Examination of Witnesses (Questions 40
- 59)
WEDNESDAY 15 DECEMBER 2004
MR DAVID
HAYES, MR
TIM OTTER,
MR MICHAEL
BELL CB AND
MR BRINLEY
SALZMANN
Q40 Mr Williams: Mr Otter, this is
yours.
Mr Otter: Very simply, having
made what were some pretty straightforward and severe allegations
I thought it was incumbent upon me to prove them, so very shortly
thereafter when I was in Germany I used one of our subsidiaries
to phone the German Government and get a temporary export licence
for equipment over the telephone that I would have to get a written
export licence for in the UK. I hope that I have got other colleagues
who are doing just the same at the moment to get yet more.
Mr Salzmann: The case in question
was for the temporary export of nuclear, biological and chemical
warfare equipment to Qatar.
Mr Otter: It was a temporary licence
exactly, as I said in my evidence, over the phone from the German
Government.
Q41 Mr Davies: And you got it?
Mr Otter: I got it, even with
my pretty hesitant German, I have to say.
Q42 Mr Evans: We could be here all
day, frankly, just going through point by point and we have not
got the time. I think it is important for us to be able to at
least hear properly what you have got to say because you have
brought new evidence to say the Government is talking rubbish
because you have proven that you have been able to do what they
say you cannot do. It is important that you at least supply us
with some information so that we are able to go back to the Government.
You will not be able to do it all now verbally but at least give
us some written submissions to be able to have a look at some
of the things they have said because mostly they say on things
like Britain being more severe on the Chinese embargo, where is
the evidence?[5]
They say that you came out with a lot of stuff but there is no
real evidence that you were able to produce that what you have
said is true. You have now been able do that on temporary licences
in Germany and there may be some other things that you will be
able to write to us to say the Government have got it wrong and
that they are being hoodwinked by either the French or the Germans
and we are more severe.
Mr Otter: I am quite prepared
to do that. The other thing that I think is new since we talked
last time is I have gone round all of our international representatives
overseas that I was able to in the time that was available and
I have compared and contrasted their experience of being on the
receiving end of the French, German, US and British export licence
regimes. The general consensus of 10 of the 12 people I managed
to contact—these are people as far afield as Australia and
South Africa—was that once you get through the initial bureaucracy
of the French system, it is very, very much easier to operate
than the British one. Once you get through the fact that you have
got to comply with the ITAR in the United States it is very much
easier to operate. The German one is much easier to operate. The
British one is by far the most bureaucratic. That was the unanimous
opinion of the people that I spoke to.
Q43 Mr Evans: Just one final point
on this, Chairman, which is you say that under the new regime
our record-keeping is much more onerous than theirs, and it going
to be very costly. The Government come back and say that businesses
now concede that the regime is less onerous than you first said.
Mr Otter: Yes, I would accept
that, but if you look at our own company we have had to effectively
take on two extra people since the new legislation came into force
to do it. It is not as onerous as we thought it was going to be
but it is still pretty onerous.
Mr Salzmann: Also at the moment
there is a little bit of inconsistency in the way that compliance
officers are interpreting the record-keeping requirements, especially
in the transfer of technology side, which some of our member companies
are reporting as a result of the audits which those compliance
officers have been undertaking at their premises. There does appear
to be inconsistency there which we are hoping the DTI will be
able to address.
Mr Otter: There is also an issue
of, if you like, a bureaucratic sleight-of-hand in that some of
the licences have been shifted (and I mentioned this last time)
out of the DTI's area into the MoD and FCO's area in that they
are conditional on a 680 being granted, so instead of having to
fill out a piece of paper for the DTI, we are now filling it out
for the MoD. It is still a piece of paper, it still takes time,
it still takes money and it still takes record-keeping. Technically
speaking it is not licence reporting, it is 680 reporting.
Mr Hayes: Another point worth
making on the level playing field, in terms of the interpretation
the whole scenario can actually be at a much more fundamental
level whether we are talking about the criteria or whether we
are talking about embargos. There is one case in the written submission
where the difference between the Member States was at the level
of whether the item itself was specially designed or modified
for military use, which is the fundamental basis of the controls.
Unfortunately, that term is not defined so it is not possible
to argue that the other Member State's interpretation is wrong,
it is merely different, but the consequence of that is where an
export would undoubtedly be licensed from the UK, it does not
even appear as a controlled export in the Member State concerned
because their decision is that the goods are not subject to control
at all.
Mr Evans: Perhaps you will be able to
give specific evidence of that too.[6]
Chairman: As Nigel says, we are very
concerned about this area and in your recent written submission
there are a number of areas where you say you will be happy to
give us further information. I appreciate that some of it may
be sensitive in relation to your competitors and so on but if
you would like to liaise with the Clerk we do take evidence in
the strictest confidence from government and we would be happy
to take it in the strictest confidence from you as well. We are
anxious to address this problem. There are concerns, as Nigel
said, what we put to Government and if they kick it back to us
then we would quite like to kick it back to them. Mike Gapes?
Q44 Mike Gapes: Can I get back to
questions on the ITAR waiver, and you may have heard what was
said earlier. As you know, the British Government and the American
administration reached an agreement in May 2003 but since then
we have had this problem of Congress. What is your assessment
of the current position and the likelihood of any progress? If,
as seems clear, there is not going to be much progress given the
politics in the American political system, what is going to be
the effect of failing to secure the ITAR waiver on the UK defence
industry?
Mr Bell: Well, as you know, the
House Conference agreed that there should be an accelerated system
for the United Kingdom and Australia and required the State Department
to put forward proposals for arranging that. Nobody quite knows
what this means, including the State Department. It is very difficult
to say at the moment what the correlation of forces will be in
the new set-up. The administration remains in favour of the waiver.
Whether it will be able to put sufficient pressure on the opponents
in the Congress is at the moment very unclear. I think there is
a reasonable chance that we will get it. There is some discussion,
as you know, of a treaty because there is considerable support
in the Senate for a waiver and a treaty would bypass the House
of Representatives where the main opponents of a waiver are. Then
of course there are other practical things to be done like new
regulations and so on. The consequence of not getting it is the
desirable things we would get out of the waiver—the freer
flow of goods and technology, the ability of companies like ours
to harmonise more quickly and easily our technology bases on both
sides of the Atlantic—will just not be possible to achieve.
Mr Salzmann: One thing which needs
to be added is that any ITAR waiver will not remove or undermine
in any way the American re-export control system so if the equipment
comes here it would still need American licensing approval to
go from here. That is one thing which I think has to be made clear.
It does not undermine American re-export controls.
Mr Bell: That is a specific feature
of the agreement between the two governments and there is a memorandum
of understanding which deals with this specific issue.
Q45 Mike Gapes: Can I take you a
step further. The position in our Government's defence policy
generally, the move towards network-enabled capabilities and the
whole attempt to try and keep up as much as possible with
technological developments in the US clearly is predicated on
an exchange of information and joint defence work. Do you think
that Representative Hunter and his committee in the House of Representatives,
the House Armed Services Committee, actually want to destroy the
relationship with the UK or do you think they are just being stupid?
Mr Bell: Neither.
Mr Salzmann: Well said!
Q46 Chairman: You have two alternatives
there.
Mr Bell: Indeed, and like a good
former civil servant I shall choose a third! Their concern is
about the threat to US technology. Representative Hunter and Representative
Hyde are the two key figures. Representative Hyde is the Chair
of the House International Relations Committee which is mainly
concerned with this issue. They are mainly worried about leakage
of US technology and it is a question of balance, as it always
is. It is in this country; it is in the United States. We believe
that the risk is low and the benefits are high, but it is not
entirely surprising in the American system that there are others
who do not take this view.
Q47 Mike Gapes: So you do not accept
the criticisms made by the committee chaired by Duncan Hunter
that the British system is porous and allows unscrupulous individuals
to get hold of technologies to kill Americans, Australians and
Brits, apparently!
Mr Bell: It was in fact a report
of the House International Relations Committee chaired by Representative
Hyde. All I will say about it is that it is somewhat tendentious;
there are answers to the points they made.
Q48 Mr Davies: This is a question
specifically for Mr Bell. How relevant is the ITAR waiver to the
need of British Aerospace Systems to receive the requisite degree
of technology transfer to enable you to manufacture parts of,
to assemble, and in due course to upgrade the JSF as part of your
co-operation in that programme?
Mr Bell: Well, there is no question
that it would help. Do not forget that the proposition on the
table refers only to unclassified US exports and transfers. Of
course, by far the largest proportion in number of transfers in
relation to JSF will be unclassified, although the really difficult
bits are classified. Those bits will continue to be difficult
whether we get the waiver or not. So it would help; that is how
we see it. It is not really in that area that we see the principal
benefits of a waiver but rather in the area of discussion between
ourselves in the UK and our American friends in BAE Systems North
America at earlier stages of projects where it is very difficult
to put together what the Americans call a technical assistance
agreement, a TAA, since if you are talking about a common effort
to develop R&D you may not be able to satisfy the conditions
of the TAA and say who the customer is and so on. It is that kind
of area where we see the great benefits of the waiver.
Q49 Mr Davies: Thank you. Are we
missing a possible trade-off here? The House of Representatives
are very keen indeed that the European Union does not relax its
arms embargo on China and the House of Representatives appears
to be very keen that the administration should not get its way
over the ITAR waiver for Australia and the United Kingdom. Is
there a sense in which it might be made clear that if we are slapped
in the face by the Congress and the promised ITAR waiver is not
delivered, we are less likely to wish to pursue an argument within
the EU with some of our partners against their proposals to relax
the arms embargo to China?
Mr Bell: I think I will take refuge
in the proposition that that is well above my pay grade.
Q50 Mr Davies: Is it a sensible question?
Should it be asked at a higher level of pay grade?
Mr Bell: I think the view would
be in the United States that they would not expect us to weaken
on either. That is a government-to-government matter. We do what
we are told at BAE Systems.
Q51 Mr Davies: It is not a question
of what we think of the ITAR waiver, we still want the ITAR waiver,
we were promised it, we think we are entitled to it. We think
our defence industries are sufficiently responsible to be able
to operate it in good faith, do we not; that is correct?
Mr Bell: Absolutely.
Q52 Mr Davies: We are therefore shocked
and disappointed as allies who have operated in good faith that
the House of Representatives is now proposing to deny us that
waiver, are we not?
Mr Bell: I am sure that the House
of Representatives would take the views of Members of Parliament,
law makers as the Americans say, very seriously on this point.
Q53 Mr Davies: I am glad to use this
opportunity to express at least one UK legislator's view on that
particular subject.
Mr Salzmann: Also I think we would
be very wary about risking our other general very important and
lucrative business in the United States on establishing this particular
relationship between the two issues. We would not want to risk
or jeopardise that in any way.
Mr Davies: Let me just pursue the thought.
Chairman: Can we move on.
Q54 Mr Davies: Just one more question
on this because I think it is a very important issue on the China
embargo. Are we not in danger in this country of getting the worst
of all possible worlds? If the EU arms embargo for China is brought
to an end the French and the Germans will get the credit for that
with China. You have given us evidence this morning that in practice
there probably will not be that many arms sales but there may
be other commercial benefits. Those will largely accrue presumably
to those Continental partners of ours who made the push in that
direction. So we will not actually gain anything there but we
may well lose a lot of the US special relationship which is so
vital to us in so many areas of national policy, not least in
the areas of defence co-operation and the co-operation between
the defence and aerospace industries in this country and the United
States? Is there not a danger we will lose out in both ways and
we will have the worst of all possible worlds?
Mr Salzmann: That would certainly
be part of the equation which we expect the British Government
to take into account when it is framing its position on the lifting
of the embargo.
Q55 Mr Davies: Fine. If I can now
move on to something else. The NGOs have given us testimony, as
you know, that the British Presidency in this coming year both
of the EU and of the G8 is an opportunity to improve arms export
control regimes around the world, first of all in the instance
of the EU Code but then more generally around the world and of
course the British Government has subscribed now to the concept
of an arms control treaty. Do you yourselves feel that this is
a useful opportunity? How do you think it should be pursued?
Mr Salzmann: We would hope that,
yes, the situation next year when the UK takes over these two
Presidencies will put us in a good position. Of course the fundamental
weakness in global counter-proliferation is the sheer diversity
of export control policies, systems and procedures in place in
all the countries around the world which means that at the moment,
frankly, proliferation cannot be prevented, it can only ever be
delayed and act as an inconvenience to the potential customer
whilst they go off and try and seek an alternative source of supply.
So we welcome any efforts on behalf of the British defence industry
intended to try and come to a degree of harmonisation and compatibility
between the export control policies systems and procedures in
the countries around the world and certainly in that regard we
warmly welcome the principle behind the international arms trade
treaty which is intended to try to look at this on the policy
side and achieve a greater degree of harmonisation.
Q56 Mr Davies: The Government appear
to accept that view and be pursuing that objective. Are there
any specific recommendations or suggestions that you would like
to make to the British Government on the eve of their adopting
those two Presidencies?
Mr Otter: I think one of the things
I would like to see, if it were possible, is some rationalisation
and common sense brought to the WMD provisions. If you look at
the proliferation of WMD, I do not think there is a single company
that has applied for a licence that has been involved in proliferating
WMD. It is all too easy, if you look at India and Pakistan, to
acquire WMD (nuclear weapons) outside of the licensing system,
and I would really like to see—and NATO is beginning to
pull this together—some more effective counter-proliferation
against the proliferators rather than against the legitimate companies
that are working within the system.
Q57 Mr Davies: Are you suggesting
applying the EU Code to civilian technologies which have traditionally
not been regarded as relevant to military capability which could
be relevant to the development of nuclear weapons or biological
and chemical weapons? If that is what you are suggesting there
is an enormous lacuna in the present system; the present system
is actually being made a complete fool of.
Mr Otter: The present system is
obviously being made a complete fool of because if you look at
it everybody talks of a club of five for nuclear weapons when
actually it is a club of seven and probably more, and those others
however many there are have acquired their weapons completely
outside the system.
Q58 Mr Davies: And how are you going
to produce an extension of the Code such that it covers this area
but we do not have the export of every industrial technology being
subject to the arms licensing control procedures?
Mr Otter: It is hugely complex
and I think it is probably deserving of more hours than we have
got minutes available to discuss it. However, I think there are
things that could be done. They largely revolve around Customs
and Excise and looking at the routes that proliferators use rather
than the actual equipment they use. There are things that could
be done that involve the procedures that some of the dual-use
manufacturers go through in checking where their equipment goes
to when it gets to the other end.
Chairman: Again, it would be very helpful
to the Committee if you could give us a note on this. Unfortunately
we have to move on to other areas but it would be very much appreciated
if you could do that.[7]
Q59 Mr Bercow: Very, very briefly
because the Committee has dealt with the issues and you have responded
very thoroughly, in essence, what you appear to be saying is that
the harmonisation of arms export systems and complementarity between
and the transparency of them are not merely, or even principally,
a commercial threat but a potential opportunity for you. How widely
known is that, do you think?
Mr Hayes: It is a topic that has
been the subject of quite a lot of debate in various seminars
and fora. It is hardly something that has been kept in the dark.
There is a growing perception amongst industry internationally
that the greater the extent of the conflict between what you might
call competing export control systems, particularly competing
extra-territorial export control systems, simply creates more
noise in the regulatory environment in which the intended targets
of the provision can potentially hide.
Mr Bell: I think it is also true
that we can share an interest with our competitors in reducing
the amount of bureaucracy in the system. The fact is that we have
a global defence industry which is controlled on a national basis.
We export 23 million items or more of intangible technology each
year. The vast majority of that goes to the United States. It
is covered of course by an open general export licence for the
most part but it has to be licensed. Then when it gets to the
United States and is exported again it is governed by the ITAR
and so on and so on. My company has completely separate, different
and, unfortunately, expensive export control organisations in
every country we operate in. One can see ways in which we might
be able to attack this issue and in which governments could attack
this issue. Now is perhaps not the time to discuss them but they
could be done. To answer your question directly, this is a subject
of spectacular tedium which does not attract the slightest public
interest and I think it is one of the world's best kept secrets
really. In the "conventions of the sad", which my colleague
mentioned, we do talk about it!
Mr Hayes: Just to echo Mr O'Neill's
point from earlier, if we are going to be, as seems inevitable,
in an environment of decreasing resources then I think it is perhaps
vital that instead of doing as many things or more things poorly
in the area of non-proliferation, we do the more important things
better.
Mr Otter: If I may just add something.
That requires a different model on which you do your licensing.
Chairman: Again, any further evidence
on that in writing would be greatly appreciated but I am afraid
we have to move on. Fabian?[8]
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