Select Committee on Foreign Affairs First Joint Report

4  ARGUMENTS FOR FURTHER CONTROL

30. NGOs have argued in their evidence to us that the Government's proposals do not go far enough. They have pressed in particular for:

i)  the extension of the controls on trade to UK persons wherever they are located in the world, and

ii)  direct controls on the construction of production facilities for military equipment overseas.

31. The Quadripartite Committee in the last Parliament took a similar view to the NGOs on the first point, recommending that "controls be introduced on the activities of UK citizens and companies wherever they take place".[22] On the second, their view was that "some statutory powers may be necessary", but "only if a non-statutory regime is shown to have failed".[23]

32. We consider in this section whether these additional controls are desirable, and whether it would be appropriate or effective to use national law to impose them.

Trafficking and brokering: extension of extra-territoriality

Introduction

33. The Labour party's general election manifesto in 2001 made the following commitment:

We will legislate to modernise the regulation of arms exports, with a licensing system to control the activities of arms brokers and traffickers wherever they are located.[24]

34. Under the Government's proposals, however, actions by UK persons abroad will only be regulated where they relate to trade in long-range missiles and torture equipment, or trade to an embargoed destination. This is consistent with the position taken by the Government during the consultation on the draft Export Control Bill, and during the passage of the bill itself.[25] In her evidence to us, the Secretary of State for Trade and Industry denied that the Government's proposals were modest:

the controls that we are introducing through the Act on trafficking and brokering include controls on trafficking and brokering in small arms and any other kind of military equipment where any part of the transaction, including an e-mail, a fax, a phone call, any part of it takes place within the United Kingdom. So we are catching an enormous range here.[26]

Full extra-territorial control: arguments for and against

35. The UKWG does not believe that this goes far enough. In their view, "only full extra-territorial control over arms brokering has any chance of properly regulating the industry and stopping the kind of deals for which the Government would in the normal course of events refuse a licence".[27] They see the failure to impose extra-territorial control across the board as a loophole in the legislation, which arms brokers will exploit:

Licence applications from arms brokers based in the UK to destinations of concern will presumably be carefully scrutinised by the Government in view of the risks that arms will be misused by the end-user. However, an arms broker involved in a questionable transaction would be aware of the possibility that his application might be refused, and would choose to conduct his business abroad, thus avoiding any form of control. It is the transactions that the Government needs to control most that would escape the system of regulation."[28]

36. Our predecessor Committees in the last Parliament recognised the "practical difficulties in policing activities outside the United Kingdom".[29] They concluded, however, that "arguments in favour of extending controls on brokering and trafficking to activities outside the country" were "compelling", and they recommended "that controls be introduced on the activities of UK citizens and companies wherever they take place".[30]

37. Practicality is at the root of the Government's arguments against extending extra-territorial controls in this way:

• UK persons operating abroad could not be expected to know that they would need to apply for a licence from the United Kingdom.
• It would be wrong to criminalise activity in another state that that state might properly be promoting.
• The controls would be unenforceable, unworkable or prohibitively expensive to administer.

As the Secretary of State told us: "I am not interested in writing a law that looks wonderful on a piece of paper or in a headline, I am interested in a law that will actually have some practical effects".[31]

38. The Government has also called in aid its policy on the extension of extraterritorial jurisdiction.[32] This policy is to apply extraterritorial control only in exceptional circumstances. Home Office guidance describes six circumstances in which such control may be warranted:

i)  Where the offence is serious;

ii)  Where, by virtue of the nature of the offence, the witnesses and evidence necessary for the prosecution are likely to be available in UK territory, even though the offence was committed outside the jurisdiction;

iii)  Where there is international consensus that certain conduct is reprehensible and that concerted action is needed involving the taking of extra-territorial jurisdiction;

iv)  Where the vulnerability of the victim makes it particularly important to be able to tackle instances of the offence;

v)  Where it appears to be in the interests of the standing and reputation of the UK in the international community;

vi)  Where there is a danger that offences would otherwise not be justiciable.[33]

39. In the view of the UKWG, trade in military equipment fulfils five of these six tests.[34] This would not, according to the guidance, "positively determine the extension of jurisdiction. But it would suggest that action might be justified, particularly if the practical enforcement issues did not appear to be insurmountable".[35]

40. Our attention has also been drawn to the fact that extraterritorial controls on trade in military equipment have been imposed or are about to imposed in a number of countries around the world: "Finland and Poland have introduced controls and they are under consideration in Belgium and France. The UK, once the front-runner on standards for arms exports, is in danger of becoming the back marker."[36]

41. Controls also exist in the USA. The Secretary of State has told us of the US system that her "judgement is that it simply does not work".[37] She appeared to base this judgement largely on a report from a US NGO, the Fund for Peace. She told us that this report expressed concerns "about the general ability of the American authorities to operate and enforce this extraordinarily wide system of controls".[38]

42. The Fund for Peace, however, believes that its views have been misrepresented. In their view, the US system is "the best model" for legislation on brokering. They acknowledge that the law has not been well enforced, but they believe that this is not because it is unenforceable (as the Secretary of State claims) but rather because of the "newness of the law" and because of a "lack of political will on the part of the US Government".[39]

43. We acknowledge that there will be practical difficulties in extending national jurisdiction to transactions occurring outside the United Kingdom.[40] There are three reasons for seeking to overcome these practical problems nonetheless:

i)  The international nature of the arms trade requires legislation with an international reach. Those whose activities are of most concern could easily evade legislation with a strictly national jurisdiction by going abroad. The Government's proposals risk failing to tackle comprehensively the reason for introducing legislation in the first place.

ii)  The Government's proposals already envisage the extension of extraterritorial control in some circumstances. They are therefore already committed to seeking to overcome many of the practical problems that would be raised by a wider extension of extraterritorial jurisdiction.

iii)  Other countries have introduced national legislation to control arms brokering activities by their citizens no matter where they are in the world. This shows both that it can be done, and that there is a level of international agreement to enforcing such controls through national legislation.

44. We expand these arguments below, through more detailed consideration of the Government's proposals.

The Government's proposals

45. The Government draws a distinction between trade in long-range missiles and torture equipment, and trade to embargoed destinations, on the one hand—which are "internationally condemned and abhorrent"[41]—and, on the other hand, trade in other military equipment—which in certain circumstances can be desirable. The Government believes that the three categories that it has identified pass the test for extraterritoriality. The Secretary of State has told us, however, that she is keeping an open mind on possible additions to this list: "obviously if people come back and say 'This is an incomplete list and for the following reasons you should have other things included on it' we will look at that very seriously indeed".[42]

46. The Government's categories are not entirely straightforward. As the Secretary of State has admitted, they have some "boundary problems".[43] The restrictions on torture equipment cover, for example, trade in oversized handcuffs, because they can be modified for use as shackles or leg irons, although they also have a legitimate use on prisoners with larger wrists. However, it is not even the case that leg irons are universally recognised as torture equipment: they are in regular use in prisons in the USA. Extraterritorial control will be applied to trade in missiles only where they are "capable of a range of 300km or more".[44] There is no obvious logical reason why missiles capable of a range of 290km should be less stringently regulated than missiles capable of a range of 300km. The Government proposes to make it an extraterritorial offence to breach not only international, but also UK national embargoes, such as those on the supply of military equipment to Iran and Zimbabwe.[45] National embargoes scarcely imply international condemnation. Moreover, the Government has argued against imposing extraterritorial control on trade in all military equipment because people abroad cannot be expected to know the letter of UK national law: but it is unclear why the Government does expect them to know that they should not supply military equipment to a country under a UK national embargo.

47. But we have a more fundamental problem with the way that the Government proposes to apply extraterritorial control: it is piecemeal, and it fails to outlaw some of the most heinous aspects of the arms trade. The fact that these aspects may be difficult to define does not mean that such a definition should not be attempted.

48. We have identified that there is a distinction between trade in torture equipment and trade in, for example, small arms, which will only sometimes be reprehensible. But the reprehensible trade in small arms is as damaging to the lives of millions of people around the world as trade in the types of equipment to which the Government intends to apply extraterritoriality—if not even more damaging. We conclude that it would be a missed opportunity if the Government failed to regulate all UK citizens and companies who are involved in trafficking and brokering activities abroad which, if conducted in the UK, would not be granted a licence.

Identifying transactions of concern

49. It would be absurd to criminalise the activities of a British citizen abroad engaged in the sale of sporting weapons to legitimate end users, or in the sale of firearms to a properly regulated police force, or the activities of a British citizen abroad working for a responsible aerospace company, if these people failed to apply for a UK licence to do so. We are in agreement with the Secretary of State on this:

The idea that one would have extraterritorial controls that would require, for instance, a British citizen who has been resident in Australia for 15 years, also working for a completely legitimate company that is working in full accordance with Australian law, also to be licensed under UK law, I just do not think makes sense and I do not wish to put the overstretched resources of my department into trying to enforce something that will not make a jot of difference to the evil that we are trying to control here.[46]

50. On the other hand, it would be thoroughly desirable to criminalise the activities of a British citizen supplying small arms to rebel forces in an area of conflict, or medium-range missiles to a rogue state. Such activities are precisely those that need to be controlled. Under current Government proposals, they will not be. We recommend that the Government should seek to extend extraterritorial control to all trafficking and brokering which, if conducted in the UK, would not be granted a licence.

51. The identities of the supplier and end user of the equipment are key. There are some end users who will give rise to few or no end use concerns: United Nations peacekeeping forces, or a well disciplined police force, for example. There may be some suppliers and brokers who have an excellent reputation for probity. On the other hand, there are some end users whom the Government would wish to prevent acquiring certain military equipment, and some suppliers and brokers whose reputation for probity may be less than unimpeachable.

52. International consensus on the need to control trade in small arms was demonstrated at the 2001 UN Conference on the Illicit Trade in Small Arms and Light Weapons in All its Aspects, at which all participating states undertook "to develop adequate national legislation or administrative procedures regulating the activities of those who engage in small arms and light weapons brokering".[47] We commend the Government for its efforts to seek international agreement on the regulation of the arms trade, but there will always be countries unable to enforce a robust system of controls on the trade in military equipment. We therefore do not see efforts to reach international agreement as a substitute for national legislation. We conclude that there are a number of areas, including the illicit trade in small arms and light weapons, in which enough international consensus exists to make extraterritorial jurisdiction in such cases both reasonable and enforceable—certainly as reasonable and enforceable as for trade in leg irons or trade to Iran. As the UKWG points out, "mechanisms will have to be established to enforce controls on the three categories of equipment on which it is proposed to apply controls. These same systems should be utilised to control brokering conventional arms without a licence".[48] We conclude that while extending extraterritorial jurisdiction over any aspects of the arms trade will pose practical difficulties, it is not clear that it will be substantially more difficult to enforce this jurisdiction more broadly over undesirable aspects of the arms trade than to enforce it only in those areas to which the Government is already committed.

Transportation etc.

53. Another of the UKWG's concerns relates to transportation. The Government's proposals on trade between third countries are expressly disapplied from those involved in transportation services, financing and financial services, insurance services, and general advertising and promotion services—except for trade in long-range missiles and torture equipment, and to embargoed destinations.[49] The UKWG's case is that:

There have been a number of cases where UK pilots and transportation agents have been implicated in the supply of arms and related equipment to conflict and human rights crisis zones. Under existing regulations, their actions did not break UK law, and unless the proposals on the trade in controlled goods are strengthened to include some form of licensing for those who actually transport brokered arms, they will remain above the law and potentially continue to add to the misery and suffering caused by unregulated arms proliferation.[50]

54. The Secretary of State explained to us the rationale behind the Government's controls:

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.[51]

The Secretary of State has also reassured us that a United Kingdom citizen working for an overseas company will be caught by the controls if they are involved in the transportation of torture equipment or long-range missiles, or of any military equipment to an embargoed destination.[52]

55. We agree with the Secretary of State that it would not be desirable or practical to subject transportation agents and other service industries to an individual licensing system for all arms transfers. The UKWG has suggested as an alternative the establishment of an official register for British transportation agents wishing to transfer arms.[53]

56. If, however, the Government seeks to impose extraterritorial controls on all undesirable trade in military equipment, as we have recommended above, this would imply extending the controls on transportation agents and other service industries to a wider range of transactions than currently identified by the Government. This seems to us to be eminently sensible: we would expect a British citizen involved, for example, in transporting small arms to a conflict zone to be subject to some sort of control. We reiterate our predecessor Committees' comment that it would "seem perverse that those arranging for arms to be purchased for use in some area of conflict should be under a licensing regime, but not those responsible for arranging or undertaking their actual transfer".[54] We would expect such control normally to be in the form of registration or open licensing in most circumstances. We recommend that the Government should ensure that transportation agents are brought within the ambit of the secondary legislation in all circumstances in which the undesirable transfer of arms may be involved.

Licensed production overseas (LPO)

57. The UKWG has concerns about the Government's failure to control directly the issue of licensed production overseas (LPO). The Quadripartite Committee in the last Parliament was less concerned about whether the Government controlled LPO directly or indirectly, but was convinced of the need for a system "which ensures that the Government knows when a licensed production facility is being set up, and which ensures that the goods produced are not exported to countries or end-users where the UK would not licence them".[55] In evidence to our predecessor Committees on the draft bill, the then Secretary of State for Trade and Industry, Stephen Byers, said that Licensed Production Overseas (LPO) is "one of those areas where I think experience shows us that we could be in a potentially embarrassing position for the United Kingdom, as a country that cares about these issues, not to have an effective regime on licensed production in place."[56]

58. LPO is not straightforward to define. According to the UKWG, LPO traditionally involved "a defence company in one country granting a distinct company in another country a licence to manufacture a complete piece of defence equipment, for example armoured personnel carriers or submachine guns", but it now "covers a much wider ambit of structures and activities". Examples of such activities are:

…the setting up of a joint venture … the UK company taking an equity stake in a company in the recipient country or establishing a subsidiary … the production of a complete system or platform, or … for a sub-assembly or a component for incorporation into a platform back in the UK or in a third country.[57]

59. The Government does not propose to introduce direct controls on LPO. It will continue to rely on current controls on the export of equipment and technology (which would usually be required to set up an LPO facility). New controls on the export of technology by electronic means, and on the provision of technical assistance will also affect LPO. The Secretary of State has told us that in her view these indirect controls are "very powerful controls on the supply chain on which licensed production almost always depends".[58]

60. The UKWG's concerns relate to the implications of LPO for weapons proliferation, and it points to the risks that:

…the arms produced as a result of the LPO agreement will be exported to states to which the Government would refuse to license exports directly; and the 'know-how' which has been exported will itself be more widely circulated, with implications for the development of further, uncontrolled generations of military equipment.[59]

61. The UKWG wants the Government to control LPO directly and claims that "without licensing the deal itself you can miss the bigger picture".[60] LPO risks allowing not only weapons but also the ability to produce them to fall into the wrong hands:

There have been examples of licensed production facilities in Egypt exporting technologies which we are now facing in Iraq coming at us rather than in our arsenal. Therefore, there is a real interest here in actually seeing the bigger picture, estimating the risk and putting some conditions on that production facility going ahead and also using the diplomatic clout … in being the UK Government if you see those conditions being violated.[61]

62. Industry has different concerns. The DMELG has claimed that increasingly, "a customer demands manufacturing or design work in their own country in return for buying the product" and that LPO "is an integral aspect of the modern global defence industry".[62] For industry, therefore, restrictions on LPO will affect the British defence industry's competitive position.

63. It would be possible for a company to evade British controls on the export of equipment and technology by exporting these from a third country, as the Secretary of State admitted in oral evidence.[63] Although such a transfer might be subject to new controls on trade between third countries, it might be possible for British controls to be avoided through the use of overseas subsidiaries.

64. When we put this point to the Secretary of State, she replied:

Rather than trying to design a more and more complicated set of regulations and administrative procedures to capture every possible theoretical combination of problems, we should actually implement the very large extension of current controls that we are already proposing and then see whether either we have got some companies simply circumventing them or we have some other evil that we could possibly have an effect on and stop which we have not yet caught.[64]

There is a great deal of sense in this approach.

65. The increasing use of licensed production facilities risks causing a far greater proliferation of military equipment abroad than the direct export of finished equipment. We are not certain that the Government's indirect controls on licensed production facilities will be sufficient to curb this proliferation. However, we welcome the Secretary of State's undertaking to assess the effectiveness of these controls on licensed production facilities. We also welcome British support for the inclusion of licensed production facilities as a consideration in the EU Code of Conduct on Arms Exports.[65] We recommend that, within two years of its introduction, the Government should assess the effectiveness of the secondary legislation in regulating licensed production facilities, and that it should take steps to introduce direct controls on such facilities if these prove to be warranted in the light of this assessment.

66. The UKWG has also pointed to the lack of information available about LPO deals, both to the public and to the Government. One concern has been that too little knowledge is available about LPO agreements to assess what effect they have in terms of regional and global proliferation. We were pleased to hear from the Secretary of State that the Government has begun to seek information from suppliers about whether licensable goods and technology are intended for a licensed production facility.[66] We are surprised that the Government has not sought this information until now. It is difficult to see how the Government can take properly informed decisions on licence applications without knowing if the equipment or technology in question is intended for a production facility overseas. We conclude that the Government may not have enough information about licensed production facilities abroad to assess the likely impact of these facilities on the proliferation of military equipment. We therefore recommend that the Government should consider requiring further information from British exporters about the licensed production facilities that they intend to establish abroad, and that this information should be used in the assessment of relevant licence applications.

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22   HC (2000-01) 445, para 96 Back

23   Ibid, para 106 Back

24   Ambitions for Britain: Labour's manifesto 2001, p 38 Back

25   For example, HLDeb18April2002,Col1136 Back

26   Ev18,Q115 Back

27   Ev36 Back

28   Ev36-37 Back

29   HC (2000-01) 445, para 96 Back

30   Ibid Back

31   Ev17,Q107 Back

32   Ev19,Q118 Back

33   Home Office, Review of Extra-Territorial Jurisdiction, Steering Committee Report, July 1996, para 2.21 Back

34   Ev38andEv56 Back

35   Home Office, Review of Extra-Territorial Jurisdiction, para 2.22 Back

36   Ev36 Back

37   Ev17,Q107 Back

38   Ibid Back

39   Ev 58 Back

40   There may also be particular difficulties because of the nature of the English and Scottish legal systems, which rely to a great extent on oral rather than written testimony. This may make it harder to gather evidence for the prosecution of an offence committed abroad than would be the case in countries with an inquisitorial justice system. See also Home Office, Review of Extra-Territorial Jurisdiction, para 2.10. Back

41   Ev 18, Q 110 Back

42   Ev 18, Q 111 Back

43   Ev 18, Q 109 Back

44   Consultation paper, Annex G, Trade in Controlled Goods (Control) Order, Schedule, p G. 8 Back

45   Ev 20, Q 122 Back

46   Ev 17, Q 108 Back

47   Ev 38-39 Back

48   Ev 38 Back

49   Consultation document, pp 28-32, paras 4.7, 4. 12 and 4.28 Back

50   Ev 42 Back

51   Ev 30, Q 174 Back

52   Ev 62 Back

53   Ev 42 Back

54   HC (2000-01) 445, para 99 Back

55   HC (2000-01) 445, para 106 Back

56   HC (2000-01) 445, Minutes of Evidence, Q 243 Back

57   Ev 43 Back

58   Ev 25, Q 149 Back

59   Ev 43 Back

60   Ev 14, Q 94 Back

61   Ev 15, Q 101 Back

62   Ev 34 Back

63   Ev 25, Q 146 Back

64   Ev 25, Q 148 Back

65   Ibid Back

66   Ev 25, Q 145 Back

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Prepared 20 May 2003