Appendix 21: Memorandum from BAE Systems
This paper takes up an invitation by the Clerk
of the QSC to submit written evidence for the current session.
This evidence deals solely with the introduction of the new regulations
under the Export Control Act 2002.
The Company fully supports the objective of
the new Act to ensure that military (and dual use) goods and technology
do not get into the wrong hands. At the same time, we agree with
the conclusion of the QSC on the government's consultative document
that the new regime ". . . will regulate activities which
are not exports and are not like exports. While the consultation
document is a brave attempt to square this circle, perhaps what
is needed is another shape altogether." (HC 620, Conclusion,
paragraph 32)
For these reasons, we proposed during the consultation
process a number of changes which, in our view, would reduce the
amount of bureaucracy while ensuring that the government's objectives
were met. They included:
— A number of exemptions, for example
for exports for personal use, noting in this context that the
dual use regulations contain a personal use exemption for cryptographic
products otherwise controlled;
— A proposal for regulation of arms
dealers which distinguished between "traders", ie those
whose business was entirely or mainly involved in the trafficking
or brokering of arms between third countries, and "exporters",
whose primary business was the production or export of arms from
the UK and for whom the third party movement of arms was integral
to their UK business;
— Removal of long range missiles from
the category of "restricted goods" for trade purposes—which
inappropriately linked them with torture equipment; and
— Exclusion of equipment for the detection
and identification of nuclear, biological and chemical weapons
from the definition of and detailed controls on weapons of mass
destruction.
These proposals did not find favour. Instead,
the government has preferred a blanket approach, coupled with
the extensive use of Open General Export Licences and a new Open
General Trade Control Licence. This is welcome in the sense that
as a result the burden of extra licence applications has been
kept to a minimum. But it must be understood that Open General
Licences are not without costs of their own, particularly for
industry:
— They are scarcely user friendly,
and require expert knowledge and interpretation. As an example,
a key OGEL, that for technology for military goods, commences:
"Subject to the following provisions of this
licence,
(A) Goods specified in part A of schedule
1 hereto, other than any specified in part B or C thereof, may
be exported from the United Kingdom to any destination other than
a destination in any country specified in schedule 2 hereto, and
(B) Goods specified in part B of schedule
1 hereto may be exported from the United Kingdom to any destination
in any country specified in schedule 3.
— They are subject to change without
notice and need to be continually monitored. For example, in mid
February, the DTI issued without prior warning an amendment to
the military technology and military end user OGELs to exclude
all missiles and associated technology from their coverage, effective
in two weeks; following complaints from industry the OGELs were
successively reissued, first to extend the deadline to 1 June
and then to reduce the scope of the exclusions.
— They all require record keeping in
order to demonstrate compliance. There has been much discussion
about the amount of detail required. The Secretary of State for
Trade and Industry's assurance to the QSC that records would not
be required of individual intangible transactions—more than
20 million a year in the case of BAE Systems—was very welcome
and has been reflected in subsequent DTI guidance. Nonetheless,
machinery is required in companies to ensure that appropriate
records are kept and are accessible for audit purposes. The record
keeping requirements for the Open General Trade Control Licence
raise particular practical difficulties.
So far as implementation itself is concerned,
industry appealed last November for a twelve month transition
period. Ministers subsequently announced that the implementation
date for the new regulations should be 1 May—little over
six months. It is clear that, so far as BAE Systems is concerned,
this time scale will be barely adequate. BAE Systems is a large
and complex international company. The new controls on intangibles
bear not only on a far wider range of individuals than have been
affected by the physical controls of the past, but also on the
electronic traffic which is becoming the standard method of doing
business in an increasingly international environment. It has
been necessary to survey every project and area of business activity
to determine whether they engage in intangible transfers of technology—and
in some cases "trade"— and to ensure that there
is appropriate licensing cover available. Because of the complexity
of the issues, the whole exercise has had to be conducted under
the close control of experts, whose resources have consequently
been considerably stretched.
An implementation programme was set in hand
well in advance of the publication of the new regulations. Detailed
plans could not however be finalised until the definitive version
of the regulations was available last October. Our programme has
involved:
— Launch of a corporate export control
web site, supplemented by business unit sites;
— Designation of export control co-ordinators
for all business units and lead export control practitioners for
every site;
— Designation of points of contact
in projects/business areas/departments to liaise with practitioners
to ensure that the relevant licensing regime is adhered to and
all appropriate records are kept;
— Development of IT based tools and
data bases to support export compliance activity;
— Development of appropriate written
procedures;
— An extensive programme of briefing,
awareness activity and guidance.
We have yet to produce an estimate of the opportunity
cost of this effort but it is clear that it will not be trivial.
At the same time, we regard the cost as unavoidable if we are
to meet the compliance requirements of the DTI (as set out for
example in paras 8.1 and 8.2 of the Final Regulatory Impact Assessment)
as well as our duty of care to company employees.
April 2004
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