Quadripartite Select Committee Minutes of Evidence


Examination of Witnesses (Questions 140 - 159)

WEDNESDAY 21 APRIL 2004

MR DAVID HAYES, MR TIM OTTER, MR DAVID BALFOUR AND MRS SUSAN GRIFFITHS

  Q140  Mr George: Do you have any concerns about the new entrants coming in? Are their standards as lax as some people might admit? Will it be to your advantage if companies who fall outside of these controls will now be nominally inside? Will that be an advantage to British companies?

  Mr Hayes: In terms of my own company, I do not think it will make a huge difference because we have no direct competitors in the accession countries anyway. In terms of broader industry, given that military goods are licensable between EU Member States anyway and there is no freedom of movement, I do not think the impact will be that material on defence goods. It will probably have more of an impact in the dual use sector where there will be freedom of movement to the accession countries.

  Q141  Chairman: Are you aware of any examples where a competitor in the EU has been denied a licence but the British company has been granted one? We have talked about undercutting as being a one-way show. Is that the case? Do you know of any examples?

  Mr Otter: I cannot think of one, there may be some, but generally speaking it takes so long for us to get a licence once an opportunity like that is identified that the opportunity is gone.

  Mr Hayes: I am not sure we have any.

  Q142  Mr Evans: How long does it take to get a licence?

  Mr Otter: The worst case is two and a half years.

  Q143  Mr Evans: Is there such a thing as an average?

  Mr Otter: About six to eight weeks.

  Q144  Mr Evans: Is that longer than our European Union neighbours?

  Mr Otter: Much.

  Q145  Mr Evans: What is theirs?

  Mr Otter: Typically the Germans will do one at the turnaround of a phone call.

  Q146  Mr Evans: Let us go on to the easier subject of China! We have heard some of the interpretations of the European Union. As you know, since June 1989 and with Tiananmen Square we have had the arms embargo except that they did not define the scope of it. It may be that we have defined it more broadly and more strictly than our European Union neighbours. Have you any examples of where we are not allowed to export certain items to China but our European Union competitors are?

  Mr Otter: Specifically the Chinese have two big programmes where detection equipment for weapons of mass destruction is going to be required. The first is the clean-up of some 1.5 million munitions left behind by the Japanese at the end of World War II which were filled with a chemical warfare agent and the Japanese have got to clear that up. The second one is the Beijing Olympics where the thought of a weapon of mass destruction being used against a target like that is mind numbing, but it is a reality now. I gave photographic evidence to the Government some three or four years ago of French equipment being used by Chinese researchers and officers, whereas we were refused a licence to loan equipment for trials.

  Q147  Mr Evans: You wanted to export certain items to the Beijing Olympics to help the detection but you have been refused.

  Mr Otter: That specific example was to do with the demilitarisation of one and a quarter million old munitions with a chemical warfare agent fill. The Beijing Olympics is a subject for discussion at the moment, but at the moment we cannot get 680s to allow us to go and talk to the Chinese.

  Q148  Mr Evans: But you are aware that other countries are talking to them?

  Mr Otter: I know the French and the Germans are there. I have shown photographic evidence of the French being there and lending their equipment.

  Q149  Mr Evans: When you show them photographic evidence of this what do they say?

  Mr Otter: One of the guys cynically said, "Could you get us a copy of the invoice?" They just said "What can we do?".

  Q150  Mr Evans: Are there any other examples, Mr Hayes, which you are aware of?

  Mr Hayes: No.

  Q151  Mr Evans: Are you being encouraged to export to China in any way, shape or form?

  Mr Otter: On the so-called China DeMil Programme, we are working very closely with DESO and the FCO in trying to help the Chinese deal with this situation. The problem still remains that to export into China we have got to go through the Japanese organisation that is going to be dealing with the munitions, so in fact what you have got to do is convince two governments that that is the equipment that should be used. It involves trips to Japan and to China rather than just to China. DESO are helping us a lot. We have got 680 clearances, but whether we will get the licences is another issue.

  Q152  Mr Evans: Is it easier now to get the 680s?

  Mr Otter: It was two years work to get the 680s through and even then we had to give certain guarantees that the equipment would be dramatically modified to prevent use in other circumstances.

  Mr Evans: There again it may be useful if you could write to us with examples of the China differences because, as you know, the Foreign Secretary gave evidence to us not so long ago about the constant review that is going on and the review is going one-way, which is to relax rather than to restrain.

  Q153  Mr Battle: Does the British Government's approach to the export of components for "incorporation"—and I think there were additional factors put in by the Foreign Secretary in July 2002—actually meet British industry's needs?

  Mr Hayes: I think the Foreign Secretary's comments and the published policy on incorporation clarified the issue and I think there is a certain amount of misinterpretation occurring in relation to the export of components. By that I mean there is lots of exporting of components within the manufacturing process whereby a UK company might export components to a company overseas and that is simply for a manufacturing process to be carried out overseas and the components to be returned to the UK. It is still classed as a permanent export because the material that is returned is materially different from that which was exported so it does not show up as a temporary export, it shows up as a permanent export, but looked at from a pragmatic sense it was in fact a temporary export in the process of manufacturing a product.

  Q154  Mr Evans: I am really trying to look at it from your angle because there is a lot of concern about the effects of the UK's ability to control final destinations. From the restructuring of your industry brought about by developments and the increasing use of "offset", for example, what kind of changes in the system would you like to see?

  Mr Hayes: From the point of view of a multi-national company, something which would make life a lot easier is if we could share goods and technology with companies within our own supply chain under open licensing systems. We can do that in the bulk of the defence industry but it seems to be being ruled out for particular areas such as restricted goods and NBC defence. So again it is one of those issues which affects certain sectors of the industry more than others.

  Q155  Mr Evans: I may be wrong, but the advice I received was that perhaps the only recent change to the export licences system deals specifically with production overseas by the introduction of a tick box on a licence application asking if the equipment for export is to be used in production facilities. Is   industry generally content with what the Government is planning on approaching the issue of licence production overseas or is it too lax?

  Mr Hayes: No, I do not think it is because licence production overseas necessarily involves the export of technology which is itself controlled quite separately. We will need a licence in order to export the technology, to facilitate the technology overseas. The fact that it was for production overseas would be considered in the licence application so it is already captured in the process. I think it is a point worth making and I know that I will be corrected if I am wrong here, but the issue of Heckler & Koch weapons was raised earlier. In actual fact I understand that the commitment with the Turkish company was entered into by Heckler & Koch prior to that company being owned by BAE Systems, so it was not British at the time that commitment was entered into.

  Q156  Chairman: When it comes to arms export control policy end use is all that matters really, it is about where is this kit going, who is using it, for what purpose, in a sense that is the ultimate piece of information that really we need to know before licensing an application and presumably to check afterwards that the information on the licence application is correct. Do you have any suggestions about how end-use monitoring could be made more effective or perhaps equally effective with fewer burdens? What are your views about that fundamental issue? End use is all that matters when it comes to the policy presumably.

  Mr Hayes: I would agree with the comments Mr Straw made in the previous session, that the UK Government does already carry out most of the activities of Blue Lantern, we just do not apply a label to it. End use varies across the industry. In some senses it is easier for some companies than others to determine what is a suspicious order and what is not. If you only deal with large international companies then you know your customer base and it is relatively easy to judge what you are doing. In the aerospace industry you know who operates what aircraft in what Air Force or what Navy and an order from someone who did not operate a particular aircraft for a part for that aircraft would automatically look odd. In other industries it is not quite so easy.

  Q157  Chairman: Would you have any objection to the Government publishing information about end users of equipment that has been licensed?

  Mr Otter: I think I would and the reason I would object to it would be a counter-terrorist application, although I think I would have had a different opinion prior to the Twin Towers in New York. Since then I think I have changed my view and I know a lot of my members have. If you are dealing with counter-terrorism and you are dealing with protection systems against a weapon of mass destruction what you are actually talking about is if a target is protected then that place ceases to be a target. If it has got detection equipment, filtration equipment then generally speaking you can manage the incident. If it has not then that place becomes a target. So if you are telling people where the equipment is and where it is not you are actually doing the target selection for the terrorist.

  Q158  Chairman: So it is not a question of commercial confidentiality, it is about preventing that information from terrorists, is that the concern?

  Mr Otter: I think it may also be the fact that there is commercial confidentiality as well.

  Q159  Chairman: I thought it might be.

  Mr Otter: From a purely counter-terrorist point of view that would be the line I would take.


 
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