is pull the technology out of that
business and use it elsewhere in our company. Secondly, on ITAR,
I would not want to at all restrain you from making the sort of
point you have in mind to the Secretary of State. It seems to
me in the ITAR waiver what is actually being asked for is something
quite modest, it is a waiver of ITAR regulations in relation to
unclassified information, so it ought not to raise any heroic
problems of security classification or national security at all.
Q79 Mr Howarth: Do not depress me
even more, it is even worse if it is non-classified information
that we are talking about. Can I suggest to you that all these
guys have been out there and made the case but the only guy who
has got the clout is the Prime Minister, is it not? What representations
have you made to him about his pursuing this as aggressively as
possible with President Bush now?
Sir Richard Evans: This is an
item that is on the Prime Minister's agenda. I think the precise
way in which tactically this is played is a matter for those who
best understand the intergovernmental relationship process. I
have to say that I have seen absolutely no lack of support from
the bottom of the system right up to the top of the system for
the UK industrial position on these matters.
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