Open markets and access to technology
133. The Defence Industrial Policy states:
Protectionism is not a viable way forward, but we
recognise that not all governments approach acquisition with similar
openness. We will continue to press for freer access to overseas
markets. We aim to improve the flow of defence information and
technology access across borders, and to enable the UK defence
industry to compete on merit in other markets.[205]
134. We examined the issue of open markets and access
to technology in last year's report on defence procurement.[206]
We were happy to lend our weight to a campaign to address the
lack of open markets in other countries and looked to ministers
and their officials to maintain pressure for reciprocal treatment
from other defence manufacturing countries. We concluded that
'The UK defence industry would suffer more than most from a retreat
into protectionism. It is precisely because of the success abroad
of UK firms that pressure must be maintained on the US and European
countries to level the playing field'.[207]
135. In terms of the progress that had been made
in opening up markets, Sir Peter told us that 'we have been working
hard
. both in the United States and within Europe'.[208]
However, UK contractors were still experiencing difficulties selling
to overseas markets. Sir Richard Evans told us that 'in defence
terms, the UK is the only genuine open market in the world today
.
For UK contractors to compete in America or to compete in many
.
European countries is exceedingly difficult
. it is in everybody's
interest that all the markets are as open as possible and that
is how we generate real competition and get the benefits from
it'.[209]
136. There are alleged to be signs that the defence
market in France is changingJohn Howe told us that 'as
far as the French market is concerned, I would not argue that
it is as open as the British market is, though it has been opening
and the French part of Thales would argue that now they do have
to win their business in competition which is much stiffer than
it would have been a few years ago'.[210]
However, it is not clear whether this meant international competition.
137. The VT Group[211]
suggested that a new industry/Government approach to securing
greater access to global defence markets should be developed and
implemented. They considered that, by developing a common position
on this issue, both industry and Government would be able significantly
to strengthen their understanding of what trade barriers actually
exist at present. This seemed to us to be something which should
be taken forward.
138. In last year's report on defence procurement,
we examined a number of issues relating to the United Statesincluding
the threat of a more protectionist approach and delays in securing
a UK waiver from the US International Traffic in Arms Regulations
(ITAR). The Government's Response[212]
to our report noted that 'On his recent visit to Washington, the
Prime Minister secured an agreement with President Bush radically
to improve the sharing of defence information and technology between
our two countries. The Government is also working with the US
Administration to secure a waiver for the UK from the US International
Traffic in Arms Regulations'. Sir Peter acknowledged that 'this
Committee has been extremely supportive of ministers and of the
Ministry of Defence in discussing in the United States the general
concerns about access to technology, and the results of that were
the prospective Buy American legislation which was passed last
year was a good deal less problematic than it might have been'.[213]
139. Despite the efforts that have been made by ministers
and the MoD, it was disappointing to learn that little progress
has been made and that the issue of protectionism in the US has
re-emerged. At a UK/US Defence Industry Seminar held in London
on 2 June 2004, Lord Bach raised his concerns about protectionism
in the US and noted that, in contrast to European moves to reduce
market barriers, there were some in the US who wished to move
in the opposite directionto close off opportunities for
cooperation and to erect barriers in the marketplace. Lord Bach
told the audience that this would 'undoubtedly harm the UK both
in capability and industrial terms, and will also damage US industry
with which we have a close relationship and from which we acquire
important elements of our national capability'. He said:
Last year we had to deal with the implications of
the Defense Authorizations Bill which sought to introduce overt
protectionist measures to US defence procurement. It seems like
we have escaped from that damaging proposal only to be confronted
with another. It's got a new name4200, new wording and
a new strategy. But its supporters and its intentions are the
same. And I have no doubt that once again we will need to expend
time and effort in countering these proposals
. I am encouraged
to learn that the US Administration has expressed its opposition
to this language in the House version of the bill
. We have
seen some concrete actions from the Administration. For instance
we agreed the terms of the ITAR Waiver in May last year. Delivery
of the waiver is now long overdue and the frustration that we
feel and the messages that it sends are counter-productive. I
note that the House version of the 2005 Defense Authorizations
bill also includes language which, if enacted, will further impede
the introduction of an ITAR waiver. Again I am pleased to see
that this language has been opposed publicly by the US Administration'.
140. A recent article in a defence journal[214]
claimed that the UK Government 'has threatened to ban US contractors
from significant defense work here if protectionist measures proposed
by the US House Armed Services Committee Chairman Duncan Hunter
become law.'
141. We are dismayed that a waiver for the UK
from the US International Traffic in Arms Regulations (ITAR) has
still to be secured and that the introduction of protectionist
measures in the US have re-emerged. In addition to the potential
damage to both the UK and US defence industries, there is a real
risk that the close relationship between the UK and US could be
harmed. We note that the US Administration has provided support
to the UK on these matters, but it is essential that that support
is translated into real results. We again lend our support to
ministers and the MoD in addressing these issues.
142. On the issue of problems with access to technology,
Sir Richard Evans cited the example of the Joint Strike Fighter.
He told us that 'I think the JSF is a classic example. It is no
good when you have signed up and paid your cheque over then trying
to go back to negotiate the release of technology'[215]
He pointed out that in the case of the Joint Strike Fighter there
would probably be two or three major updates throughout the programme
and these will be undertaken by Lockheed in the US and not in
the UK.[216]
143. We raised this concern with Sir Peter Spencer
who told us that the issue of access to technology was an extremely
sensitive area for the United States. He said that a Bilateral
Defense Acquisition Committee has been set up.[217]
This is a senior forum between the Unites States Department of
Defense and the United Kingdom Ministry of Defence and its terms
of reference include to 'Develop and co-ordinate efforts to improve
information and technology exchange including the timely release
of classified and sensitive information'[218]
He added that 'we have identified the specific areas which need
to be followed through, including the Joint Strike Fighter
.
So far as access to technology which is needed by British Aerospace
to discharge its responsibilities as subcontractor to Lockheed
Martin on Joint Strike Fighter, we have been getting there'.[219]
He said that 'We need to know that we can operate this thing effectively
in operations, not join a queue and get the thing fixed six months
later'.[220]
144. The issue of access to technology on the Joint
Strike Fighter was also raised by Lord Bach at the UK/US Defence
Industry Seminar on 2 June 2004. He noted that 'We had a difficult
start to exchanging the necessary data and technical information
on this programme, but a concerted effort at the most senior levels
on both sides has delivered success'. However, some reports in
the media have suggested that there was continuing concern among
the collaborative partners on the project about US restrictions
on information sharing.
145. Information transfer delays, on programmes
such as the Joint Strike Fighter, can prevent co-operating industrial
partners from fulfilling their contractual obligations. We note
that a Bilateral Defense Acquisition Committee, involving the
UK and US, has been established and that it is tasked with developing
and co-ordinating efforts to improve information and technology
exchange including the timely release of classified and sensitive
information. We note that MoD considers that, on the Joint Strike
Fighter programme, the necessary data and technical information
is now being exchanged, and we expect MoD to ensure that this
remains the case.
Relations between MoD and industry
146. The Minster of State, Adam Ingram has said that,
since the launch of the Defence Industrial Policy, 'our close
and productive relationship with industry has developed further.'[221]
However, in the run-up to our evidence session with the Defence
Industries Council, a number of press articles had reported that
the relationship between MoD and the UK's largest defence contractorBAE
SYSTEMShad reached an all time low.
147. We asked Sir Richard Evans about his company's
relationship with MoD. He considered it to be pretty robust but
thought it would get quite a bit tougher given the issues presently
under discussion.[222]
However, he also believed that:
We need to put this behind us and have a fresh start
on this
. I want it to be quite clear that in the context
of my position and indeed Dick Olver, who is taking over from
me in July, our objective is to have a proper and good relationship
with the most important single customer that we have.[223]
We were interested in Lord Bach's view on MoD's relations
with industry and, specifically, with its largest supplier. He
told us that:[224]
I really do not think the fact that there is tension
between industry, on the one side, and the Ministry of Defence,
on the other, is necessarily a bad thing
. As far as BAE
SYSTEMS are concerned
. The relationship is often satisfactory,
and sometimes good or better.
He went on to say, 'I actually accept what you said
to Sir Richardwhich was that it was important that all
sides do their best to make sure that the relationship was a workable
one, and one that got better rather than worse'.[225]
He considered that was happening.
148. For the Defence Industrial Policy to succeed,
it is important that there is a constructive relationship between
MoD and the defence industry. We are disappointed to learn that
there have been difficulties in the relationship between the MoD
and the UK's largest defence contractorBAE SYSTEMS. We
note that both MoD and BAE SYSTEMS recognise the need to rebuild
their relations, and we encourage them to push forward with their
efforts to do so.
161 Speech by the Secretary of State at launch of the
Defence Industrial Policy, 14 October 2002 Back
162
Policy Paper 5: Defence Industrial Policy, Ministry of Defence,
14 October 2002. Back
163
First Review of the implementation of Defence Industrial Policy,
October 2003, www.mod.uk Back
164
HC (2002-03) 694, para 23 Back
165
First Review of the implementation of Defence Industrial Policy,
October 2003, www.mod.uk Back
166
HC Deb, 13 November 2003, col 24WS [Commons written ministerial
statement] Back
167
Ev 129 Back
168
Q2 Back
169
Ev 112 Back
170
Ev 129 Back
171
Ev 112 Back
172
Q 2 Back
173
Q 3 Back
174
Q 9 Back
175
Ev 123 Back
176
Q 187 Back
177
Q 186 Back
178
Q 122 Back
179
Ibid Back
180
Q 125 Back
181
Q 2 Back
182
Q 197 Back
183
HC (2002-03) 694, para 26-27 Back
184
MoD news release, 172/03, 30 July 2003 Back
185
Q 187 Back
186
Q 2 Back
187
Q 23 Back
188
Ibid Back
189
Q 113 Back
190
Q 115 Back
191
Policy Paper 5: Defence Industrial Policy, Ministry of Defence,
14 October 2002, page 4 Back
192
Q 4 Back
193
Q 5 Back
194
Q 137 Back
195
Q 12 Back
196
Q 191 Back
197
Ibid Back
198
Q 192 Back
199
Q 55 Back
200
Q 138 Back
201
Ibid Back
202
Q 139 Back
203
Q 190 Back
204
Q 320 Back
205
Policy Paper 5: Defence Industrial Policy, Ministry of Defence,
14 October 2002, page 4 Back
206
HC (2002-03) 694 Back
207
Ibid., p 48 Back
208
Q 108 Back
209
Q 15 Back
210
Q 19 Back
211
Ev 123 Back
212
HC (2002-03) 1194, para 10 Back
213
Q 142 Back
214
DefenseNews, 28 June 2004 Back
215
Q 16 Back
216
Q 43 Back
217
Q 142 Back
218
HL Deb, 10 June 2004, cols 49-50WA [Lords written answer] Back
219
Q 142 Back
220
Q 143 Back
221
HC Deb, 13 November 2003, col 24WS [Commons written ministerial
statement] Back
222
Q 51 Back
223
Q 61 Back
224
Q 189 Back
225
Ibid Back