Appendix 19: Further memorandum from the
Defence Manufacturers Association
AWARENESS
Over a period of some eight weeks from mid-January
to the end of February 2004 a small DMA, DTI, HM Customs &
Excise team, with a couple of helpful appearances early on from
the MoD(UK) and FCO, travelled well over five and half thousand
miles (ie more than the distance between London and Los Angeles!)
to brief over 700 representatives from UK firms in 13 different
locations around the UK, from Exeter to Glasgow, Belfast to Duxford,
on the new Export Control Act 2002, which will be coming into
force on 1 May 2004.
This highly ambitious and exhausting roadshow,
which began in London on 15 January was jointly organised by the
DMA and the DTI, with assistance from a range of other national
and regional bodies scattered across the UK, to provide awareness
of the new Act and its implications for UK firms and to help British
Industry to frame implementation and compliance procedures to
meet their new regulatory requirements from 1 May. It built upon
the success of the previously successful roadshow similarly jointly
organised by the DMA and DTI in October 2002 to April 2003, which
was attended by some 650 people around the country. This means
that the DMA and DTI, at their own various events, as well as
participation at those organised by other bodies, have now between
them briefed some 4,000+ people around the country (as well as
overseas) since the Act received Royal Assent in July 2002. It
is hoped that these considerable efforts will have enabled those
affected by the new regulations to be in a better position to
be adequately prepared for their implementation.
One of the clearest lessons to come out of the
roadshow is the need for even more efforts to have to be made
to spread awareness not just of the new regulations, but of the
existing export control system, as well amongst UK companies,
as there is still much confusion in many firms on fundamental
aspects of the British export control system, and many common
misconceptions. We understand that the Communications Unit within
the DTI's Export Control Organisation is seeking to address this
perceived need in a very constructive way.
Attached is a brief summary from the Society
of British Aerospace Companies (SBAC) which consolidates the awareness
findings of a survey which it recently undertook of a cross-section
of its Members.
We hope that our efforts will have helped to
promote a greater widespread awareness of the new regulations
within the UK, although the issue of promoting awareness amongst
those British nationals overseas who may be affected by the "restricted
goods" trade controls is one which still, in our view, needs
to be addressed. For the most part companies now appear to be
much more relaxed about the practicality of complying with the
new regulations, although on the roadshow we did occasionally
come across some whose views differed from this generally positive
line (including one company at the Exeter briefing who asked:
"Does the DTI realise the complete paralysis of all commercial
activity here in the UK that will result from the imposition of
these draconian controls by the British Government's thought police?")
Such views are now in the minority!
LACUNAE IN
THE ECA
Identified Lacunae in the Export Control Act
2002's Secondary Legislation, include the following:
The legislation explicitly (articles 6 &
7) purports to control the electronic (intangible) transfer of
software. However, it fails in this objective, for technical reasons.
Since software is defined for the purposes of the Export of Goods,
Transfer of Technology and Provision of Technical Assistance (Control)
Order 2003 as, "means one or more `programmes' or `microprogrammes'
fixed in a tangible medium of expression", it is axiomatic
that anything which is intangible cannot be "software"
for the purposes of this Order.
2. Electronic and Non-Electronic Transfer
of Software and Technology and End-Use Controls
Here again the apparent legislative aim has
been frustrated by the drafting, this time imposing a potential
burden on both legitimate industry and on government whilst leaving
the area of risk unregulated. Articles 8 and 9 seek to impose
controls on the electronic and non-electronic "transfer"
of software and technology in an "end-use" context.
Article 8(1) has the apparent effect of requiring a licence for
the electronic "transfer" of software or technology
to a person or place in the United Kingdom in an end-use context.
The DTI has now informed us that this will require a UK company
wishing to hold technical discussions with MoD(UK) on a WMD detection
programme to have an export licence for such discussions, since
the transfer would be from a person in the UK to a person in the
UK, with reason to believe that the technology would be used outside
the EU by our own Armed Forces. The lacuna in these provisions
arises from the definition of "transfer". Article 2
defines "transfer" as, "transfer", in relation
to any "software" or "technology", means the
"transfer by any electronic" or "transfer by non-electronic
means"(or any combination of electronic and non-electronic
means) from a person or place within the United Kingdom".
Since it is clear from the definition of transfer that the transferor
must be within the United Kingdom, the objective of controlling
the actions of UK persons outside the UK has not been met. In
short, a legitimate UK company would need a licence in the circumstances
outlined above to discuss with our own MoD a defensive system
for use by our own forces personnel—whilst, however, a disaffected
UK person acting whilst. outside of the EU could communicate with
whomever in an "end-use" context envisaged by this Order
yet remain beyond the reach of this legislation. Which is the
activity that poses the greater risk? It appears that the legislation,
if it were compared to a weapon, succeeds in leaving the target
unscathed whilst causing considerable collateral damage.
INTERPRETATION
It is clear that the DTI's interpretation of
the new legislation has "varied" in certain instances
from time to time. This has resulted in certain comments being
made by companies about the apparent lack of total certainty about
what is export controllable activity. One company at one meeting
with DTI expressed this as "how long did it take for the
DTI team to become confident enough in knowing their own regulations
to decide how they would be implemented? Are they expecting industry
to devote the same amount of time to this activity? If they are
not then how can they expect industry to comply with the law in
a way that will guarantee their employees do not go to prison?"
The lack of consistent interpretation on some areas of the new
regulations has resulted in unease being expressed by firms as
to what might happen if or when these interpretations change again
at some future stage. Companies need to know, with certainty,
what the law is, if they are to be expected to abide by it.
Impact of export controls on UK Industry's competitiveness—
There is a common feeling within many companies
that the additional burden of export controls under the new regulations
will result, of necessity, in them having to employ more staff
to deal with export control issues, which, in turn, will increase
their overheads, having an impact on their general competitiveness.
Certainly we know of at least one (SME) company which operates
at the component level who stated some years ago that it was having
to decide not to compete for some potential business opportunities
at all because, with the high value of the £ sterling, it
was having to cut its prices to rock bottom to have any chance
of winning contracts, and in certain cases if they factored in
the overheads costs of applying for licences then their bids would
not be competitive enough to win, whilst if they did not do this
they might win the contract, but when the actual overheads were
then added it would not have made any commercial sense.
HMG's interpretation of the EU Code of Conduct—
There is a general perception within UK Industry
that the British Government's interpretation of the EU Code of
Conduct (and EU Embargoes) is amongst the strictest of EU Member
states. Certainly comments have been made in the past specifically
with regard to the embargoes currently in place on the People's
Republic of China and Cyprus.
EXPORT CONTROL
LEGISLATION
SBAC Associate Member Telephone Survey
Twenty SBAC Associate Member companies were
surveyed. The sample is statistically robust percentage of all
associate members and a random sample of types of business.
Returns were based on a telephone questionnaire
directly mainly to export; sales or marketing personnel who were
responsible for company compliance. In a few cases, MDs took the
call. Duration was between 5 and 10 minutes with respondents also
given an opportunity to expand on the issues covered by the questionnaire.
The main results were:
Awareness and briefings
— two firms were not aware of the issue
until SBAC contacted them. The rest were at least aware of the
legislation, most were familiar with the changes in the legislation;
— 10 had used DTI website or briefing
sessions;
— four had attended DMA briefings;
and
— two had used SBAC routes.
Costs
— All of the companies that were aware
of the issue and which were involved in defence business were
incurring some costs either directly in terms of contracted training
and other manpower training costs.
— One company estimated immediate direct
costs at £0.5-0.75 million. Others were estimating in the
region of £5-50,000 K.
— Most were allocating between 2-3
man days and 2 man weeks depending on size of company for training.
General Comments
— A certain degree of resignation in
coping with more regulation but general willingness to get on
with things and work with DTI compliance team to establish sound
processes such as buying clean lap tops for foreign visits.
— A small number reported real difficulties
especially with foreign based subsidiaries and additional complications
in applying for licenses.
— This included one company that felt
that it was at a commercial disadvantage compared to its European
competitors.
Comments on results
So far so good seems to be the rule, with many
firms waiting for a compliance visit to see how they shape up.
While there have been no real delays in getting licenses, there
is a concern that things might get worse, but we will have to
check again after the legislation has been in force for a period.
March 2004
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