Select Committee on Foreign Affairs Second Joint Report


4  POLICY ISSUES

91. A number of policy issues have arisen in the course of our inquiry which have not stemmed directly from licence decisions taken during 2001. In this section, we consider these. First, we look at the Government's involvement in the arms trade, and its role in promoting defence exports by British industry. We look at recent guidance that has been issued on the application of the sustainable development criterion. We continue a long-running debate with the Government on the value of monitoring what happens to defence exports after they have left the United Kingdom. Finally, we look briefly at the Government's approach to open licensing.

Government sales and transfers

92. Uniquely, the Crown—in other words, the British Government—does not require an export licence to transfer military equipment abroad. In circumstances in which the equipment remains in the possession of the Crown, this is entirely sensible. No-one would expect the Government to need a licence to provide British armed forces abroad with military equipment. It would also be an unnecessary bureaucracy to monitor the export of equipment where this is in support of collaboration with allies on procurement programmes. Our concern is with the criteria used by the Government to decide whether to sell or give military equipment to others, and with the transparency of these sales and gifts.

Criteria

93. The Foreign Secretary has told us that sales and gifts of military equipment by the Government are considered "on a case-by-case basis against the consolidated criteria".[118] We recommend that the Government confirm in its response to this Report whether all sales and gifts of military equipment by the Government are considered against the consolidated criteria before being made, and whether the same arrangements for interdepartmental consideration of such sales and gifts exist as for exports subject to the licensing procedure.

94. In its reply to our last Report, the Government noted that the F680 form—usually used by defence exporters to seek Government advice on the marketing and promotion of their goods overseas—can "act in place of an export licence for sales of defence equipment by UK Government agencies to other Governments".[119] Mr Dowse expanded on the circumstances in which the F680 procedure is used:

    If there is a government-to-government transfer, which may be a sale or a gift in some cases, and the transfer of ownership from the British government to the recipient government takes place while the equipment is in the UK, then an export licence will still be required and it will feature in the Annual Report in the normal way because the recipient government will have to apply for a licence to export the equipment from the UK. If the transfer of ownership takes place outside the United Kingdom, then we may use the F680 procedure.[120]

95. It seems odd to us that the Government should use the F680 procedure as an alternative to the licensing process for its own exports, when it has been at such pains to make clear that for all other exporters F680 clearance is no substitute for an export licence. In its reply to our last Report, the Government told us that "The Ministry of Defence routinely makes clear to exporters that advice received as a result of a F680 application does not constitute an export licence, nor guarantee the approval of any future licence application for the export of goods and technology".[121] We conclude that the use of the F680 procedure as an alternative to an export licence for equipment owned by the Government risks muddying the Government's message to industry that F680 clearance is no substitute for an export licence.

96. The position is even more complicated because the Government does not always use the F680 procedure for transfers of its military equipment. Transfer of ownership may also take place by letter of Crown Immunity. Then there are gifts, which apparently follow neither procedure, but occur "following interdepartmental consideration".[122] We recommend that the Government explain in its response to this Report what considerations determine whether a transfer of ownership of military equipment in the possession of the Crown takes place under the F680 procedure or by letter of Crown Immunity, and what procedure is followed for gifts.

97. Many of the Government's statements to us about sales and gifts of military equipment imply that they only apply to sales and gifts to other Governments. It may be that other Governments are the only recipients of military equipment from the British Government. But for the sake of completeness, we recommend that the Government explain under what circumstances it would sell or give military equipment for use abroad to an end-user other than another Government, and to explain what procedures are in place to ensure that any such transfers are consistent with the consolidated criteria.

Transparency

98. There is a public interest in knowing to what extent the Government is not only regulating the trade by others in military equipment, but actually participating in that trade itself. We asked the Government how sales and transfers of military equipment by the Government appear in the 2001 Annual Report and were told that "they are included in summary form".[123] But what little information there is in the Annual Report on Government exports is partial, and often impossible to extract. Information on the value of goods exported in 2001 is extracted from customs data, and may therefore not include equipment transported abroad by the Government prior to transfer of ownership, if that equipment is not subject to customs clearance.[124] Some goods which require an export licence because they are on the UK military list are not listed in the EU Tariff Code as military goods, or are not coded so as to be able to distinguish between civil and military items.[125] As a result the statistics on exports do not include a range of licensed military equipment. Furthermore it is impossible to tell from the summary totals what proportion Government sales represent of the value of exports to any one country.

99. More descriptive information is available in two other tables.[126]

100. One, on exports of military equipment in major categories, is drawn from the British submission to the United Nations arms register. It includes exports of equipment by the Government, for example the export of 88 Challenger 1 Main Battle Tanks to Jordan under the Al Hussein project.[127] But it is likely also to include transfers of equipment by other exporters, such as British companies. It would be useful to have an indication in the table of whether the export was a transfer by the British Government.

101. The other table, on Government to Government transfers and sales of surplus major equipment and small arms, contains only Government sales, but does not include minor Government to Government transfers of military equipment. The Government has supplied us with a list of Government to Government transfers not published in the 2001 Annual Report.[128] None of them give us any cause for concern.

102. It may be that many Government transfers already appear in the Annual Reports on Strategic Export Controls. In reply to a Quadripartite Committee Report in the last Parliament, the Government noted that exports of surplus military equipment normally are reported because "it is usual MOD practice to ask the recipient government to apply for an export licence", and that "details of Government to Government new equipment programmes" are provided, "consistent with any confidentiality agreements that apply".[129]

103. We remain uncertain, however, about the extent to which Government transfers of military equipment are reported; and whether the Government requires them to be reported. We are concerned that Government transactions could go entirely unreported where they involve the transfer of military equipment to a third party, rather than being related either to the operations of the British armed forces overseas or to collaborative equipment procurement projects, and we recommend that the Government should consider amending its reporting procedures accordingly.

104. We are also uncertain to what extent information on military equipment given away by the Government has been published in the 2001 Annual Report.[130] Information provided in answer to a recent parliamentary question revealed that gifts made by the Government during 2001 included 100 Paveway III precision-guided bombs to Saudi Arabia, at a value of £16 million, 1,650 rounds of Challenger 2 tank ammunition to Oman at a value of £1,375,930, light weapons and ammunition to Sierra Leone as part of a package worth more than £20 million, and mine detection and disposal equipment to Macedonia at a value of £282,500.[131] We welcome the fact that the Government has placed this information in the public domain. We recommend that, in the interests of transparency, future Annual Reports should include information on all sales, gifts and other transfers of military equipment by the Government to other end-users abroad.

Promotion of defence exports

105. As well as regulating defence exports, the Government is involved in their promotion. We asked the Foreign Secretary about this in the context of the export of Hawk aircraft to India. He told us that he was "totally unapologetic about [his] very active support for all British industries, including the British defence industry".[132]

106. Clearly, there is a delicate balance to be struck here. It is totally proper and desirable that the Government should promote the sale of British products abroad. But the export of defence equipment is not always desirable, which is why the Government has a series of criteria which it uses at the licensing stage to determine whether a sale should take place. The Foreign Secretary has told us that: "I know what the criteria are, so do officials. I would not dream of canvassing for a sale if I thought the application for a licence was going to be refused".[133] Our concern is that by canvassing for the sale, the Foreign Secretary could be seen as having pre-empted a licensing decision. It is highly unlikely that the Government would refuse a licence for equipment the sale of which a minister had been involved in promoting—barring a radical change in circumstances in the country buying the equipment. If the Government did refuse such a licence, it would presumably be open to legal challenge. We recommend that before any minister becomes personally involved in promoting the sale of defence equipment abroad, the Government should consider the proposed export in question against the consolidated criteria with as much care as it would an export licence application.

Sustainable development

107. In considering an export licence application, one of the criteria that the Government must take into account is the sustainable development criterion—"whether the proposed export would seriously undermine the economy or seriously hamper the sustainable development of the recipient country". We have sought during this inquiry to come to a clearer understanding of what this criterion means in practice. One of the difficulties in doing so is that no benchmark exists by which to measure it. Indeed, no export licence application has ever been refused by the British Government under the criterion.[134] In total, twenty seven licences have been refused across the EU under the criterion, but we have not been able to gain access to any further information on these.[135]

108. The Foreign Secretary has rightly pointed out that the fact that there have been no refusals under a criterion does not invalidate it:

    It does not follow that a criterion is worthless, or that it has not been applied, just because we have not had applications where we have had to turn them down on that basis, because in all of this it is self-policing. There are plenty of criminal offences on the statute book which are very rarely subject to prosecution—in some cases not at all. That does not mean that we should remove the offence from the statute book. It may be that the law is working really rather well.[136]

The Foreign Secretary may be right that the existence of the sustainable development criterion has a deterrent effect. But it is difficult for us to assess whether the Government is committed to the sustainable development criterion while it has never been used as the reason for refusing a licence.

109. In our last Report we noted that a Cabinet Office review was taking place to improve and refine the processes for interpreting and applying the sustainable development criterion.[137] In a written answer of 26 September 2002, the Secretary of State for Trade and Industry described a new two-stage process which had been agreed between Government Departments for assessing the impact of proposed exports on sustainable development:

    First a non-exhaustive list of countries identifies those where sustainable development is most likely to be an issue. Second, in cases involving exports to those countries, the Government will look in more detail at the possible impact of relevant proposed exports on the economy or the sustainable development of the recipient country.[138]

The Secretary of State makes clear that the guidance is not on the interpretation of policy, but on the procedures developed to assist in compiling the data necessary for the Government to make decisions.

110. The guidance is not entirely clear as to how the "list of countries" will be compiled. On the one hand it is stated that "those countries eligible for concessional loans from the World Bank's International Development Association (IDA) have been chosen for these purposes as representing the world's poorest". This seems to imply that the list will consist only of countries eligible for such loans. But the guidance continues that "the Government will keep the list of countries under constant review to take account of changing circumstances" which suggests that countries may be included or excluded from the list on the basis of other criteria. The guidance promises that the list "will be published on the DTI website", but this list is hard to find, and it is simply a list of countries eligible for concessional loans from the IDA. We recommend that the Government should publish more prominently the list of countries in which it considers that sustainable development is most likely to be an issue, and that it should clarify both the basis on which the list is compiled and the basis on which it is subject to review.

111. To assist in the second stage of the assessment of the impact of a proposed export on sustainable development, the Government has devised a series of indicators. These indicators are:

    relative levels of military and social expenditure and level of military spending as a percentage of GNP; aid dependency compared with the regional average; state of public finances; balance of payments; external debt sustainability; economic and social development, i.e. GNP/capita and Human Development Index; the status of any IMF—or World Bank—sponsored economic reform programme.[139]

112. The Government has told us a little about how it intends to use these indicators:

    The use of indicators is designed to help form a judgement on how to advise on a licence application in each case against Criterion 8. Indicative thresholds have been agreed for some indicators, in order to make them more useful in coming to a judgement. However, no number or combination of indicators, or their degree, will pre determine the judgement in a particular case. The Committee will understand that the sensitivity of these thresholds means that they cannot be published.[140]

113. The publication of guidance on the application of the sustainable development criterion is welcome, and brings a degree of openness to the processes used in determining whether a proposed export is of concern. But, to the outsider, it is by no means clear what the guidance means in practice.

114. The Government has told us that "the procedures provide officials with a clear and agreed framework for providing advice".[141] The framework may be clear to officials, but it is hard to imagine how this guidance will be of much assistance to industry. Defence equipment exporters need to know whether there is any risk that a proposed export will be refused on sustainable development grounds. They cannot use a description of the Government's procedures to achieve this. We conclude that the guidance published by the Government on its application of the sustainable development criterion is a welcome step in the direction of greater openness, but that it is couched in such a way that it is unlikely on its own to be of much assistance to industry in judging whether a licence application is likely to be approved.

115. The sustainable development impact of a proposed export can be only be assessed in the context of the purchasing country's military procurement policy as a whole. We therefore welcome the Government's statement that "the cumulative impact of all arms imports to the destination country, not just exports from the UK" will be captured by the Criteria as a whole and by the indicators to be used under the sustainable development criterion.[142]

End-use monitoring

116. End use is perhaps the most important factor that the Government takes into account when deciding whether to grant a licence. The Government needs to reassure itself that the equipment is likely to be sent to the stated user and not elsewhere, that the stated user is likely to keep the equipment, not to pass it on, and that the stated user is likely to employ the equipment responsibly. The Government "believes that the surest way to prevent UK arms ending up in the wrong hands is to examine export licences applications carefully at the pre licensing stage and to refuse an export licence when there is an unacceptable risk of diversion or misuse". We agree. We also believe, however, that the Government should adopt a targeted system of end-use monitoring to verify the proper use of goods after they have been exported.

117. Saferworld, in its memorandum, makes a case for a system of end-use monitoring which is "prioritised to those countries and for those transfers that are in most danger of diversion or misuse, through a targeted use of limited resources against a matrix of likely risk factors, as is the case in the US".[143] As Saferworld explains:

    Since 1990, the US has had in place a systematic end use pre export screening and post export monitoring programme for commercial sales of controlled items. The Blue Lantern programme, administered by the Department of State, uses a system of 20 specific criteria or red flags (for example the requested equipment does not match the known requirements or inventory of the foreign end user) and reporting by embassies, intelligence and law enforcement agencies to highlight risks of diversion.[144]

We do not necessarily believe that the Blue Lantern Programme can or should be imported wholesale into the United Kingdom; but it does show that other countries operate targeted systems of end-use monitoring, and apparently believe them to be useful.

118. In our last Report, we recommended that "the Government should consider the production of clear guidelines for, and clarification of, the circumstances under which end use monitoring should be undertaken".[145] The Government told us in response that "we do not consider that it is either practical or useful to monitor the end use of all military goods exported from the UK over their lifetime with the end user, particularly where we have already satisfied ourselves of the end user's integrity before issuing a licence".[146] This is to miss the point: we have never asked the Government to monitor the end use of all military goods, but rather to monitor in a targeted way the use of a small fraction of military exports.

119. In its response to our last Report, the Government also told us a little about the steps that it takes to monitor exports after they have been delivered:

    Last year the Government examined its procedures on end-user verification and end-use monitoring. We assured ourselves that licensing officials systematically consider whether there is a need for Posts to carry out checks on end-users when considering Export Licence Applications (ELAs), and also consider whether follow-up monitoring would add value to our efforts to minimise the risk of diversion. We also ensured that procedures are in place to encourage best practice in this area of risk assessment, including taking into account or seeking information on these issues from civil society. In addition, our Posts overseas have standing instructions to watch out for and report on any misuse of UK-origin defence equipment in the countries that they cover, and to feed that information into the export licensing process. One of the results of this exercise was the refinement of internal guidance on the practicalities of end-use checks and end-use monitoring. [147]

120. While this tells us something about the procedures that the Government follows, it also suggests a rather haphazard approach to end-use monitoring. If civil society reports misuse of equipment, then news of it may get back to the British Government. Posts overseas may have standing instructions to watch out for misuse of UK-origin equipment, but a standing instruction suggests that it is not normal to ask posts to investigate how specific equipment is used.

121. When we asked the Foreign Secretary under what circumstances overseas posts are asked to carry out end-use monitoring, he told us "when we get information about this", which also suggests a reactive rather than a proactive response.[148] Mr Dowse seemed to give a different answer:

    There are specific circumstances. In some circumstances it is not unknown for a particular condition to be put onto a licence as to the circumstances in which the item can be used, and in those circumstances—I know they are fairly specialised—we do try to do what we can to ensure that the conditions are met.[149]

But this was again contradicted by more recent evidence, in which the Government writes that "there are no defined specific circumstances when end-use monitoring takes place".[150]

122. We have discovered, however, that "guidance is issued to overseas posts and to the desk officers who consider approval of the licence application. This guidance sets out circumstances in which end-use monitoring should be considered".[151] Even if there are no defined specific circumstances in which end use monitoring takes place, it seems that there are perhaps defined specific circumstances in which it is considered. We recommend that the Government provide us, in confidence if necessary, with a copy of the guidance issued to overseas posts and desk officers on the circumstances in which end-use monitoring should be considered. It may be that this guidance is evidence of precisely the sort of policy that we are asking the Government to implement.

123. It is true that end-use monitoring after an export has occurred is not the most effective way of preventing the misuse of equipment. It can, however, inform future licensing decisions, and decisions on whether to allow the export of spare parts. A recipient of defence exports is also perhaps more likely to use these exports responsibly if he knows that this use may be monitored.

124. The Government has provided us in confidence with information on a few instances of end-use monitoring that have been carried out by British posts overseas. It points out that "there is no database of end-use monitoring and so it is impossible to say in how many countries end-use monitoring occurred in 2001". It also claims that "most end-use monitoring shows that UK arms exports are not being misused, and as such this goes unreported".[152]

125. In every case but one that the Government has been able to identify, end-use monitoring has investigated whether the use of equipment supplied from the UK has been consistent with international human rights standards. This suggests that end-use monitoring, in so far as it takes place, is largely incorporated into the responsibility of diplomatic posts for general human rights monitoring. While this is clearly an important consideration, posts overseas should also be used to ensure not only that military equipment is being used as intended, but also that it is being used by those who were intended to use it. We recommend that one of the central purposes of end-use monitoring should be to ensure that the Government is made aware when military goods exported from the United Kingdom have been diverted to unintended third parties.

Open licensing

126. Our predecessor Committees examined suspicions that the Government was using open licensing (OIELs) in an increasing range of circumstances as an alternative to single licences (SIELs)—which are inherently more transparent and a stricter form of regulation.[153] The Government denied that any policy shift had occurred,[154] and the Committees concluded that the statistics did not suggest any evidence of such a change.[155] In its reply, the Government stated that it "welcomes the Committee's assessment that there is no evidence of a change in policy on the use of OIELs and reiterates its repudiation of such allegations".[156]

127. Although the number of OIELs issued in 2001 showed a slight increase on the previous year, both in real terms, and as a percentage of all licences issued, this was not statistically significant enough to indicate any change in policy.[157] However, evidence to us from a major group representing British defence exporters has cast doubt on the Government's claims that there has been no change in policy on the use of OIELs. The British Defence Manufacturers' Export Licensing Group has:

    welcomed the efforts at improved efficiency that the Government has made in recent years to reduce the bureaucratic burden associated with export controls, both on itself and Industry, whilst in no way undermining the effectiveness of the UK's export control system, mainly through increasing the scope of open licensing.[158]

128. We conclude that it is curious that industry recognises that there has been an increase in the scope of open licensing, given that the Government has consistently denied that this is the case.



118   Ev 3, Q 9 Back

119   Cm 5629, p 1 Back

120   Ev 3, Q 10 Back

121   Cm 5629, p 1 Back

122   Ev 48 Back

123   Ev 3, Q 7 Back

124   2001 Annual Report, pp 369-370 Back

125   See also HC (1999-2000) 225, para 75 Back

126   2001 Annual Report, p 371 Back

127   Ev 30. The Al Hussein project was formed within the Disposal Services Agency of the MoD to facilitate the transfer of surplus Challenger I Main Battle tanks, together with a support package of equipment, to the Jordanian armed forces. Back

128   Ev 30 Back

129   Cm 4872, p 9 Back

130   Except for gifts which appear in the UN Arms Register Back

131   Letter from the Minister of State for the Armed Forces to Llew Smith MP, dated 15 January 2003 Back

132   Ev 12, Q 71 Back

133   Ibid, Q 72 Back

134   Ev 9, Q 44 Back

135   Ev 49. Back

136   Ev 9, Q 43 Back

137   HC (2001-02) 718, para 133 Back

138   HC Deb 26 September 2002, Col 309-310W Back

139   HC Deb 26 September 2002, Col 310W Back

140   Ev 37 Back

141   Cm 5629, p 10 Back

142   HC Deb 26 September 2002, Col 311W Back

143   Ev 41 Back

144   Ev 45 Back

145   HC (2001-02) 718, para 97 Back

146   Cm 5629, p 8 Back

147   Cm 5629, p 7 Back

148   Ev 8, Q 39 Back

149   Ibid Back

150   Ev 49 Back

151   Ibid Back

152   Ibid Back

153   HC (2001-02) 718, paras 99-101 Back

154   Ibid, para 100 Back

155   Ibid, para 101 Back

156   Cm 5629, p 8 Back

157   1998: 566 OIELs, 9869 SIELs (5.73%); 1999: 449 OIELs, 8967 SIELs (5.01%); 2000: 419 OIELs, 8371 SIELs (5.01%); 2001: 511 OIELs, 8105 SIELs (6.30%). Back

158   HC (2002-2003) 620, Ev 33 Back


 
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