Appendix 23: Further memorandum from the
Defence Manufacturers Association
Following on from this oral evidence session,
we thought that it might prove useful to provide the following
additional comments. However, I also note the action upon us to
follow-up on our oral evidence with the following more detailed
written information to the Committee:
— Differences between the British and
German export control systems.
— Collated and consolidated evidence
of the burden on Industry of the new regulations.
— Collated and consolidated information
on "under-cutting" activities within the EU.
— Differences in attitudes towards
the People's Republic of China.
— Suggested possible amendments to
the EU Code of Conduct.
I will endeavour to try to do this as soon as
we can gather the necessary information together from companies.
THE
WAR AGAINST
TERRORISM—WHAT
HAS BEEN
THE IMPACT
ON INDUSTRY?
Overall, there is a widespread feeling that
there has been a significant impact on defence business since
the events of 11 September 2001, but not perhaps in ways that
most people might think. It is felt that there is now much more
emphasis placed on communications, anti-terrorism and special
forces equipments, to the detriment of many major, traditional,
capital equipment procurements by Governments around the World.
Spending on special forces' equipment, especially, has been growing
at the expense of that on conventional items. Spending on operations
(such as in Iraq) is diverting MoD(UK) funding from procurement,
except where urgent requirements are identified for particular
types of technologies.
Increased perceptions of the threat posed by
proliferation (including the apparent ease with which Libya apparently
managed to obtain equipment in furtherance of its nuclear weapons
development programme) are resulting in enhanced scrutiny of licence
applications—things in the USA and perceptions there of
the threat of undesirables obtaining advanced technologies, as
well as lack of confidence within certain quarters of the US system
in other nations' own export control systems, are making it even
more burdensome and difficult to obtain US technology than it
was before (which was bad enough!).
Given the increased sense of immediacy in some
nations for the acquisition of materiel and systems to meet urgent
operational needs which arise, some customers are believed to
have sought technology from other, non-UK, suppliers, as the bureaucracy
was perceived to have been less time-consuming and bothersome
than would have been faced with the UK's export control system.
This palpable sense of urgency for some purchases is ruling out
UK suppliers in favour of those from nations whose own systems
allow the expedited supply of urgently needed materiel.
Are there any practical examples of an impact
of export controls on the UK's competitiveness in the EU context?
At the same time as UK firms are facing an uphill
battle in trying to remain sufficiently competitive to win overseas
orders (especially given the high value of the £sterling
against the US$ and the euro), they are now having to deal with
an increased bureaucratic burden to deal with the new regulations
which are coming into force, which will, by their very nature,
add to UK companies' overheads, and, thus, impact on their costs,
which, in turn, have to be factored in to any bids. One company
estimates that the training needs, alone, associated with the
new Export Control Act, will have increased the company's overheads
by at least 1-2%. Admittedly such figures will vary greatly from
firm to firm, but this is an indication of the affect on one company.
We are also aware of instances in which competitors in other EU
Member States are able to respond to urgent requirements much
more expeditiously than British firms can. In one case, in late-2001,
when the OSCE cancelled a contract with a UK firm for some equipment
for its peace-keeping monitors in Macedonia, due to the length
of time that the export licence was taking to process, we understand
that the replacement French and Italian suppliers were able to
start delivering the required equipment within 36 hours!
Are there any obvious examples where the British
Government's interpretation of the EU Code of Conduct, embargoes,
etc, has been stricter than that of other EU member states? Is
UK Industry being disadvantaged by HMG's interpretation of embargoes
and the Code of Conduct, as opposed to the interpretations of
other EU Member States?
It is generally perceived that the UK has amongst
the strictest interpretations of EU Embargoes, the Code of Conduct,
etc, and this is to be applauded. However, this does mean that
suppliers in nations whose own interpretations are more liberal
in nature are able to gain a commercial advantage.
We are able to quote one example of different
interpretation with regard to EU WMD regulations. One EU competitor
of a UK firm makes a detector in two variants. They are identical
in every way except the colour: the green one for military customers
requires export licences, whilst the blue one is for civil defence
and, therefore, does not require a licence. The company does not
sell many green ones, but does sell lots of blue ones! We could
quote many examples of a similar theme, and we will see if we
can consolidate them into a follow-up memo. We note that UK has
just picked up an award from the EU for being the best country
at implementing EU regulations—need we say more?
Also, we understand that evidence which is starting
to emerge from Libya on its nuclear weapon development programme
would appear to demonstrate that a lot of our EU partners were
involved in facilitating these developments. We all await, with
interest, full information being disclosed on what comes to light
in this regard.
Are there any examples of "under-cutting"
having taken place, where a UK licence has been refused, but where
a competitor in another EU Member state has subsequently won the
business and been granted a licence by its own Government?
The FCO would be aware of circumstances in which
this might be perceived to be happening—we simply do not
have anywhere near so clear a picture of this. However, the partial
information which we do have does appear to show that such things
are taking place, and we will endeavour to try to consolidate
the information that we are getting on this (and which Tim Otter
referred to in evidence) for future submission to the Committee.
Whilst we have heard an official refer to at least one instance
in which the UK has "undercut" another EU Member State,
we do not know anything about this instance or whether, on careful
scrutiny, this was, indeed, the case or not.
One additional problem in this regard is the
lack of 100% consistency in the various EU Member States' control
lists of controlled technology. For instance, the UK is, we understand,
one of the few EU Members that regards riot shields as being export
licensable. Therefore, if a UK firm had a licence application
turned down for riot shields, and the customer then approached
a French supplier, the anti-undercutting provisions of the Code
of Conduct would not even come into effect as the French company
would not have to apply for an export licence from its Government.
Another complication is the UK's 680 system.
When in any doubt as to whether a UK export licence would be issued
or not (ie if potentially dealing with a contentious end-user
or a sensitive technology), many British firms will seek 680 guidance
from DESO as to whether a licence would be issued or not, and
if the answer is negative, walk away from pursuing the potential
business involved. Because the 680 system is (for the most part)
a non-regulatory, voluntary system, an indication that a licence
would not be issued has no force under the anti-undercutting provisions
of the Code of Conduct, and UK suppliers may well have been walking
away from potential business that is then picked up by EU competitors,
without even bothering to apply for licences, knowing that these
would be refused.
The EU Embargo on China
It would appear that there is an argument that
the Embargo was put into place (in June 1989) before the creation
of the EU Code of Conduct (in 1998), and that this latter development
has made the Embargo to all practical intents and purposes superfluous
and unnecessary. It has to be stated that anything which would
currently be banned from export to PRC by the embargo would also,
almost certainly, fall foul of the criteria within the Code of
Conduct and still continue to be prevented from being exported
from the UK to PRC, even if the Embargo did cease to exist. The
DMA is aware of a number of instances in which equipments which
are very clearly outside of the scope of the Embargo have been
refused licences and 680s by HMG under the terms of the Code of
Conduct when assessed against the criteria, so the removal of
the Embargo should not, as some fear, result in the flood gates
opening . . . certainly not from the UK, but we cannot vouch for
certain other EU Member States.
China is an obvious example where the UK's interpretation
of the EU Embargo is much stronger than that in some other EU
Member States. For instance, for the biennial China Police exhibition,
in June 2002, companies from the following EU Members exhibited
(information from the event's website at: www.cpexhibition.com/police/):
This clearly demonstrates a different perception
of the EU Embargo between France and others (including the UK).
From our own experience, DESO has NOT been active
in encouraging British defence or police/public security firms
to do business in the PRC over the last few years, and has been
doing its best to encourage a sense of reality with regard to
the licensing difficulties of trying to do business here. We are
aware of some licence and 680 applications taking many, many months
to process, with the only speedy answer being "no!"
Certainly Tim Otter referred in his evidence to two particular
programmes where there has been more interest—for the disposal
of huge stocks of ex-World War Two Japanese chemical warfare munitions,
and for the supply of security equipment for the 2008 Olympics
in Beijing. At present most UK firms appear to be standing back
from pursuing the potential requirements associated with the latter
of these opportunities, due to the uncertainty as to whether licences
would be issued and a general perception that this would be unlikely,
whilst we are aware that EU competitors are actively pursuing
this market, and have been since the Games were awarded to Beijing.
What has been UK firms' experience of trying to
liaise directly with the FCO on export licences?
Whilst some years ago the FCO adopted a new
policy of much enhanced openness and even set up dedicated telephone
helplines for companies to contact in the event of significant
licensing delays, it would appear that this has now lapsed, and
there is a renewed preference for all enquiries to be made through
the DTI. Meanwhile, the FCO's increased openness in giving industry
briefings on export control issues and concerns affecting particular
nations, has greatly increased and is to be very warmly welcomed.
We believe that the positive effects of these
briefings in making British firms more aware of the particular
concerns that affect the processing of export licences for certain
countries when they are being considered by Government officials
has been mutually very beneficial. We, at the DMA, have been helping
the FCO to make more companies aware of the criteria used in assessing
licence applications, with verbal briefings (by the FCO and/or
DMA) being given to over 1,500 company representatives and over
3,000 leaflets detailing the criteria having been handed out at
various events around the UK organised by the DMA over the last
18 months.
What is the practical impact of the Export Control
Act 2002 on UK firms? The practical implementation of the Export
Control Act—what problems have been encountered, and which
of our original concerns (as expressed last year) have materialised
or failed to materialise—what additional problems have been
encountered?
Whilst, as was stated in our previous written
evidence, and was quoted back to us by the Committee yesterday,
we believe that there is a much greater sense of reassurance within
most of Industry that they understand the implications of the
Act, and that the regulations are "do-able", this is
not universal, and certainly within those firms in the most difficult
sectors (WMD for the intangible controls and long-range missiles
for the trade controls) there still persists continuing high levels
of concern.
One problem is that the DTI's interpretation
of the new regulations has been inconsistent and varied from meeting
to meeting, thus indicating the lack of transparency and clarity
of the new regulations, so that even those who have actually drafted
the new regulations cannot, with total confidence, state what
is and is not caught and what the potential implications are.
Just as one example of this: at a meeting in January in response
to a question as to whether the actual organisers of a trade fair
needed a trade control licence themselves simply for the act of
organising the shows and facilitating overseas companies participating
at them, the answer from the DTI was a very emphatic "No",
as the organisers were so far removed from any actual deals being
done, that they were not directly involved and were not undertaking
any licensable activity. However, in February, in a very interesting
new take on the famous old rebuttal "What part of the word
"no" is it that you do not understand?" the DTI
decided that it needed to clarify what it had said in January,
and informed us that when they had said "no" they had
meant it in a somewhat unconventional affirmative sense (ie the
answer was "yes"!!!) This uncertainty and constant changes
in interpretation have meant that the DMA has concluded that companies
must be advised to ensure that they are covered by putting the
most rigorous possible interpretation on the regulations (ie what
it actually says in the Orders), and not necessarily rely on the
interpretations outlined in the Supplementary Guidance Notes which
the DTI has produced or other interpretations which have been
provided on an ad hoc basis, and the expert legal advice which
some companies have sought has concurred with this. As one wit
has stated, the last thing that anyone in Industry wants is to
find themselves sitting in HMP Parkhurst next to some old lag,
who asks:
— "What are you in for then?"
— "Yes, I believed what the DTI
told me!"
The General Technology Note (in Schedule 1 of
the Main Order) is another example where the law is just not clear:
In January 2004 a Member company was advised
by their DTI Compliance Officer that intangible transfers related
to support of existing deliveries (after sales support) for whom
the relevant export licences have expired could fall under the
terms of the General Technology Note in the Statutory Instrument
"Export of Goods, Transfer of Technology & Provision
of Technical Assistance Control Order 2003" . . .
As the Company was uncertain about the meaning
of the General Technology Note, they asked for written clarification
(in January). Although verbal assurances have been received from
DTI that the intention is to allow normal product support without
the need for extra licences, it has proved impossible to get this
in writing. In an effort to clarify this, DTI suggested that the
company present a typical scenario and request it be formally
rated. The rating enquiry (dated 20 February) has so far (as of
22 April) not been replied to except that the company has been
invited to discuss it shortly with LU3 at the Export Control Organisation.
The wording of concern is as follows:
The prohibitions in Articles 3 and 5 do NOT
apply to that "technology" which is the minimum necessary
for the installation, operation, maintenance (checking) and repair
of "goods" NOT specified in this Part of this Schedule,
to "technology" "in the public domain", to
"basic scientific research" or to the minimum necessary
information for patent applications.
This causes significant uncertainty. The company
expects a doubling or more of the number of licences which will
be needed if the DTI verbal assurances are not correct. It also
means the company (and there must be many others similarly affected)
cannot finalise procedures or training or apply for the licences
that it is going to need due to the delay in getting an authoritative
response from the DTI the company's commercial activities will
be paralysed from 1 May until such time as an authoritative clarification
has been given and the required licences issued!
Further problems have been encountered , with
regard to the "Restricted Goods" Trade Controls:
The creation of MBDA was in response to a Government
initiative to consolidate and form a competitive multinational
defence company. Through this consolidation MBDA has been able
to secure a healthy order book, which relies on the flexibility
to work with overseas Customers, Partners and Suppliers, particularly
in Europe. Whilst the company recognises the importance of controlling
the export of technology and trading and does not believe that
it is the DTI's intention to handicap MBDA, nor for that matter
the rest of legitimate British Industry, the introduction of the
restricted goods category under new trade controls has given rise
to concerns not previously encountered.
For example, a UK national working for MBDA
in either Italy or France and engaged in trying to secure a contract
for a "restricted" programme will need an individual
trade control licence to cover their activities—this could
be detrimental to MBDA's European colleagues if their respective
Government has granted a licence and the UK has not issued a SITCL
or OITCL. In fact it puts MBDA at a disadvantaged position with
competitors who do not have to deal with such considerations.
The impact also affects MBDA inter-company contracts
where goods such as containers or even specially designed components
(like castings) are needed (for instance in Italy) and cannot
be sourced directly from UK, but could be provided by France under
instruction from the UK office, to support an MoD(UK) programme
(such as Storm Shadow)—this could well be held up whilst
a relevant trade control licence is obtained from DTI.
If MBDA cannot function on a multinational level
then it begs the question "what was the purpose of its Government-inspired
and encouraged formation?" Indeed it could be that MBDA UK
could be excluded from opportunities for further collaboration
programmes because of the new British bureaucracy. There is a
concern that such restrictions would impact on opportunities for
further consolidation with other European Nations, as the UK may
not seem an attractive proposition as a joint venture partner.
In order to remain competitive MBDA needs to
establish technological and manufacturing centres of excellence
spread across UK, France and Italy enabling it to reduce costs
through cross border collaboration. The provisions of the new
Act will impede these efforts.
MBDA, and other firms in the missile technology
sector, were also hit, in the midst of preparing for the new regulations
by a sudden, and previously unannounced, intended change in the
existing control mechanisms, when, late on 11 February 2004, the
DTI issued a Notice to Exporters announcing changes to existing
Open General Export Licences to remove coverage for missile technology
caught by ML4 of the control list, and giving companies affected
only until 25 February (ie 10-11 working days later) to get the
necessary individual licences in place to replace their existing
OGEL coverage. This was a complete reversal of the previous policy
of actively encouraging British companies wherever possible to
make use of OGELs. The DTI has since retracted this deadline and
given companies longer to prepare for this change, and been very
co-operative in helping companies to address this, but the complexity
of the future need for using multiple licenses for a particular
programme (in place of the OGELs) has necessitated a requirement
for more detailed training of staff by those companies concerned.
Training for preparation begun in February 2004
to cover MBDA UK personnel. Due to preparations and existing requirements
the Company funded at their own cost a training programme, which
was completed in mid-April 2004. Further preparation to provide
more in-depth training to those on particular programmes will
still need to be undertaken. It has also become clear that the
training programme will need to be expanded to cover foreign nationals
from MBDA's European sites due to the high level of electronic
transfers undertaken using e-mails and shared data environments
being developed by MBDA to allow greater ease of information between
the company as a whole. This additional training cost is being
borne by the company.
One problem with the training aspect of the
new regulations has been the difficulty and the loss of credibility
of running a training system at a time when: (a) the ground is
shifting under companies' feet [see above comments on inconsistent
interpretations]; (b) there has been no clarification of vital
points, eg the general technology note and extra territoriality;
and (c) changing interpretation has resulted in a failure to nail
the situation down.
The Committee is to be greatly thanked by Industry
for its assistance in getting HMG to take the issue of support
for our own Armed Forces seriously. However, the OGEL allowing
support of our Armed Forces when they are deployed overseas does
not include and extend to allies. There is a need to cover these
allies as well, in recognition that they will change from operation
to operation and as the operation develops.
Training is made more difficult in that unlike
the Financial Services Act, there are no model training courses
for industry to follow.
There is confusion within Government and within
different and differing Government departments; different departments
offer different advice. For instance there appears to be some
confusion on the affect of the new regulations on 680s.
The need to include training of overseas people
coming into the UK is extremely difficult, and Industry is not
sure how this can be effectively achieved.
The total number of new licences which will
be needed under the new regulations will only become clearer by
May 2005, when the regulations have been in force for a full 12
months.
One of our Members, a privately owned company,
has gone into administration. Our understanding of the situation
is as follows. The company was having a tough time anyway but
as a result of a careful study of the new legislation the two
major shareholders decided that they did not want to expend the
emotional effort required to deal with the new situation and would
rather cash in their chips and retire. We think about 50 people
will be made redundant and a very important capability (fluidic
handling) will be lost.
How effective will the new controls be in curbing
the activities of illicit proliferators?
As we have stated before, the very worst possible
outcome, we believe, would be for the introduction of a highly
burdensome regulatory system on law-abiding and responsible firms
which proves to be ineffective in curbing the illicit activities
of proliferators. Only time will tell whether the new regulations
will be effective in controlling the activities being targeted.
However, our fear is, as we have also stated before, that if it
was the Government's intention to introduce the legislative equivalent
of a precision guided munition to take out the activities of illicit
proliferators, we may well find that they have, in fact, come
up with the legislative equivalent of carpet bombing, whose only
practical effect is collatoral damage to legitimate industry,
whilst missing the intended target completely. David Hayes mentioned
during the evidence session the apparent loopholes arising from
Article 11 of the Main Order which appear to give blanket exemption
under any and all circumstances for the temporary export of aircraft
and ships from the UK "on trials"—hopefully this
will not be picked up on by illicit dealers to circumvent the
regulations with impunity and the assistance of high-priced legal
help, but this is just one instance where we are not sure whether
the legislative intent of the new regulations will not have been
undermined by the actual framing of the legislation, itself.
Are companies able to cope satisfactorily with
the new intangible transfer of technology controls?
Companies are trying to get to grips with the
new regulations, and what the DTI is expecting of them to demonstrate
compliance. A consistent interpretation by DTI staff of what is
required will be essential in this regard. There will be particular
problems for companies involved in the WMD sector, including in
doing business with our own MoD(UK), as described in evidence
by Tim Otter. Following questions poised by NBC(UK) Members at
a meeting with DTI in January 2004, the DTI confirmed, after consultation
with its lawyers, in February 2004 that companies will need licences
to enter into pre-contract technical discussions with our own
MoD(UK) and other bodies here in the UK, such as the emergency
services. Not only is this situation unacceptable, but it is deeply
worrying that this only came to light, on questioning from Industry,
over half way through the implementation period and so late in
the day. Meanwhile it has also been confirmed by DTI that in a
hypothetical case in which two or more engineers from the same
company in a non-EU nation (such as the USA) came to the UK to
discuss a potential development programme for a WMD system (such
as a chemical weapon detector) for a non-EU customer (such as
the US Army) with a British firm, not only would the UK company
need an export licence to undertake technical discussions with
them, but the two or more engineers, working for the same US company,
would need a British export licence to talk to each other whilst
in the UK (whether or not anyone else was present in the room
with them)! Naturally such a level of bureaucracy is likely to
have such foreign firms fighting each other eagerly for the privilege
of doing business with UK Industry!
In the light of the reports published on 21
April about the UK's lack of adequate preparedness for a possible
WMD attack, the impeding of UK companies in the WMD sector (or,
indeed, foreign companies over here talking to the British Government
and Armed Services about this) from helping to address these shortcomings,
as well as those similar shortcomings of our close allies outside
of the EU, from 1 May by the new bureaucratic regulations coming
into force is not something that we would regard as being a positive
development.
Is UK Industry happy about the ways in which HMG
is planning on approaching the issue of licenced production overseas?
What is the impact of offset, licensed production overseas and
globalisation on export controls?
This is an important issue which does, clearly,
need to be addressed, if, as the NGOs state is the case, this
is resulting in circumvention of the UK's control system by companies.
The problem we have is that the NGOs' allegations are frequently
over-simplifying the situation (ie by not alluding to the controls
that HMG has over the transfer of technology to set up licensed
production facilities or the fact that UK firms will almost invariably
seek to retain some technology which still has to come from the
UK, and, for which UK export licences will still be required),
and they almost always refer to the same tiny handful of long-standing
and very well-known cases (eg H&K and MKEK in Turkey, Land
Rover and Otokar in Turkey, Alvis and Simba APCs in the Philippines)
when trying to illustrate and demonstrate their arguments that
this is a growing problem, and not even all of these well-known
cases are actually valid examples (eg H&K's licensed production
agreement with MKEK was entered into before the company was bought
by British Aerospace).
Defence companies are increasingly becoming
more focused on foreign markets as opposed to domestic ones. In
this regard alliances with local firms are now increasingly crucial
to the penetration of local and regional markets. Offset is an
increasingly vital aspect of doing defence business around the
World, and is now also diverging into many civil areas. Nobody
likes Offset! At the same time that UK Primes are seeking to rationalise
their supplier bases, the Primes' offset obligations overseas,
resulting from their vital success in winning essential overseas
business, are forcing them to seek non-UK suppliers. Thus, UK
sub-contractors can perceive themselves to be the victims of "a
double whammy" and being squeezed out of business that they
otherwise would have won.
The adoption of a national offset strategy,
to bring greater co-ordination within companies, between companies
and between Government and Industry, in their offset, purchasing
and investment activities, and to minimise the haemorrhaging of
jobs and technology overseas when satisfying offset obligations,
whilst maximising the benefits arising from the UK's own "Industrial
Participation" policy, is essential for the future economic
wellbeing not just of the aerospace sector, but also of the British
Defence Industry as a whole. The DMA has been calling for this
for some time.
We would have thought that efforts to try to
minimise the haemorrhaging of controlled technology overseas,
at a time of increased concern about the potential proliferation
of such technology, might have yielded some positive responses
from HMG, but, sadly, to date this has not been the case. We are
not seeking any kind of subsidy from Government or the taxpayer,
just better co-ordination as part of a strategic effort to minimise
the impact of offset.
One major impact of offset, etc with regard
to export controls is when some technical change is made to technology
by the UK OEM, who then has to seek export licences from HMG to
pass on information on this amendment to its overseas suppliers
or JV partners. This can, especially in areas of fast changing
technology, be a not insignificant burden.
Is UK Industry awareness of the new regulations
and the existing regulations good enough or are some breaches
taking place due to lack of awareness within companies of export
control issues?
The recent DMA/DTI roadshow around the UK has
brought ever more clearly to light certain worrying areas in which
awareness of the UK's regulations is not as we would all like
it to be. This is in two areas: (a) those who do not believe that
export controls are anything to do with them, as they believe
that these only concern "arms" and not their military
or dual-use technology; and (b) those who are trying to abide
by the regulations but have been caught out by the complexity
of the controls and are unaware of some aspects. We saw many examples
of both of these during the recent roadshow.
One major concern that we have is with regard
to the constant repetition, in the media and elsewhere, of the
use of the words "arms" and "weapons" when
referring to export control and defence export issues. Based on
our practical experiences, this is clearly resulting in confusion
within some smaller companies, especially in the dual-use sector,
who should be affected by export controls, but do not believe
that export controls are relevant to them. The sheer breadth and
scope of the UK's (and the USA's extraterritorial) export control
system is just not understood by many. To illustrate this, at
one DMA/DTI roadshow, one of the delegates asked a DTI speaker
half-way through the event: "Why have you so far not talked
about the differentiation made by the Government between offensive
and defensive military equipment? You know: offensive military
equipment, like "arms", which need export licences,
and defensive military equipment, like my body armour, which doesn't."
This perception is symptomatic of the prevailing view in some
companies, especially in the dual-use sector. We believe that
the media and NGOs have a potentially invaluable, constructive
role to play in trying to address this ignorance and help to spread
greater awareness of the breadth and scope of export controls,
but they display a constant, and, if we may say so, irresponsible,
reluctance to do so, being more interested in the "sexier"
side of the business and the PR spin which can be achieved by
concentrating on this.
The wide-ranging scope of export controls, which
is increased further by the extraterritorial nature of the USA's
system, was exemplified when the DMA's Exports Director recently
acquired a new mobile phone (a Sony Ericsson T610), and noticed
amongst the general blurb in the instruction booklet reference
to "Export Regulations" on the software it uses or could
be downloaded onto it. Having seen this, he then went to the plethora
of instruction booklets related to his "Palm Pilot"
Pocket PC and found similar reference to export laws. How many
staff in UK companies or individual members of the public have
ever similarly noticed such references . . . or failed to do so?
Similarly at a recent Eurolegal conference in London an eminent
export control legal expert was able to argue quite cogently a
case under which a normal, plastic biro pen can, under certain
circumstances, not only be export controllable, but caught by
the WMD controls!
We strongly believe that much greater efforts
must be made by all parties to try to get away from the short-hand
mantra of "arms" when referring to the sector and export
control issues, in favour of language which will more accurately
represent the true scope of the technologies caught by export
controls so that those perfectly law-abiding firms who are currently
inadvertently infringing the regulations can be made aware of
the fact that they are affected by export controls. The hard working,
professional and highly dedicated staff within the Export Control
Organisation, and especially those who deal with awareness activities,
might then have greater chance of bringing these companies back
onto the path of righteousness!
Have companies noticed any improvements in performance
of the licensing system as a result of the HMG's recently introduced
changes to the system to improve its efficiency?
Companies are reporting a noticeable improvement
in the processing of export licence applications. We understand
that in 2003 some 76% of SIEL applications were processed in the
overall 20 working days target turnaround timescale. The improvement
in the performance of the FCO has been particularly noteworthy—in
2002 only some 49% of SIELs were dealt with by the FCO within
its 10 working day turnaround timescale, whilst in 2003, thanks
to additional resources and improvements in IT infrastructure,
the FCO met its target in over 80% of cases. This is a huge improvement
for which the FCO should be warmly congratulated. Industry is
looking forward with great interest to the promised future proposal
for the introduction of electronic licensing, as opposed to the
existing paper format, as this would very greatly help to alleviate
the continuing problems which are reported by firms of export
licences being lost between HM Customs & Excise and the shipping
agents (especially, for some reason, at Heathrow), with a resultant
need for the firms concerned to have to seek replacement licences
from the DTI—frequently with the DTI mildly rebuking the
firm concerned for "their" carelessness in losing the
licence! Sometimes, when lost licences occasionally turn up with
the customer overseas, it seems that when some HM Customs &
Excise officers or shipping agents see the words "Export
Licence", they appear to regard this as an instruction rather
than a title!
Why are the numbers of appeals against licencing
refusals going up dramatically?
Numbers of refusals for SIELs have been going
up in recent years, according to the FCO's Annual Reports on Strategic
Export Controls:
1997 (May-Dec)—45 (of 6,463 applications
processed—0.7%)
1998—122 (of 9,991 applications processed—1.2%)—15
appeals (1 successful)
1999—128 (of 9,095 applications processed—1.4%)—25
(19%) appeals (7 successful)
2000—191 (of 8,562 applications processed—2.2%)—33
(17%) appeals (2 successful)
2001—231 (of 8,336 applications processed—2.7%)—38
(16%) appeals (6 successful)
2002—293 (of 8,328 applications processed—3.5%)—65
(22%) appeals (14 successful)
Thus, whilst it may appear on the surface that
the numbers of appeals being launched has greatly increased, as
a percentage of refusals issued this is not, in fact, the case,
and the increase has been far less marked.
As the numbers of refusals has gone up, so has
the likelihood of appeals being launched against those refusals
(thus the increase in numerical terms for appeals being launched).
The figures for refusals of SIELs for Israel have been particularly
stunning in recent years (for perfectly obvious reasons):
1997—1 refusal (for dual-use) of 110 applications
processed (0.9%)
1998—2 refusals (one military) of 223 applications
processed (0.9%)
1999—0 refusals of 190 applications processed
(0%)
2000—3 refusals (one military) of 194 applications
processed (1.5%)
2001—31 refusals (all military) of 308
applications processed (10%)
2002—84 refusals (67 military) of 245 applications
processed (34%)
If we may take a leaf out of the book of the
NGOs for a moment, comparison of the figures for 2000 and 2002
represent a 28-fold increase in numbers of refusals for Israel.
Given that Israel has a significant, and dynamically active, indigenous
Defence Industry, and that most licence applications are for components—it
is not clear what percentage of these sales are intended for use
by the Israelis and what might be incorporated into equipments
for export from Israel to other nations (including the UK!) We
know of one case where a licence has been refused for the supply
of components to an Israeli firm for an unmanned aerial vehicle—at
the same time that this same Israeli company is bidding this same
model of UAV for the British Army's Watchkeeper programme.
Given the fact that companies might perceive
that HMG has over-reacted in certain cases, and refused licences
whose intended end-use must be perfectly acceptable (eg non-offensive
equipment for the Israeli Navy), or which might be intended (demonstrably)
to be for export to other nations by the Israelis, it is highly
likely that any refusal in such cases would result in appeals
being made by the firms concerned.
Transparency in the Annual Reports
The Annual Report's consummate example of transparency
and openness by the British Government is to be applauded. However,
the DMA believes that further enhancement of this worthy initiative
is still necessary. The DMA has expressed some strong reservations
and frustrations, both publicly and privately, about the limited
nature of the end-use related information which is provided in
the FCO's Annual Report, and has raised the issue of whether further,
additional, detailed information could and should be usefully
provided by the Government on end-use matters, without encroaching
upon commercial or diplomatic/security sensitivities, which would
have the positive effects of achieving greater openness and transparency,
and also protecting the British Government and Industry against
erroneous claims of irresponsible licensing decisions and commercial
activities, respectively. This stems from the fundamental nature
of the UK's control system (as opposed to, say, that of the USA,
which is nationality-based, regardless of geographical location),
in that it is geographic location-based, regardless of nationality.
Thus, under the UK system, an export of spare parts to a Royal
Australian Navy vessel, whilst on a courtesy visit to Indonesia,
would appear under the UK system to be an export to Indonesia
(the geographical location of the vessel, at the time), rather
than Australia (the nationality of the customer)—clearly
different levels of contentiousness! To illustrate this need for
more end-use information to be provided, in the 2000 Annual Report
the section on Morocco includes mention of a raft of licences
being issued for small arms and light weapons, which could result
in the unsighted having extremely dubious opinions of HMG for
approving these "exports". In fact, we understand that
many, if not all, of these are apparently to be accounted for
by the supply of props for the filming of "Black Hawk Down"
in Morocco. Even taking into account concerns of commercial confidentiality
and security, we are sure that in many cases (especially with
regard to permanent exports, rather than for temporary licences)
more end-use information should be able to be usefully provided
than is currently the case.
The Future
We fully support the Committee's comment from
its 20 May 2003 report on the Government's proposed Secondary
Legislation that "While the consultation document is a brave
attempt to square this circle, perhaps what is needed is another
shape altogether." We have increasingly come to the conclusion
that if only past Governments, in response to the Scott Report
and the 1996 Green Paper, had created a joint Government-Industry-NGO
working group to look at the whole subject of export controls
and how they should be done in future, starting with a blank sheet
of paper, that a solution would have been found which was more
satisfactory for all concerned than that with which we are now
presented, and much sooner than has been achieved. We would hope
that the Government can be persuaded to give serious consideration
to the possible creation now of such a body to help with assessing
the effectiveness of the Export Control Act and provide recommendations
for the 2007 review of the Act.
April 2004
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