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UNCORRECTED TRANSCRIPT OF ORAL EVIDENCE To be published as HC 390-ii House of COMMONS MINUTES OF EVIDENCE TAKEN BEFORE QUADRIPARTITE COMMITTEE
Wednesday 21 April 2004 MR ROY ISBISTER, MR ED CAIRNS and MR ROBERT PARKER MR DAVID HAYES, MR TIM OTTER, MR DAVID BALFOUR and MRS SUSAN GRIFFITHS Evidence heard in Public Questions 74 - 167
USE OF THE TRANSCRIPT
Oral Evidence Taken before the Quadripartite Committee on Wednesday 21 April 2004 Members present Mr Roger Berry, in the Chair Mr John Battle Mr Crispin Blunt Mr Quentin Davies Mr Nigel Evans Mr Bruce George Mr Martin O'Neill
________________ Memoranda submitted by Saferworld and Oxfam
Examination of Witnesses
Witnesses: Mr Roy Isbister, Head of European Union and Export Controls Section, Saferworld; Mr Ed Cairns, Senior Policy Adviser, Oxfam; and Mr Robert Parker, Campaign Manager, Arms and Security, Amnesty International, examined.
Chairman: Good morning. Can I ask if any Members have any interests to declare? Mr Blunt: I want to draw attention to my declaration in the Register which is that I am a consultant to AMS who are an integrated systems manufacturer. Q74 Chairman: Thank you. We only have an hour. We are going to ask very brief and pithy questions, and if you could keep the responses brief and to the point we would appreciate it. We are under a bit of time pressure. Could you briefly introduce yourselves to the Committee? Mr Parker: I am campaign manager at the United Kingdom section of Amnesty International. Mr Cairns: I am senior policy adviser at Oxfam. Mr Isbister: I am head of the export control and European Union section at Saferworld. Q75 Chairman: Thank you, and thank you for your written submissions. They are very helpful indeed. Could I start with what I understand to be one of your key concerns which is increased proliferation, especially small arms but also proliferation more widely. Could you give us any specific examples of concerns you have about British exports leading to proliferation? Mr Parker: As human rights and humanitarian organisations our primary concern is around the human cost of proliferation. We also work towards suggesting solutions for the causes of proliferation, and in terms of United Kingdom exports what we would point to is the increased use of open licensing and tying that with the transparency issue in that it is very difficult to get a grip on quite how much equipment is being exported from the United Kingdom under open licences. It is very difficult for us to give you examples of United Kingdom exports leading to proliferation when a glance at the annual report shows open licences to places such as Luxembourg ‑ 91 open licences ‑ for all manner of equipment and we have no idea quite how much is going under those open licences. There is also a vast naval licence covering a huge range of equipment ranging from submarine parts through to general purpose machine guns which appears to have been granted to somewhere in the region of 40 countries but, again, with no indication of the amount of equipment going out under these licences it is very difficult to come to an informed opinion on United Kingdom exports leading to proliferation. Another area would be licensed production, so here we are talking about the proliferation of arms producers. There has been a steady increase over the past decade in production facilities set up abroad to produce anything from small arms and ammunition through to jet fighters. This leads to an increasing risk of diversion and a risk that licit trade will end up in the illicit market, and the United Kingdom is certainly one of the countries that sets up licensed production deals. Mr Isbister: Following up on that, fundamentally the United Kingdom is one of the largest exporters in the world so it is bound to have an impact upon proliferation but I do not think any of us would paint the picture that the United Kingdom is the worst of the worst by any means. On the issue of the naval open licence and the 40 or so countries on it, some of the countries named on that licence include a number of African countries, Angola, Cameroon, Cote d'Ivoire, Nigeria, Senegal, and also Paraguay which is a landlocked country but which has a reputation as a point of diversion. It seems unlikely that everything on that licence is going to go to Paraguay but it does give permission for those exports, so I think that is very concerning. Regionally the United Kingdom seems to run a reasonably tight ship to Africa with one or two notable exceptions such as South Africa, but in South Asia, for example, with exports to India and Pakistan and also the Middle East where the United Kingdom is a very large exporter, these are both regions of instability so we naturally have concerns there. Mr Cairns: I just want to flag something up about components, which I suspect you want to take separately. Having just come back from Israel and Palestine we have reason for concern that we all share that components for F16s to Israel two years ago may be the tip of a rather ugly iceberg about components going to Israel for F16s and Apaches and the missiles attached. Q76 Chairman: Do you want to pursue that now, so we do not forget it? Mr Cairns: Yes. I think it has been very notable that both your Committee and people like us are very much focused on what happened in July 2002, but if you look at the annual reports from 2000 onwards there have been licences for components not just for combat aircraft in Israel but also for combat helicopters and for air-to-surface missiles, which have been used in the recent assassinations and against civilians as well. It is also the case that there are several companies, either United Kingdom companies or US companies with United Kingdom operations, that produce components for Apaché helicopters and for the hellfire missile sites that they use. Now that does not mean that we know that those companies are being licensed to send those components to Israel but again, rather like Rob said, because of the still relative opaqueness of the reporting there is at least reason for concern that, while at the same time the Foreign Secretary is being very forceful about condemning the Israeli actions of using Apaché helicopters to carry out assassinations, etc, it may well be the case that British components are going into those helicopters and going into missiles used. In the short term I would have thought the government should explain exactly in detail what those components are for Israel for combat helicopters, combat aircraft and air‑to‑surface missiles that have been supplied since 2000, and for the future I think it is a lesson for how we would want more transparent reporting in the 2003 report and beyond. At the moment, as I understand it, the government is saying it is going to provide more statistics for components but unless we have the detail of exactly what kind of components, the numbers, destination and the purpose, none of us are really ever going to be able to have enough information to tell whether, as in this example, Britain is supplying components for Israeli Apachés doing these things. Q77 Chairman: We will come on to components later but finally can I ask about the post September 11 type situation? A number of people have argued that licensing decisions may well have changed as a result of the so‑called war on terror. Have you got any specific examples of where you think licences have been granted in the United Kingdom that would not have been granted before 9/11? Mr Isbister: The government has been very careful when questions have been raised to couch answers in terms of all licence applications being assessed against the consolidated criteria, and it is very difficult to get to the nub of this. All we have really been able to do, and again we are limited a bit by the quality of reporting, is to identify a number of countries which might be seen as allies in the war on terror where there has been a marked increase in the number of licences issued. From the Saferworld audit we can see a table of some of these, for example, Algeria, where there has been a significant increase between 2001 and 2002, Egypt, India, Indonesia, which has perhaps the most marked increase. In 2000 the value of SIELs issued was £2 million and there were no OIELs issued. In 2002 the value of SIELs issued was £41 million and the number of OIELs issued was 15. Morocco has seen a very large increase, so has Jordan and Oman too so we cannot nail this down to being specifically related to the war on terror, but it is enough to raise questions which I think need slightly more detailed answers than we have received so far. Mr Cairns: If we were looking for indications more recently obviously we would not be looking at licensing decisions but other indications, and one would be the media reports about the United Kingdom wanting the EU to lift its arms embargo on Libya, which is the kind of thing which would give us grave concern because it would look like essentially giving Libya a rather lethal carrot in reward for what is good which is their change of policy on WMD but if you look at Libya's role in supplying arms to such undesirable people as Charles Taylor in Liberia and the RUF in Sierra Leone that would raise grave concerns for us, and it looks far too like not a representation of current policy but the bad old days of the Cold War where arms were given as presents to undesirable allies. Mr Davies: Before we move on, you have had three very long answers to your first question but I think the correct answer was one word ‑ "No" ‑ because although we have had lots of speculation, it seems to me there does not seem to be a single case of documented evidence that there has been an abuse involving British export control, or none at least to which our witnesses can draw attention. Q78 Chairman: We have noted the answer. We do not want to get into debates with our witnesses obviously but do you have anything briefly to add to that? Mr Isbister: There were a couple of statements. I do not have the details here but we can get them for you. Ben Bradshaw made a comment early in 2002 that the government might have to reassess some of its export licensing decisions to countries like Sri Lanka, and there were another couple, in light of the ‑‑ Mr Davies: My point remains. Chairman: The point has been made. If there is any further evidence you want to submit, feel free to do so as quickly as possible. Q79 Mr Battle: Moving on to the Arms Trade Treaty, if I remember rightly in October 2003 Oxfam and Amnesty together published a report Shattered Lives which got a good launch; it launched the campaign for an international Arms Trade Treaty, it was launched in my city and I was there and there was a good response from the crowd, and there has been a good response and goodwill generally towards the report, but I think it is fair to say as well that support from governments has been less forthcoming ‑ there have been expressions of goodwill but not much action. Could you remind me why we need an international Arms Trade Treaty and what prospects are there of that Treaty becoming reality, given the lack of support from governments? Mr Parker: "If we do not sell it, someone else will" is a mantra often invoked as a reason to maintain exports about which concerns may have been raised. We look at it slightly differently, thinking if we do not sell it presumably for a good reason, possibly human rights grounds or sustainable development grounds, why should anyone else be able to? Essentially that is what the Arms Trade Treaty will seek to do ‑ introduce a level playing field so everyone is playing with the same set of rules ‑ so if the United Kingdom or anyone else refuses a licence no one else should be able to pick that licence up. It will set limitations on the types of conventional arms transfers which are deemed acceptable and put in place an international legal framework within which legitimate arms trading can take place. It is not a new idea. Article 26 of the UN Charter states that in order to promote the establishment and maintenance of international peace and security with the least diversion for armaments of the world's human and economic resources the Security Council shall be responsible for formulating plans through the establishment of a system for the regulation of armaments. So it is not a new idea, it is around fifty years old, but there has been little action on it, as you say. Also, it is not just us calling for it; eighteen Nobel Peace Laureates have put their names behind the idea. We are not naive enough to think it will happen overnight, and you are right ‑ we are encouraged by the responses from governments, particularly because they are coming from all world regions. We have had positive responses from Mali, Cambodia, Costa Rica, Brazil, the Netherlands, Sweden and others, some of whom have explicitly stated support for the idea of an Arms Trade Treaty; others have stated their support for efforts to establish legally binding international controls. In terms of how likely it is to happen, it cannot be denied that it will take a huge effort to engage states like the United States, Russia and China in such a project and this is where we think as a permanent member of the UN Security Council, and soon to be President of the G8 and the EU, and the second largest arms exporter in the world, the United Kingdom has a duty to show robust international leadership. We are not trying to tackle China and Russia in the formative months of the campaign. What we are trying to do is get progressive governments to agree with what we are calling for and want to start pushing the initiative to start working with their neighbours and promoting the idea. Q80 Mr Battle: I think if I am right you are intending to submit another draft of the Arms Treaty on small arms proliferation in 2006 to the UN, so you have a bit of time to go before then, but we need action on this matter now, so what can be achieved through existing international mechanisms such as the UN small arms programme through the EU and, as you mention, the G8 now, not to mention international arms embargoes. Could we do more work there in the meantime, and where do we focus? Mr Isbister: Yes. I would say that the United Kingdom should be operating through all these different fora and, as Rob mentioned, there are presidencies coming up, the G8 and the EU next year, so this should be an opportunity for the United Kingdom to demonstrate leadership there. There are a number of other initiatives that have been led by the United Kingdom like the Commission for Africa that should include an element or be looking at the issue of arms proliferation in Africa as part of its mandate. The Cabinet Office is working on a project on countries at risk of instability and this should be looking at the issue of arms proliferation, so I do not think that the different initiatives have to be mutually exclusive. They should be working together and I would congratulate the United Kingdom government on the transfer control initiative that they are leading which is designed to produce some ideas on guidelines on export controls on small arms and live weapons in time for the next biannual meeting of states in the UN small arms process. Mr Cairns: The single most useful thing the United Kingdom could do specifically on the ATT urgently would be to make a high profile, top level Foreign Secretary or Prime Minister statement unambiguously that the United Kingdom is behind the ATT as a legally binding agreement, and wants it delivered sooner rather than later, ie by 2006. That would be an objective for this year. Mr Parker: The campaign you mentioned also looks at the irresponsible use of weapons so we are looking at both the supply side and the demand side, because even if all arms exports stopped tomorrow ‑ which is not what we are calling for, by the way ‑ people are still armed and still facing armed violence on a daily basis, so the campaign is aiming to support the initiatives and efforts of community level organisations at reducing armed violence in their communities. Q81 Mr Evans: On the issue of components and, instead of exporting the finished product, finishing and exporting parts of that product to other countries, what action do you think the government should be taking when it says that it looks at the same sort of licensing regime for parts as it does to whole products? Mr Cairns: There are two answers and I will be succinct because basically our answers were in the Lock, Stock and Barrel report which we sent to all Committee members in February. Essentially the first answer is in more transparent reporting, and the example I used about the lack of clarity on Israel is a good example of that. To my knowledge, the progress the government has made since we published our report in February is that they said in an answer to a PQ by Barry Gardiner earlier this month that in future annual reports, from the 2003 one onwards, they would put in more statistics on incorporation, but we would say that is not enough. We would say you have to go down to the level of saying precisely what the components are, what are the numbers, what are the destinations and what is the purpose, so is it for incorporation or is it spare parts, and basically without that information, with respect, neither you, us or anybody else will have enough information to make judgments about whether the right thing is happening or not. That is crucial. Also, obviously there is a challenge of complexity but we do not accept that, when the Foreign Secretary set out different guidelines for incorporation in July 2002, which makes sense. If you are looking at the effect of components being added together to make a lethal weapon, ie human suffering, we do not think there should be a different set of criteria for components and for whole weapons systems. Q82 Mr Evans: Give me an example, then, on components whereby you believe the country has been able to access components in separate parts and then use them in an offensive way? Mr Cairns: I will go back to the Israel example because I have recently come back from there and I think it is comparatively uncontroversial. We have all seen evidence of Israeli F16s being used to bomb civilian targets in the Occupied Territories, and just to be clear I condemn Palestinian bombings and killings just as much; I am not making a one‑sided point but I saw the evidence of that a couple of weeks ago, and it is a fact that the United Kingdom components for those US F16s going to Israel are a vital part of it. Mr Isbister: There are other examples as well. I think licences for Hawk components were issued for sale to Zimbabwe at a time where it is very hard to believe that whole Hawk aircraft would have been sold to Zimbabwe. Q83 Mr Evans: Going on to the Hawk example, because as you know there is a deal being arranged with BAe and India where 24 of them will be produced in the United Kingdom but the rest of the order will be produced in India, what action do you think the government ought to be doing to ensure that parts manufactured elsewhere around the world under licence do not become part of the proliferation you are worried about? Mr Parker: I spoke earlier about the proliferation of producers and the new Export Control Act which comes into force very soon will introduce some controls over further transfers of technical updates and intangible transfers and such like, but we still think the actual licensed production deal itself needs to be licensed so limits on production levels and onward export can be put in place right at the start. The US has those kind of controls ‑ controls, re‑exports and also production levels ‑ so we think that the United Kingdom should be pushing to do likewise, possibly with its EU partners because as a collective the EU would have more clout in terms of insisting that any onward export of licensed production would have to be informed. Q84 Mr Evans: How realistic is that with parts being manufactured in a number of places these days? It is the multinational reality of the situation that parts are produced all over the place. You look at Typhoon Eurofighter which are now produced in a number of countries. How realistic is it that Britain would be able to have certain controls on itself at the same time as these parts are still going to get to other third countries, because perhaps the restrictions are not exactly the same? Mr Parker: I think we recognise those difficulties which is why we are encouraged that the Foreign Secretary is taking this forward at an EU level as well, but still the government has stopped short of saying that what would be required is a licensing requirement for the deal itself. So it would be difficult for the United Kingdom alone to do that but if it can be pushed forward in other international fora, such as at EU level, we think there might be more chance of it happening. Mr Cairns: It is another argument for the ATT. We would all accept that none of these things are total solutions. If there is ever going to be a tough international level playing field it does mean that all governments are going to have to do the same, and the international ATT is ultimately really the only solution for that. Q85 Mr Evans: You have spoken about larger components for F16s. On the small arms side, have you any evidence at all about proliferation on components being sold? Mr Parker: One of the main companies that has come to our attention is Pakistan Ordnance Factories. Now Pakistan is trying to build a high tech industrial base through arms exports and becoming a regional arms exporter. It builds everything from rockets through to small arms and small arms ammunition and it was originally a United Kingdom firm, Royal Ordnance, which set up some of the production facilities in the first place in the 50s. Now there have been subsequent deals done and denied and basically we still think that parts and training are being provided to places like Pakistan Ordnance Factories where there is very little control of where they then export the weapons to. Q86 Mr Evans: Have you any evidence on that? Mr Parker: One of the examples in the memorandum we submitted last time we gave evidence was on a factory in Turkey, and a deal with Heckler & Koch. Now at the time Heckler & Koch was United Kingdom owned and now it is not, but at the time, the height of the East Timor crisis, the factory in Turkey exported 500 MP5 machine guns to Indonesia. Now, these machine guns are not going to go away. They fire 600 rounds a minute, and some of the same people who were involved in the crimes against humanity in East Timor are the same as the people running the operations in Aceh, so that is one example whereby a United Kingdom set‑up deal for small arms resulted in proliferation and abuses. Mr Cairns: Another example would be United Kingdom with Singapore, Singapore having one of the poorest records of where its arms then go on to, for instance Indonesia, and if you contrasted the report between 2000 and 2002 there is a quite sharp decline in the licences for the export of United Kingdom whole small arms to Singapore and an increase in the export in United Kingdom components to small arms. Again, we cannot prove where they go to but it does raise concern. Q87 Chairman: In terms of the problem of making decisions about licence applications for components, how far down the supply chain is it realistic to go? Head‑up display units for F16s are pretty clear. Those are components used in F16s and we do not need a view about what decision should be made. That is a clear component used in an F16, but when you get to smaller and smaller components, dare I say, nuts and bolts and so on, where do you draw the line? Clearly you know the policy is meant to apply to both components and final military equipment, there is no question about the principle, but on the practice, how far down the supply chain is it possible to go to make decisions about components? Mr Isbister: I would say that is a very difficult decision to make and if you set a rule then you are going to find lots of exceptions to that rule. This comes back to one of the key issues of transparency. If you can give more information about the components that you are sending overseas, then it becomes possible for outside observers such as yourself and ourselves to make an informed decision on whether it seems appropriate, so over time you are working out what is a legitimate level at which you are going to set these kinds of decisions. Q88 Chairman: But is the problem not that you are only going to get this information on components if somebody has decided either it is dual use component or it is a component that will be used to manufacture military weapons? You do not get the information until somebody has decided where to draw some cut‑off point really, so how would you approach and set that cut‑off point at which the information needs to be supplied? Lots of very small manufactured items are exported from the United Kingdom every day, and goodness knows whether they should strictly require an export licence because in the future they might be used as a component for a military product. The principle of what the policy is about we all appreciate, but have you any further views about the practicality of policing component exports? Mr Cairns: To be honest I do not think we have a clear answer to that and it is a difficulty which we all need to grapple with, but we would all agree that there are some things like triggers in small arms that are well above that threshold. Q89 Mr O'Neill: On components you were asked for examples. You quoted Pakistan and you said because it has ambitions to have a high tech economy, a manufacturing economy, there is a prospect that they might be able to sell stuff, but you could not give us any examples. In the case of Turkey, you said there was a British owned company where British components might have been used but not definitely in the guns that were sent to Indonesia. As far as Singapore was concerned, you said that Singapore does not have very tight controls over re‑exporting goods so they might end up in difficult places, but the sum total of that is down to 500 guns and even then it is not quite clear. You make one assertion and you make two vague conclusions, but does that add up to a case for what you are asking? Mr Cairns: Are we not all in the same position that we none of us can make very firm conclusions on the basis of the information the government currently provides, and that is why I said that until we get to the level where the reports provided to you and the rest of us by the government get down to the detail of precise type, number, destination, purpose ‑ spare parts or whatever, none of us will be able to answer that kind of question. Mr Parker: The guns did go from Turkey to Indonesia at the height of the East Timor crisis. They were United Kingdom made guns under licence. Another example would be the Land Rover factory set up in Turkey which again shows the point that the Chairman was raising that 80 per cent of the parts that make up the Land Rovers are civilian so do not require an export licence, but then the final Land Rover we had evidence was being used to commit violations in Kurdish villages and such like. Q90 Mr George: It is still very weak evidence. The Defence Committee went to the Turkish company, MKEK; we have heard a great deal about it; it is an incredibly reputable company linked to all sorts of reputable international companies, very well organised with very close scrutiny through the licensing process which we asked about, and I would not want the impression given that any Turkish company is somehow, by definition, illicit or engaged in undesirable activities. All we are saying is you are three very reputable international organisations with links all around the world, with links with journalists who are investigative, and so far we are not hostile, we are just saying that the evidence is really a bit thin. You made some complimentary remarks towards the government but it seems to me almost anything that can be used for defensive or offensive purposes would fall within your purview and condemnation, and the bureaucratic nightmare that is going to be established if widgets that might be used in a Turkish tank somehow may be subject to a licensing process will make the task of looking after the real bad guys, of which there are many, absolutely impossible because the machinery is going to be chasing after things that might form part of hundreds of thousands of bits that go into a major piece of military equipment. So do you not think, unless you can find a little bit more evidence and focus more on major systems rather than the minutiae of subsystems, that yourselves and we are going to be chasing in directions which are not going to lead us to dealing effectively with the kind of people we almost all want to deal with. Mr Isbister: I would say that is an argument for why the government should introduce a system of licensing licensed production deals because then you are looking at the macro level and you are not focusing so much on the micro level, and then licensing of components that form part of that licence production deal become far more simple because you are looking at them in terms of "Here is the deal, this is the production level we have set, is this export consistent with the licensed production deal?" It would seem to me that if this is handled well this could make the whole system of licensing and dealing with components simpler. Q91 Mr George: On trafficking and brokering, how effective do you believe the government's new controls under the Export Control Act would be as a response to the changing nature of the world's defence industries? Following that, have your concerns changed at all since you gave evidence to us a year ago? Mr Isbister: We have gone over this before and I think our concerns are pretty much the same. Obviously the legislation has not entered into force yet but will very soon, so we have not had a chance to see how it works in process. We would still maintain the same arguments if the government asked for evidence of past examples of where the new legislation would not work, and our response to that is it is very difficult to find because brokers at this stage have no reason to shift offshore to conduct their operations because they can do it legally in the United Kingdom. I think we would maintain those same arguments. I think there is a more detailed issue which as I understand has still to be settled which is "When is a deal a deal?", and in evidence that the Secretary of State for Trade and Industry gave, at one point he was saying "Don't worry, the broker will be captured as soon as he picks up a phone" and that was in the context of a rogue broker operating out of a hotel room, but later on when she was talking about what is going to happen to somebody working for a legitimate company who gets a request that they cannot help with but they can suggest somebody, she was saying "Don't worry, that's fine, that will not require a licence", and it is not clear to us how you distinguish between those. The law does not seem to distinguish between them, and I know that the defence industry has concerns about this as well, and maybe when you speak to them you can go into that in more detail. In terms of the international environment and with the war on terror, however, this makes the need to crack down on the activities of brokers even more urgent, because for terrorist organisations we would anticipate that it will be through the use of brokers that they will be getting access to small arms, light weapons and manpower, etc. Q92 Mr George: On the EU Code of Conduct on Arms Exports, do you have concerns about how different EU Member States interpret the EU Code of Conduct in their licensing decisions? Mr Parker: Yes, we do. Q93 Mr George: And I will come on later on newcomers. Mr Parker: As the Foreign Secretary said when he was giving evidence to this Committee, and I am paraphrasing, you can read the EU Code of Conduct to allow you to sell everything to everybody or nothing to nobody, and so, as the first multilateral arms regime of this nature, it is hardly surprising that there have been difficulties with its scope and interpretation. When you look at some of the terminology and the criteria in detail, you can find it is not surprising why Member States interpret them differently. For example, Criterion 3 takes about two and a half lines to talk about the internal situation of a country. Now, how someone is supposed to come to an informed decision over whether or not to export to that country on that basis I do not know. There are three on‑going internal conflicts in Indonesia yet the United Kingdom still exports military equipment there and, as this Committee has previously noted, if the situation between India and Pakistan does not invoke Criterion 4 about regional stability, then what does? There is also no accepted definition of things like internal repression, so states have to decide whether or not there is a clear risk that their exports will contribute to internal repression, and yet states choose a different definition. Some choose a narrow definition involving small arms and so on, but if you look at the example of China there may be a military arms embargo but states are still supplying electronic surveillance equipment and so on and Chinese authorities are using that technology to crack down on political dissidents. Similarly, in terms of internal repression, Amnesty has argued that because of its record of extra judicially executing more people than any other police force per capita, there is a clear risk that exporting hundreds of hand guns to the Jamaican constabulary may contribute to internal repression, yet the UK government has taken a different interpretation of that criteria. There is no working definition of sustainable development, but I will gladly defer to my Oxfam colleague to say more about that. Mr Cairns: Briefly, there is a similarity and a difference. The similarity is that, to my knowledge, no EU country at all has rejected a licence on the basis of sustainable development six years after the Code was agreed, so it does not seem to be working. The difference though is that some governments take it more seriously so at least in the United Kingdom there is a list of 80 countries and on those in certain circumstances DfID is asked to comment on those licences, but still the proof is in the pudding and no licence has been turned down. For solutions there have to be far more precise and workable guidelines to help licensing authorities, and again the United Kingdom comes out of that quite well because DfID is leading a review within the EU to get that criteria out. Q94 Mr George: In your submission you told us about the changes you would like to see in the review being undertaken on the EU Code of Conduct. You have mentioned some of your priorities. Do you all agree with the priorities, bearing in mind you might have a wish list but politics I am afraid does not always translate those into reality. Could you name a few of what you think the priority changes ought to be in addition to those that have been mentioned? Mr Isbister: Yes. The criteria are key and part of that is because of expansion. Are you coming back to that? Q95 Chairman: Yes. Mr Isbister: I will not deal specifically with expansion now but the subject of criteria is one of the key issues. Annual reporting is another key issue and that is particularly with the new countries, and so one of the United Kingdom's priorities is to make public annual reporting obligatory and we think that is very positive. They have also talked about certain minimum standards, which again is a very positive move. Those minimum standards, of course, should not be minimal standards and we would like to see those contribute to a raising of the bar in annual reporting and not setting a very simple hurdle. Another area which is quite key is about other ways in which harmonisation of procedure and decision‑making can be enhanced, and part of that would involve capacity building. There is a big issue with some of the smaller countries, new and existing EU Member States, who have a real capacity problem. They do not have a diplomatic presence on the ground so they often find making decisions about certain countries very difficult. There are information exchange mechanisms in place, and we think those could be significantly enhanced. There could be registers kept of brokers of concern; of instances of end‑use of concern that everybody could access; there could be provision made for one of the small countries to ring up one of the big countries, France, the United Kingdom, etc, to ask for advice; there could even be assistance provided in country by the diplomatic representation where one EU member country has it and another does not. Those are some of the key issues that we would like to see addressed. Q96 Mr George: If there is a league table of countries in terms of lassitude and the opposite in terms of arms exports, where would you put the United Kingdom? Friendship in terms of lassitude, or Beazer Homes league, or what? Mr Isbister: I could not possibly say! One of the issues is transparency where we are asked for evidence. We cannot provide the evidence you are looking for because things might be happening, they might not be, but the evidence is not made available. Q97 Mr George: But from the information you have are we more lax or less lax than others who export arms? Where are we? You must have colleagues like yourselves everywhere. How good are we? How bad are we in terms of our objective? That is a simple question. Even President Bush could answer that! Mr Cairns: On Criterion 8, because at least we take it seriously even though I think it is worrying there is no evidence of a licence refused just to prove how serious we take it, the United Kingdom is clearly at the top end. It is not going to drop seven to go down to the third division. Q98 Mr George: That is a poor response to a very simple question. You picked one criterion. On transparency there must be 10, 15 or 20, so maybe the next time you appear before us you can try to see ‑‑ Mr Cairns: I was thinking of the development criteria. Chairman: The evidence that the Committee has had in the past confirms that the United Kingdom has never refused a licence on Criterion 8 but we have been advised that other EU countries have. Where that puts people in Bruce's league tables I do not know, but there is clear difference of practice. Q99 Mr George: Perhaps you could do a little bit of research on that, and it would be helpful for yourselves. On newcomers, and I asked the same question of the Foreign Secretary, how worried are you about the ten new states coming into the EU very shortly, in terms of their standards of licensing and export controls? Mr Isbister: I could maybe think of one other answer to your previous question. For the first time in the evidence session the Foreign Secretary gave we received information about undercuts, and I have never seen information on this before. The United Kingdom said they thought there were about 15 undercuts a year which is about 25 per cent of denial notifications, and the United Kingdom itself issued a licence on five occasions where it entered into a consultation, which again was 25 per cent, so on that basis the United Kingdom is coming in about average on the way it is interpreting criteria. On the new countries, just the fact that we are going to 25 countries instead of 15 clearly complicates matters, for example, on interpretations but I think there is an additional factor because some of those countries come from a very different tradition of export control. From discussions that we have had with officials from a number of the accession countries, those officials in some instances feel at a bit of a loss as to how they are supposed to apply the criteria. The Member States might have a difference of opinion, etc, but they seem to address it with more confidence that they know what they are doing. So I think there are significant issues there. There are issues of capacity in that these are states which are generally not as wealthy as the existing Member States, so in terms of pooling that can impact in two ways. It can impact in terms of resources they have available to put into export control and it can also increase the economic pressures on them to issue a licence where discretion might be the better part of valour. Another issue on the new members is that in terms of the support that has been given we are quite disappointed by the level of support that has come from EU Member States. The United Kingdom has held two seminars on the criteria, which on that issue is more than a lot of other states have done, but in terms of preparing a state for this whole instrument, two seminars to which one or two people who may be from different countries are going does not seem like an awful lot and, again, the Member States themselves are quite frustrated by what they regard as the lack of support from EU Member States. Some have said they have more support from the US than they have had from the EU which seems a bit strange. Q100 Chairman: Finally, on the EU arms embargo on China, there is some debate about whether or not it should be relaxed. Mr Parker: Amnesty is not saying lift it or keep it. What we are saying is, having put it in place on the grounds of human rights and internal repression, these should be the benchmarks against which any decision to lift it or keep it is taken. I will not go into the human rights situation in China because it has been very well documented. Suffice to say that the use of the death penalty is still widespread, with torture, unfair trials, repression in Tibet and elsewhere, and there has been no investigation into the events of 1989 crackdown which led to the imposition of the embargo ‑‑ Q101 Chairman: I understand that but very quickly, because of time, some would say that if we are talking about human rights concerns there is Saudi Arabia, and there is no EU arms embargo there. Talking about proliferation you mentioned Pakistan, and there is no EU arms embargo on exports to Pakistan. Some would say that China is being treated relatively harshly by the European Union in comparison with policies towards other countries that are human rights abusers. Mr Isbister: Our response to that would be, and in our audit we mention it on a couple of occasions, that the use of embargos could be used more widely. The answer to this is not to turn round and say that you lift the embargos that exist because in the league table of the recipients somebody is above somebody else, but you should ask whether there are other areas where maybe tighter restrictions should be put in place. Q102 Mr Blunt: Can I ask about end‑use monitoring? Before coming on to what the government's role might be, how effective do you think NGOs are at end‑use monitoring and highlighting inappropriate use of weapons in countries around the world? The informal system? Mr Cairns: We would not see ourselves as major players in that, for obvious security reasons. Because Oxfam has so many staff exposed in more than 100 countries it really would be very damaging for their personal security and the security of our programmes if we were seen by combatants in these conflicts as monitors, so we do not see ourselves as players in monitoring the end‑use in that sense. Q103 Mr Blunt: I understand that but I am asking about the informal effectiveness of a very large number of NGOs, particularly development NGOs, around the world in many of the trouble spots. How good are they at identifying, for example, the business in Indonesia and all these other examples about what weapons are being used by the resistance army in Uganda and all the rest, and at producing the intelligence for the media who then bring it to the world's attention that these abuses are taking place and where these arms are coming from. How effective is that informal system do you think, or is there a vast amount that is simply never seen? Mr Parker: They are I think very effective at reporting humanitarian consequences but not at reporting what types of weaponry are being used, simply because the expertise does not exist necessarily out in the field to identify weaponry. On many occasions also people may be under fire so it is difficult to try and identify the vehicle or the type of weapon that is being used. We are trying to encourage the training of NGOs who work on the ground, when they visit the scene of a violation, to look around for evidence and pick it up and note down serial numbers and report back. We are also producing handbooks for journalists who go out to war zones and other human rights crisis zones to look at them with a critical eye, but the majority do not look at it like that. Q104 Mr Blunt: I understand, but there is obviously a considerable amount of time to accumulate evidence. I was just asking whether you have an instinctive feel for whether the NGOs and the media are producing the evidence back to countries. My impression is that the United Kingdom is the subject of great sensitivity; one only has to look at the whole history of the existence of this Committee, the Scott inquiry, and the fact that these are matters of very significant concern in the press. I instinctively think that the United Kingdom informally, the NGOs and the media are quite good at this, it being an issue of significant public concern. Do you agree, or do you think that in a sense the informal monitoring system is missing quite a lot? Mr Isbister: Some is done, and probably more could be done, but there is also a frustration about how that is met by government when it is produced. If you use Indonesia as an example ‑‑ Q105 Mr Blunt: That is not what I am asking. I am asking about getting this into the public domain and it being an issue of public interest and controversy. How good are the media and the NGOs, the non governmental elements, at raising public concern about this? I think you are quite good. Do you? Mr Parker: It is too much of an ad hoc piecemeal approach to be able to say that it is good and I think what Roy was about to say was that when some of this evidence is produced it hardly ever gets you anywhere so it puts people off. Q106 Mr Blunt: The government's principal argument against introducing a formalised system of monitoring such as the American Blue Lantern programme is that that does not really work. Do you think such a formalised system can be made to work and, if we have one, who should pay for it? Mr Isbister: The second question is a good one! On the first one, I do not think it would ever be completely effective and I think that is a frustration as well, that the government builds a straw man of an end‑use monitoring system that we are not talking about. We see it as one of the measures you would use to try and limit the amount of misuse of arms that goes on rather than stop it with that. If you have a system in place you are likely to have more effect than not, and if you look at the Blue Lantern system and the investigations they do, I think around about 25 per cent of them per year approximately turn up a negative response which would suggest that those cases are ones that would not have otherwise come to light, so then you can try and do something about it. Also, because you have the US taking this seriously, if you then lump in the United Kingdom introducing some kind of similar system along with other EU Member States, which is going to be another 24, then you are starting to build up a far bigger stick with which to beat the misusers of arms, especially if you can turn this into a case of "If you misuse the weapons we are exporting then not only do you risk future export licences from us but from all our EU partners", and, if you could do it, you should also get the US involved with this kind of process as well. So what I mean is that if the United Kingdom has a problem with end‑use they pass that information on to all the other EU Member States and to the US. Q107 Mr Blunt: I am asking you a process question really about how effective you think a formalised system would be. The government says that in the American system the evidence does not support that we should go down that route with such a formalised bureaucratic structure in the way they do it. Mr Isbister: I would have thought it should take place because you will have an effect. You will not wipe out all problems, but you will have an effect. On the who‑should‑pay‑for‑it side of things, I cannot say I have really thought of that but I would have thought that if the state is taking responsibility for ensuring or doing its best to ensure that arms do not end up in the wrong hands, then the state should be willing to take on the costs involved with that. Chairman: I think we will leave it there. Thank you very much indeed and thank you for your written evidence. We are always grateful and no doubt we shall meet again in the near future. Witnesses: Mr David Hayes, Export Controls Compliance Manager, Rolls-Royce plc; Mr Tim Otter, Vice President, Business Development, Smiths Detection; Mr David Balfour, Director, SABRE Ballistics, and Mrs Susan Griffiths, Export Control Manager, MBDA UK Ltd, examined. Q108 Chairman: Good morning. Welcome. Thank you for your written submissions which we appreciate very much. Mr Hayes, would you like to introduce your colleagues and yourself and then we will get down to business? Mr Hayes: Thank you for the invitation, gentlemen. My colleagues are Mr David Balfour, a Director of SABRE Ballistics, an SME in the defence industry; Mr Tim Otter who is with the NBC Defence Working Group and Vice President of Business Development working for Smiths Detection; Susan Griffiths, the Export Compliance Manager for MBDA particularly in relation to the restricted goods aspect of joint controls, and I am the Chair of the CBI Working Group on Export Controls, a member of the Exporting Licensing Group of the DMA and the Export Compliance Manager for Rolls‑Royce. Q109 Chairman: Thank you very much indeed. We will try and keep our questions brief and to the point and we would appreciate it if you could keep the answers similarly brief and to the point. Could I kick off with the Government's recent review of the export licence application system, the JEWEL review. How effective has that review been? Mr Hayes: The review of the export licensing system and the improvements to the export licensing process? Q110 Chairman: Yes. Mr Hayes: From an industry perspective that has been quite effective particularly in respect of the FCO and the improvements that we have seen there in licence turnaround. There has been a marked improvement in licence turnaround in the FCO and they are to be congratulated. Q111 Chairman: Have there been any other improvements apart from turnaround? I know that is pretty fundamental. Has that been the main benefit? Mr Hayes: Yes. Q112 Chairman: What can you tell us about why the number of appeals that companies are making against licensing decisions has increased substantially in recent years? Is this because outrageous decisions are being made by the controllers initially or is it more companies having a go? Mr Hayes: I am not sure that it is an across the board increase in the sense that if you look at the particular countries you will see that the actual percentage in terms of appeals and refusals has remained fairly constant, it has increased slightly but it is a less marked increase. If you look at some of the actual processing, the figures for 1997 are one refusal for dual use out of 110 applications, and moving on to 2000, there were three refusals out of 194 applications, so it has gone up from 0.9 to 1.5 per cent. By 2002 we get to 84 refusals, 67 of them military for 24 applications processed, that is 34 per cent and it is particularly in relation to Israel. It is that sort of statistical glitch which is distorting the overall picture. Whilst there has been a small increase, I think the overall picture has been distorted by certain aspects of foreign policy. Q113 Chairman: Industry presumably wants a high degree of predictability in the system; you need to know where you are. How close are you to feeling that you are getting that from the system now? Mr Hayes: In some senses we are perhaps moving a little away from it. The Foreign Office had adopted a policy of having nominated contact points to which industry could refer if we were encountering difficulties with export licence applications being processed, but they are moving away from that position now and that is regrettable. Having said that, the general improvement in turnaround and their willingness to engage with industry in seminars are to be welcomed, but the overall picture in relation to certain countries is one where the picture is becoming less rather than more certain. Q114 Chairman: Can you give us examples of British companies that you feel have suffered unreasonably as a result of the bureaucracy of the system? Mr Hayes: On that point I would refer to my colleague, Mr Otter, as he has got more examples than I have on that issue. Mr Otter: There are a number of segments to the answer. Firstly, I have a member ‑ and I am actually treading on difficult commercial ground here because there are a number of court cases that are still to be resolved ‑ and that particular company, which was in financial difficulties anyway, it was a privately owned company, took one look at the emotional and administrative effort that was required to introduce the new export licence system and said it was not worth it, the two major shareholders have pulled their money out of the company and 50 people are now redundant as a result of that. If I was to give you a second segment, last week I was at an exhibition in Malaysia and I sat down with my German competitor - this was a direct company to company discussion - and we compared the German export licence regulations and the British export licence regulations as they would be in about a week's time and what I found is that our bureaucracy is so much greater than theirs, it is unbelievable. Their system is so much more simple to operate than ours will be. Q115 Chairman: Is it the system that is different rather than the policy decisions? Mr Otter: I think it is a bit of both. Q116 Chairman: Mr Hayes, you referred to some countries where there are problems, delays, lack of predictability. You mentioned Israel as one such country. Could you name the other countries where industry has experienced particular difficulties or delays? Mr Otter: Egypt, India, Pakistan, China. Chairman: That is helpful. Thank you very much indeed. Q117 Mr Davies: Mr Otter, you said something very significant, which was that the Germans have a more efficient or a lighter bureaucracy in dealing with this and although there may be no policy differences, the implication is that we have a cost handicap as a result of our system being more onerous. Is that what you are saying? Mr Otter: Very much so. Q118 Mr Davies: I would like to know specifically in which ways the German system differs because there may be lessons that we should be taking on board here. Mr Otter: There is a simple one that springs to mind immediately. If I take equipment from my company to an exhibition overseas I need a temporary licence and very frequently it does not arrive in time so we are left with a plinth with no equipment on it. The Germans do not need a licence to go to an exhibition, all they need at the very most is some temporary documentation to take the equipment out of the country. Q119 Mr Davies: That is one example. Have you any more? Mr Otter: Some of the countries that we would not be allowed to export to they are exporting to. Q120 Mr Davies: That is a policy difference. Any other procedural differences? Mr Otter: The amount of forms and record keeping that you have to go through. Under the new regime our record keeping is much more onerous than theirs. Q121 Mr Davies: Would you be willing to give us a brief written list of the salient differences between the two systems and some indication of the cost implications of that for British industry as against German competitors? Mr Otter: Yes. The other one is the training that the new system has already brought into play. Our estimate as a company is that at a minimum just the initial training has added two per cent to our overheads. Q122 Mr Davies: When our new system was being reviewed by the Government last year did you make submissions suggesting that we adopt the German procedure? Mr Otter: We made several suggestions over the whole period of this consultation suggesting a number of ways in which the implications of what was actually coming into force could be reduced. Mr Hayes: I think another point that is worth adding there in terms of additional burden that is about to happen to the UK industry is Articles 8 and 9 of the new Export of Goods, Transfer of Technology and Provision of Technical Assistance (Control) (Amendment) Order places controls on the end use, on the transfer of software and technology by any means if that technology is for any relevant use, which includes NBC defence, and is intended for use outside the EU. The net result of that is that in future if someone in the NBC defence field wishes to talk about the technical aspects of a system with our own MoD on the basis that presumably our own MoD are not going to engage in the war within the EU, then they will need an export licence to talk to our own MoD. Conversely, the controls purport to apply to the activities of any UK person transferring data from a place outside the European Union, but if you look at the definition of transfer within the regulations, transfer applies to an activity which takes place in the UK. So it looks like we have missed the intended target and placed a burden on the industry for no gain. Q123 Mr O'Neill: Mr Hayes, your company operates in a lot of countries. We have heard about the German example. Have you had any experience of the comparative difficulty there is in dealing with the UK system as of next week as against any of your other operations in Canada or worldwide where you might be manufacturing and exporting? Mr Hayes: Yes. It is difficult to comment on the practical impact of the new system because we are not actually living with it yet so a lot of that is expectation. Everyone accepts that currently probably the most burdensome export control system in the world is that of the United States and a US attorney colleague did make the comment that at least now the ITAR would not be the worst system. That was an American view, not mine. Q124 Mr O'Neill: Small consolation! Mr Otter: We have offices in the United States and my British colleagues in the United States are saying, now they have had the training, that the US regulations are a doddle compared to the UK regulations. Q125 Mr Evans: Mr Otter, you mentioned that Germany exports to certain countries that we do not. What are those countries? Mr Otter: Certainly Egypt, Israel and the French have a different approach to the way they classify ‑ and I am specifically talking here about my own company's detection equipment - the equipment. If it is green it is military so it goes on the military list and it gets military licences and all the rest of it. If it is blue it is for civil defence, it is identical but it is blue, not requiring a licence. Q126 Mr Evans: On the red tape that you talked about, which obviously generates additional expense for British companies, giving a competitive advantage to Germany and perhaps some other countries as well, are you able at any stage to work out exactly what that cost is to British industry? Are we losing any orders because of the competitive advantage to other countries? Mr Otter: I think we have really got to try and implement the new system first to get a definite answer to that, but already, as I indicated earlier, just the training activity up to now has added two per cent to our overheads, which is a huge amount and we strive to shave out 0.1 of a per cent against our overheads and to suddenly have two per cent lumped in is considerable. We do not know how much activity we are going to have to be involved in in relation to the record keeping for instance. However, suffice it to say, my extremely well mannered and very well brought up lady secretary was heard to curse as fluently as I can when I came back from a trip to Malaysia, the Czech Republic and Slovakia last Friday and said, "Here are the visit reports. This is what you are going to have to do to comply with the recording requirements". There are something like 57 meeting reports that have now got to be entered into the system, someone has got to manage that system and someone has got to look at that database to make certain that I am complying with the various licences that are in place. It would be very difficult to quantify immediately, but my guess is we are already at a serious competitive disadvantage. Q127 Mr Blunt: Two years ago you gave evidence to the Committee and you said that "For the most part companies now appear to be much more relaxed about the practicality of complying with the new regulations, although on the roadshow we did occasionally come across some who views differed from this generally positive line (including one company at the Exeter briefing who asked: 'Does the DTI realise the complete paralysis of all commercial activity here in the UK that will result from the imposition of these draconian controls by the British Government's thought police?')" You then said such views were in the minority. I get the sense from the evidence you are giving to us now, having had to come to grips with the detail that you are now going to have to implement in ten days' time, that that company would now represent the majority. Mr Otter: I think somebody once said a week is a long time in politics. Two years is an eternity! Q128 Mr Blunt: You had a number of concerns when you last came before us. Which of your concerns have been allayed and how much worse is the problem than you actually anticipated it would be a year ago? You have given us evidence that a two per cent overhead is an extremely serious competitive disadvantage as is the unknown future burden of record keeping and all the rest. If we now have the worst system and a more bureaucratic system than the United States this would appear to be something of a disaster for an extremely important United Kingdom industry, would it not? Mr Otter: It will be. The biggest shock to us, and it only really came to light in January when we held an NBCUK meeting and we invited the DTI to come along, the implementation team briefed us and we had done quite a lot of homework, is that Article 8.1 does now require us, if we do not have a contract in place, if we have a new technology, to acquire a licence from the DTI to talk to our own Ministry of Defence. I think that was the biggest single body shock. There are lots more that have come out of the woodwork as well. Q129 Mr Blunt: You have identified the absolute absurdity of this if you follow the rules appropriately and presumably the MoD or the DTI will then say that is obviously a manifest absurdity and address it, I assume that would be the reaction of the Government. What I want to understand is just what the scale of the competitive disadvantage is to an industry that employs possibly hundreds of thousands of people in the United Kingdom that we are now imposing on them from 1 May? Mr Hayes: I think you can divide the answer to that into two parts. Across the defence industry generally the impact is one of a need for training and most of industry has opted for a combination of computer-based training and classroom training, the classroom training probably lasting for one full day and for large numbers of employees. We thought at 1 November when we started to design the training we were designing against a known specification that the Government had provided us in the form of the legislation, but that is far from being the case, the goalposts are moving constantly. The DTI is almost at individual meetings taking different interpretive lines on the new legislation. We now think we will need to put large numbers of employees through possibly up to five days of training so that they understand their obligations under this new legislation. That is across the general run of the defence industry. If you then move into the areas subject to more particular controls such as the restricted goods and MBDA, on the trade controls or into the NBC defence world of Mr Otter then the controls are all the more rigorous, there are more absurdities along the lines of needing a licence to talk to our own Government and the need is consequently greater in those areas. So there is that separation, but the burden is greater than we anticipated across the board because of the vagueness and the wavering interpretation. Mr Otter: If you look at the list that Britain has provided for the number of licence applications, it pans out to about 9,000. We reckon if we apply, just on my own company, the licensing regulations as they are written and with absolutely no deviation from that we will need in excess of 100,000 licences. The way that we have tried to overcome this is to engage with licence unit 3 and Mr David Whitehouse runs that and he has been extraordinarily helpful in trying to find a way through, but maybe we have reduced it from well in excess of 100,000 to about 90,000‑odd licences and those are just figures I pluck from the air, it is of that order of magnitude. What we are actually saying is that one of the mechanisms that we thought we were going to be able to apply was to do a letter licence at the early stage of business negotiations to allow us to transfer information and technology backed up by the 680 application, but unfortunately close reading of that means you still need an individual 680 for each of the products, each of the countries and each of the customers in the country, so you still have the same number of pieces of paper involved. We just cannot seem to get that number down to a manageable number. Q130 Mr Blunt: I am afraid I have not had five days training so I do not confess to understand the system you are trying to operate. What views do you have on how effective this new system will be in helping to curb undesirable trade in military equipment? Mr Hayes: I would emphasise the attempt to impose controls on software which would appear to be defeated by the definition of transfer in terms of its extraterritoriality. It is also defeated by the definition of software because software is designed as being fixed in a tangible medium, therefore whatever you transfer intangibly by definition is not software. Article 11 of the Order actually introduces exemptions, "for nothing in Article 3 or 4 shall be taken to prohibit the exportation of any aircraft which is departing temporarily from the United Kingdom on trials". There is a similar provision for vessels. I can assume what the intent is, it is to allow aircraft to depart, to fly out of the territorial aerospace and to come back, but that is not what it says. There is not even a restriction on the parties to the transaction. Therefore, the trade controls, in theory, can be defeated by a broker who brings platforms, whole aircraft, whole vessels into the UK and they are subject to trade controls and then purports to export the same vehicles or vessels for trial temporarily. There is no definition of temporarily. There is no restriction on who the trials can be done by. Industry will, as legitimate industry does, play by the rules, but the aim of the legislation was to catch those whose intent is not to play by the rules. Q131 Mr Blunt: You anticipate that from 1 May and already from the training you have had to go through our defence industry will be carrying a significantly competitive disadvantage compared with similar nations. Mr Hayes: I would emphatically agree with that, yes. Q132 Mr George: I presume the DMA is collating all of the evidence for transmission to central Government. Has it sent it yet or is it going to send it? Mr Hayes: We will be sending it. Q133 Mr George: May I ask if perhaps a copy of that could be sent to us because we do not want to wait until next year before action is taken if it is a twentieth as bad as he has been talking about, we should be reviewing it very quickly? Are you able to give us any examples of where the British Government's interpretation of the EU Code of Conduct and of embargoes has been stricter or more relaxed than that of other EU Member States? You have touched upon that. Have you anything further to add? Mr Otter: It is difficult to say whether it is the interpretation of embargoes or whether it is policy, but it certainly also applies to the issue of people undercutting. I heard the NGOs talking about undercutting earlier on. I have member companies who have had licences for equipments in India and Pakistan turned down and the French have taken that business virtually by default and in some cases the length of time in granting the licence required meant that they lost that business. I do not know whether it is an interpretation of the EU embargoes or the EU policy or whether it is the British interpretation of that. There is a similar one with Belgium exporting to Israel. I used the example of what is licensable and what is not earlier on. I think virtually the whole of the EU is more liberal in its interpretation than the UK is. My own company has suffered as a result of refusals to Egypt and Israel being picked up by French, Finnish and German companies. Q134 Mr George: So these are not hypothetical stories we keep being told about. Mr Otter: These are real ones and they hurt. Q135 Mr George: Has the DMA been collating information of this kind? Very often those who are not quite as obsessed about arms exports as others and with the deficiencies of the system would say, "Oh, well, the French will always pick up the contract if we do not take it," that is a line that many people are obliged to argue. There is sufficient evidence to show that the undercutting is serious, which means that our system is being enforced more seriously and others should be catching up with us as opposed to ourselves dropping down to their level. Mr Otter: Some of these only came to light yesterday because I actually chaired the meeting of our association yesterday. Q136 Mr George: It would be immensely helpful to receive any evidence there might be. Can you tell us more about how different countries interpret the Code of Conduct when granting or denying licence applications? You have touched upon it. If there is more evidence that would be quite helpful to us. Mr Otter: Sure. Q137 Mr George: What amendments to the EU Code of Conduct would companies like to see as a result of the proposed review due to take place in 2005? Mr Otter: Speaking purely for the NBC area and the defence industry and its weapons of mass destruction, I would like the definition that includes detection and identification, equipment and handling equipment of weapons of mass destruction to be reviewed because you cannot defend against a weapon of mass destruction if you do not have the equipment that allows you to handle it or detect and identify it. Those are serious impositions on industry. The DTI are perfectly open to the fact that my own company, Smiths Detection, has been hit harder than any other company as a result of this. Q138 Mr George: Why should that be the case? Yours is a purely defensive system, is it not? Mr Otter: Yes, and we do detection identification equipment. Q139 Mr George: Would there be similar cases in other areas of the DMA of changes that you would like to see that might be beneficial, Mr Hayes? Mr Hayes: Overall I think the Code of Conduct works fairly well. We have discussed the differences in interpretation. I think anything that could be done to increase the standardisation of that interpretation would be a benefit and may lead to the achievement of perhaps a slightly more level playing field. 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 munitions of a chemical welfare agent. 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 D-mil 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. Q160 Chairman: Would there be a problem if, for example, in the annual reports the Government were to identify end users as private individuals, the government, the police, whatever? Mr Otter: Under the new system the licence will pick that up anyway. Q161 Chairman: So it would not be a problem? Mr Otter: Under the new system certainly in our field the licence would pick that up anyway because you would have to specify the end user. Q162 Chairman: But all the information that you supply to secure a licence application is not published. Mr Otter: I accept that. Q163 Chairman: I come back to the point that in arms export control policy end use is everything, it is the be all and end all of the exercise otherwise it is futile. Mr Otter: I think there would be a lot of countries who would be really rather upset if it was known what their security measures were. Mr Balfour: May I cite an example? We have a project for a police force that will have to cope with the issues of an Olympic Games in the future and certainly we have secrecy clauses and even though it is back a little while, it comes back to their concerns about publicity, we have no problem with telling our Government but we have been asked not to reveal that as public knowledge. Q164 Chairman: A general category like government or a private individual or police, this is not drawing attention to the problems of protecting the Beijing Olympics or whatever, would not a general category description of that kind be useful? At the moment it could be argued that because this is not in the public domain and because end use is all that matters our system is not as transparent as perhaps some other countries. Mr Hayes: I think it may be of limited ability for the reasons that I referred to earlier. There is a growing tendency now in global manufacturing to go to low cost suppliers and if we export a casting that is part of a military system to a low cost supplier to carry out some work and they carry out the work and it comes back, that would be shown in the statistics as a permanent export of a military component to that country when the reality is something quite different. So it may actually distort rather than improve the picture. Q165 Chairman: I certainly understand issues of commercial confidentiality. I do not know exactly where that bites but I appreciate the problem. I appreciate the problem that you do not want to send messages to people who should not receive them, but there is a particularly vulnerable target, I appreciate that. I come back to the point that the system is supposed to be about end use and it is supposed to be as transparent a system as is reasonable. Is there more information you think could be published that would give people information about end use without putting at risk the concerns that you have raised? Mr Otter: Let me give you what I think is the better answer to the question you asked before. On a number of instances you get asked to supply small numbers of equipment for technical or operational trials. If that licence then said it is being released to the government in that country and your competitors, who you have perhaps outdone and got the order ahead of, then see that you are active in that country, they will then target that country or that organisation. When you have got the final contract, yes, great, you could probably publicise it, but if it is at the early trial stage and the release of equipment for trials and operational tests, I think there will be issues there. Q166 Chairman: Mr Hayes, you referred to the Government's current policy on end‑use monitoring. We have had some quite interesting discussions with Government on what this policy is and we have had a certain shift in emphasis over the years in the sense we are told there is more now than there used to be. Your comment was that it seemed to you a good system and you compared it to the Blue Lantern system in the States. What do you think the Government should do in relation to end‑use monitoring? Mr Hayes: Some of it they obviously do not disclose to exporters for obvious reasons. Q167 Chairman: You said you thought the system was working well. Mr Hayes: We do know from records that they use diplomatic staff in posts to check on end‑use monitoring, they do check on particular end users in certain destinations, they carry out physical checks on addresses should they deem it necessary before licences are issued. That is just the activity we know they undertake. Chairman: That is helpful. Do any of my colleagues have any further questions? If not, may I thank you particularly for your presence this morning; it has been extremely helpful to us and also for your written submissions and your on‑going dialogue with this Committee. Thank you very much indeed. |