Appendix 25: Further memorandum from the
Defence Manufacturers Association
DIFFERENCES BETWEEN
THE BRITISH
AND GERMAN
EXPORT CONTROL
SYSTEMS
We have received mixed comments from companies
about comparisons between the UK and German export control systems,
but the general view appears to be that whilst the German system
appears overtly on paper, when one looks at the regulations (see:
www.bafa.de/1/en/tasks/exportcontrol.htm), to be very (indeed,
horrendously) bureaucratic in nature, in some areas much more
so that the UK system, the actual practical operation of it, in
some respects, is easier and much less bureaucratic than might
appear to be the case on the surface. Comments have been made
that the German regulatory authorities, recognising that the bureaucracy
outlined in the regulations is unworkably unwieldy, have adopted
very practical working solutions to enable the system to function
smoothly in reality at the working level. Whilst both the UK and
Germany work from the same EU military list, there remain substantial
differences in the practical application of export control.
Here, as we understand it, is what we believe
to be the "official" German Export Licence Procedure.
Germany follows the pattern of most other European countries in
the issuance of individual, Global or Project type licenses.
For the German Government the Export Market
for Defence Material is divided into several classes of countries:
1. All NATO-countries.
2. Countries which will be treated like
NATO (eg Australia, New Zealand, Switzerland, Sweden, Finland).
3. Countries where export is restricted
(eg South America, Africa, Middle East, Asia).
4. Countries where all export is forbidden
(eg Libya, Syria, Iraq, Iran, North Korea)
The procedure to get an export licence depends
on this classification and on the type of product:
(a)
sensitive technology (eg countermeasures, HE);
(b)
insensitive technology (eg smoke, illumination, small
pyrotechnics); and
Procedure
1.+ a.: pre-marketing licence (BWB,MOD) and
standard export licence after receipt of contract (Export Licence
Authority in Eschborn).
1.+ b.: only standard export licence.
1.+ c.: after receipt of contract: war weapon
licence (MOD) and after receipt of war weapon licence additional
the standard export licence.
2.+ a.: same as 1.+ a.
2.+ b.: same as 1.+ b.
2.+ c.: same as 1.+ c.
3.+ a.: same as 1.+ a.
3.+ b.: same as 1.+ a.
3.+ c.: same as 1.+ c., but additionally a pre-marketing
licence.
4.: No export possible, requests should not
be answered and/or should be sent to MoD for information, that
country X wants to buy certain products in Germany.
For a pre-marketing licence, the company should
have an RFQ or Invitation for Tender presentation or Request for
Information. Normally classified information will be transferred,
but German Authority (MoD, BWB) must give clearance. If you have
received a license, it is valid until it is revoked, the situation
in the particular country has changed dramatically, or an embargo
has been declared.
It is not always necessary to ask for a pre-marketing
licence.
For a standard export licence, an End User Certificate
and a Contract are required.
Some examples of the general rules and how they
affect export policy towards particular nations are:
India, Pakistan: only category b.
Taiwan: a. (only with government approval: German
Security Council), b. and c.
Israel: case by case decision, no general guideline,
but for c. no chance.
We hope that this is not too confusing. Please
note the situation can change in one or the other direction on
a weekly basis. All procedures are also valid if the German company
is only a subcontractor and the deliverable part is a major item
of the final product.
Companies in almost any nation will seem to
regard their own export control system as being extremely difficult
and (seemingly through "rose-coloured spectacles") those
of other countries as being much easier. One Member Company has
reported that, in discussion with a German competitor, his interlocutor
"was under impression the UK system is easier than the German
one!" Most comments from UK companies are, almost inevitably,
with regard to comparisons with the French export control system's
policies, systems and procedures, which are regarded, almost universally,
as being extremely liberal and export-friendly. However, one Member
Company reports that: "Everyone [in European Industry] agrees
the French are a different matter—but my Egyptian Agent
recently said . . ." EVEN the French are getting more difficult"!!"
We also know of French companies who have commented in the past
that their system can be very difficult, despite commonly held
perceptions elsewhere. Equally, I am aware of one Israeli official
who commented to one of my colleagues recently at an overseas
exhibition that their export control system is the toughest and
most rigorous in the World. Almost the only thing which is seemingly
universally agreed is that the US system is the consummate example
of how NOT to do it!
Discrepancies in national control lists, as
indicated in our earlier evidence, make the situation more complicated.
For instance, under the UK regulations, ML6 (b), of EGTTPTA(C)O
2003, discretely armoured 4x4 VIP vehicles require UK export licences
(as they fall under the definition of "an all wheel drive
vehicle capable of off road use which have been manufactured or
fitted with metallic or non metallic materials to provide ballistic
protection"). Our understanding of German, French and other
EU regulations is that they control the movement of COMBAT armoured
vehicles (ie for use by the armed and security forces), but not
for discretely armoured vehicles for use by diplomats and other
VIPs. As a result, UK suppliers of such vehicles frequently quote
for business against BMW (x5) and Mercedes (M Class & G Wagon)
which can all be armoured and delivered without regulatory hassle
from other EU Governments.
We cannot give firm details of lost orders resulting
from this (and the need to submit end-user undertakings which
customers for these types of vehicles are often reluctant to give,
due to security/confidentiality concerns), but the UK companies
involved report that business is being lost as a result.
One of the major weaknesses of current Worldwide
efforts to counter global proliferation is the sheer diversity
of export control policies, systems and procedures around the
World, which, in a buyers' market, make export controls almost
totally ineffectual as a means of preventing proliferation, and
mean that the very best that can ever be hoped for is that they
can delay proliferation, rather than stop it. As a result, proliferators
can shop around to obtain whatever they want until they find a
willing supplier who can meet their needs, and efforts at the
national level, by Governments, such as that in the UK, to tighten
their own regulatory systems are rendered ineffective as tools
to try to control global proliferation.
On another, related, issue, we believe that
there has been far too much public focus on the issue of trying
to curb the activities of British brokers, and that this is in
many ways a red herring in global non-proliferation terms. At
the end of the day, if it is inherently undesirable for a (particular?)
supplier and a customer to come together and do a deal, then it
is inherently undesirable, whether the broker who brings them
together is British, French, Italian, Israeli, Ukrainian or Saudi,
etc, etc, or whether there is no broker involved at all, and they
do it directly—the nationality of any broker involved is
irrelevant, and it remains inherently undesirable under any circumstances.
What is really needed, rather than focusing on the issue of British
brokers, and controlling them in the UK (and overseas?), is drafting
some effective international and multilateral control regime which
will prevent these deals from happening at all! Many proponents
of the introduction of extraterritorial controls by the UK we
believe appear to be looking at the issue through blinkers and
unable to gain a strategic vision. As an instrument to try to
curb global proliferation and the sorts of deals that we all want
to see stopped, the UK arbitrarily and unilaterally changing its
regulations will be about as effective as rearranging the deck
chairs on the Titanic!
The only truly effective mechanisms have to
result from reducing the diversity of export control policies,
systems and procedures around the World, and adopting multilateral
mechanisms at the international level to bring greater co-ordination
and consistency to global counter-proliferation efforts by all
Governments. However, as these will, by their very nature, almost
certainly have some measure of subverting or undermining impact
on the independent autonomy of policy and decision making by national
Governments, including in areas such as trade, foreign and defence/security
policy, such efforts along these lines will be difficult to achieve
at the practical level. For instance it is very hard to perceive
the USA being willing to support anything other than the universal
adoption by other nations of its own (widely perceived to be deeply
flawed) export control policies, systems and procedures, to achieve
any solution aimed at international consensus and consistency.
COLLATED AND
CONSOLIDATED EVIDENCE
OF THE
BURDEN ON
INDUSTRY OF
THE NEW
REGULATIONS
Obviously there will be a greater burden arising
from the introduction of a new regulatory control system, but
it is still too early to tell how much greater this true cost
will be. We understand that Mr Tim Otter is preparing some figures
for the additional burden which his own company is facing (and
which he quoted to the Committee on 21 April), but these figures,
given that his company operates within the WMD sector where the
intangible transfer of technology controls are very much stricter,
do not necessarily mean that his experiences will be fully replicated
across Industry.
However, we believe that the new regulations
will introduce significant administrative "registration and
monitoring control" burdens on both companies and individuals.
There will also be a start-up and annual continuation "Training
Awareness" cost and burden for all companies (including overseas
subsidiaries and agents visiting and working in UK) particularly
in respect of "intangible" transfer and "trade
control". If you take into account the cost of providing
(i) training material (ii) the training hours (iii) the opportunity
cost of missed working hours (iv) training facility overhead costs,
and then multiplied that total cost by the number of engineers,
sales & marketing and contract administration staff, export
shipping staff, agents and representatives in the Defence Industry
it will be possible to obtain a near-as-possible rough order cost
impact assessment.
In reality, we believe that it is going to be
quite difficult to track and monitor compliance to this new legislation
at 100% simply because of the wide diversity of activity areas
covered by the legislation, the latent confusion within Industry
(and, sometimes, within DTI) as to what activity it actually applies
to, and that implementation of the legislation relates not only
on the traditional "hardware" export order takers and
exports shippers, but now also to the constituency of the many
new individuals within companies (or associated with companies)
which will now be (or might be) affected (to some greater or lesser
extent) by the new technology transfer, intangibles and trade
control aspects of the new legislation.
Sight of the legislation and the supplementary
guidance notes associated with this, reveals that, in itself,
this is large/onerous task with which companies have to get to
grips well enough, without the actual compliance procedures and
records that will be required to add on top. The time required
to prepare and train staff is also a consideration and the burden
placed on IT re laptops and remote access to name but a few, is
not to be under-estimated.
One Member company has commented that:
"The great majority of our products and
services are covered by export control. Outside of UK MoD business,
our customers will all be overseas. We are in continual discussion
at all levels within the Company with overseas counterparts and
are frequently required to support bid, demonstration and other
marketing activity. We currently envisage that our ongoing contracts
for supply overseas will require between 10-20 licence applications
per annum. The extension of licensing to intangibles could necessitate
10 times this number if all technical discussions at bid and marketing
stage are included.
Also of great concern is the need to police the
export of intangibles. The number of exporters has changed from
a few individuals to over 50% of our staff. The burden of training,
recording and auditing transfers has not been assessed, but is
believed to be very considerable. Finally, our business will be
impacted by our ability to respond to Requests for Quotations
from potential overseas customers. Where an export licence is
required, a delay of two to three months will occur before technical
discussions can commence. In most cases this will be longer than
the customer's required response time for the complete bid and
the business will be lost."
COLLATED AND
CONSOLIDATED INFORMATION
ON "UNDER-CUTTING"
ACTIVITIES WITHIN
THE EU
We understand that Mr Tim Otter is submitting
additional information on this. As we have previously stated,
information on this is not necessarily easy to come by for companies,
and the UK's use of the 680 system, which will discourage British
firms from the nugatory pursuit of potential business for which
a UK export licence would be turned down, results in competitors
from other EU Member States not having to encounter the "under-cutting"
provisions of the Code of Conduct. The statutory dual-licensing
system of a number of other countries, including France and Germany,
under which marketing or pre-marketing licences have to be sought
by firms, as well as actual export licences, means that companies
in these nations do not face this same aggravating and frustrating
problem, as refusal of these will invoke the "under-cutting"
provisions of the Code of Conduct.
One case which has only just (over the last
couple of days) come to the DMA's attention concerns a UK firm
which reports that it had an export licence turned down for the
supply of some air traffic control type equipment to Israel, only
to see the business be picked up by a French competitor, almost
by default, with a French licence being issued without any apparent
problems. We will try to obtain more information on this particular
case, and pass on to the Committee, when we can.
One dual-use company reports that:
"1. We export on SIEL's to countries
like India, China & Japan.
2. Over the last 12-18 months we are finding
it very difficult to trade & supply with the above countries
due to the fact that every order has to be approved by the UK,
DTI. This adds another four working weeks to our leadtime and
makes us un-competitive.
3. Our customers have sometimes complained
that suppliers in other EU countries like Germany & France
are not even asking for End Use Certificates, and would just ship
material a lot of the times.
4. Also, the most frustrating thing out of
all this is that when we apply for the Export Licence we are advised
after four weeks that No Licence is Required for exporting these
goods.
5. We are also unable to understand fully
how the Export Control Act applies to our product."
DIFFERENCES IN
ATTITUDES TOWARDS
THE PEOPLE'S
REPUBLIC OF
CHINA
In general the UK appears to be very circumspect
in the supply of Military List equipment to the PRC. We have little
detailed information on other EU country attitudes and have some
difficulty providing concrete advice on whether some countries
are more relaxed or not—however, we would think that former
eastern block countries joining the EU could be very relaxed .
. .
Evidence from the Chinese agent for one UK firm
appears to indicate that French, Italian and US companies whom
it also represents in the Chinese market can obtain the necessary
export licence approvals from their Governments much more easily—the
UK firm quotes normal timescales of three to 18 months, whilst
the normal average for the French, Italian and US companies appears
to be c 8 weeks.
Another UK firm reports that: "On the subject
of export licences we have had some recent experiences of export
licence delays with regard to China. We have finally received
approval but the delay has caused some difficulties. During a
recent visit to China I had been advised that French providers
do not seem to have the same level of delays and that where our
equipment categories are more stringent related to potential military
applications the same is not apparent for French providers."
SUGGESTED POSSIBLE
AMENDMENTS TO
THE EU CODE
OF CONDUCT
The existing wording appears to be very comprehensive,
but, of course, it is very open to interpretation, as has been
widely commented upon. We believe that greater efforts should
be made with regard to the adoption of a more consistent interpretation
of the criteria within the Code of Conduct between nations.
We hope that the above additional comments may
be of interest to the Committee.
April 2004
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