The ITAR Waiver
43. The provisions of the US/UK Declaration
of Principles dealing with export procedures included stipulations
that—
- The Participants…will
explore possible approaches to achieving greater transparency
and efficiency in their national procedures for exports of defence
articles and defence services.
- The Participants…will explore means of simplifying
the procedures for export of defence articles and defence services
between themselves for their own use.
- The Participants will seek to ensure that their
national laws and regulations for defence exports to third parties
are implemented in a spirit of cooperation and with maximum efficiency.
They will reinforce their cooperation and promote convergence
in the field of conventional arms exports. They will pursue necessary
measures to harmonise their conventional arms export policies
as far as possible, and examine means of establishing common standards
of implementation.[114]
44. Following
the signing of the Declaration of Principles in 2000, those aspects
dealing with export procedures were taken forward under the US
'Defence Trade Security Initiative', which amongst other things
examined the scope for a waiver for unclassified transfers of
products and intellectual property to the UK (and Australia) under
the International Traffic in Arms Regulations (ITAR). The UK and
US already had a mutual 'Defence Priorities and Allocations System'
where the two governments can seek urgently needed (often classified)
equipment through firms that have signed up to special streamlined
order-processing procedures.[115]
We took up an offer from Lord Bach to have a briefing on the details
of the progress in negotiating the ITAR waiver from officials
from the MoD and DTI. We were provided with draft copies of the
US/UK Agreement to implement the waiver, and Memoranda of Understanding
on the various obligations under the Agreement of the US, UK and
UK firms.
45. Bilateral negotiations on the waiver
had made little real headway by the close of the Clinton Administration,
and effectively stopped for a time under the new Bush Administration
because it was slow to put the relevant officials in place. Then
the events of 11 September 2001 prompted a further pause. Negotiations
had to reconcile the different philosophies of the US and UK systems
of export controls. The UK relies on a dual approach of licensing
and security classification controls. The US system focusses on
licensing which subsumes classification concerns, and most of
US defence exports (around 80%) are therefore unclassified. So
to introduce a waiver from their licensing system was, on that
aspect at least, perhaps a bigger issue than it might have been
for the UK. The issue for the US was not it seems about exports
to the UK, but rather about controls over re-export by the UK.
46. Rather than the US directly tying granting
of the waiver to an imposition of export controls over UK firms,
the draft final agreement allows the UK authorities (the Defence
Export Services Organisation and the DTI) to control UK firms'
adherence to the ITAR waiver conditions under a politically-binding
Memoranda of Understanding. That MoU would sit under an overarching
legally-binding US/UK government-level treaty. Under this
arrangement, the UK authorities will preserve their territorial
sovereignty because UK firms have legally-binding obligations
to the UK government, not to US government agencies. The legally-binding
treaty at government-to-government level was needed after the
US passed the Security Assistance Act in 2000; a development that
had also made the negotiations more difficult by removing some
flexibility otherwise available to the US side.
47. Lord Bach explained some of the benefits
of a prospective ITAR waiver. Those included—
…unclassified US-origin defence products
bought by the Ministry of Defence will not be subject to the United
States licensing delays; the equipment that we buy will no longer
be subject to the vagaries of the licensing process. Companies
with a significant presence in the US and the UK will be able
to transfer material and technology between these component parts
without licensing. It is absurd that we cannot do that at the
present time.[116]
Sir Richard Evans also highlighted the benefits in
that area—
…the principal benefit would be a much greater
degree of interchange between individuals engaged in our companies
on joint programmes…there are clearly always going to be
a number of areas…where, quite rightly, any country has to
create protections… That apart, having the complete ability
to have people treated equally in the context of security is an
absolute fundamental principle…consolidation cannot actually
take place without it… Unless people can actually be treated
as equals…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.[117]
48. Another advantage of a prospective ITAR
waiver for UK firms is that they will be able to get technical
data from the US (which would itself otherwise need a license)
early enough to be able to respond to US invitations to tender,
and thus be better able to compete for US programmes. As Lord
Bach put it, "US companies will be able to deal more
freely with qualified UK companies, and UK companies will be able
to bid into US defence programmes more readily".[118]
And there would be benefits for the US too—
I think it will strengthen their export controls
because we will be carrying out new checks on their behalf for
items that are transferred to the UK. It will improve co-ordination
and co-operation on export control policy and implementation between
our two countries.[119]
49. The US and UK authorities had largely
secured agreement on the UK waiver in 2002, but then the Congressional
approval process appears to have got caught in US domestic rivalries.
Our Defence Industries Council witnesses highlighted that Congress
had concerns about protecting US industry,[120]
and Lord Bach conceded that motives in the US on this issue were
"mixed—some good, some not so good".[121]
Our industry witnesses also highlighted, however, that Congress
had concerns about 'leakage' to some European countries—
One of the principal arguments that is deployed
by the US in the context of maintaining its existing policies
is the question of leakage…It is very much a hangover from
the old Comecon days when there were genuine and absolutely correct
concerns about leakage into the Eastern Bloc countries. I have
to say that I think in recent times, and certainly post September
11, these issues are more difficult to deal with than they were
prior to that… There are some parts of Europe that are clearly
more focused for attention than maybe they were a few months ago.
These are all territories with whom we have important programmes
in the UK…[122]
50. Congress has to approve the text of
the Waiver Agreement (now agreed between the US and UK sponsoring
authorities) in both Houses, but in the House of Representatives
the International Relations Committee[123]
has indicated its likely unwillingness to pass the Agreement.
It has put a 'Chairman's marker' on the document which replaces
the waiver with a counter-proposal to speed up the processing
of licences for items to be exported to the UK to 10 days (from
the current norm of perhaps five times as long). If the Senate
and House persist in approving different forms of draft treaty,
then a new compromise text will have to be prepared and returned
for their consideration. In the meantime this year's House Armed
Services Defense Authorities Bill includes provisions which could
undermine the operation of an ITAR waiver, including a potential
amendment to prevent the waiver superseding the test of US 'public
interest' when applying the Buy American Act.[124]
51. In the UK, no new legislation will be
needed for the waiver, but the Agreement (a treaty) will be laid
as a Command Paper, late this year or early next, and will be
subject to Parliamentary scrutiny under the Ponsonby Rule. Once
agreed, we understand that the UK does not need to introduce new
UK export controls to make them 'comparable in effectiveness'
to those of the US (as required by Article 3 of the Agreement).
A list of 'qualified persons and entities' in the UK, to whom
the waiver will apply (Article 2a), will have to be compiled,
however, and the 'penalties and sanctions' on firms not complying—criminal
as well as contractual—will have to be agreed (Article 6).
The latter, we were told, are likely to be of a similar scale
to those applying to US firms who breach similar rules, so should
not weigh heavily with our larger firms. The Defence Manufacturers
Association told us, however, that for smaller firms the penalties
might be "so severe that many [smaller firms] will be deterred
from participating".[125]
52. As John Howe of Thales-UK noted—
…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.[126]
We are disappointed therefore about the suspicion
with which some in Congress have viewed the ITAR waiver, not only
because the benefits for both the US and UK remain unfulfilled,
but more importantly because
of the message that the delay conveys about the nature of the
UK-US relationship.
As Lord Bach said—
…the present relationship in the field of
defence industry and the transfer of technology, of data and of
equipment is still deeply unsatisfactory. It is because we work
so closely with our American allies in such an intimate way on
intelligence operations that it almost stands out starkly that
as far as defence industrial relations are concerned there is
somehow a process by which we are still treated as though we are
any other country in the world. We think that is unsatisfactory.
I believe the Administration think that is unsatisfactory…We
are absolutely determined to ensure that there is a more satisfactory
relationship between the United States and us in this absolutely
vital field…[127]
53. Another concern is that the reluctance
to agree the waiver bodes ill for possible reform of US-UK regulations
on other types of transfers, and for progress with other aspects
of the Declaration of Principles more generally. The currently
envisaged waiver could be a first step towards closer co-operation
on an industry-to-industry level. If it is seen to work, it might
allow streamlining for classified exports too. As Lord Bach told
us—
…if an ITAR waiver is agreed, and the changes
that need to be made in Congress for this to happen are carried
through, it will do a huge amount to set the ball rolling to some
extent in this field. It will do a great amount for US/British
relations too in this field…an important start to establishing
a more satisfactory relationship.[128]
54. The importance of the waiver extends
beyond its immediate procedural and legal scope, because it is
a touchstone for our relations with our closest ally. A failure
to implement this first modest step in bringing closer together
the industrial side of that alliance has the potential to become
the thin end of a damaging and undesirable wedge in the political
side. We have therefore written to key Senators and Representatives
in Congress, as outlined in the Annex to this report, making our
concerns plain.
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