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UNCORRECTED TRANSCRIPT OF ORAL EVIDENCE To be published as HC 145-i House of COMMONS MINUTES OF EVIDENCE TAKEN BEFORE DEFENCE, FOREIGN AFFAIRS, INTERNATIONAL DEVELOPMENT AND TRADE AND INDUSTRY committee
Wednesday 15 December 2004 MR ANDY McLEAN, MR OLIVER SPRAGUE and MR ROBERT PARKER MR DAVID
HAYES, MR TIM OTTER, MR MICHAEL BELL and Evidence heard in Public Questions 1 - 81
USE OF THE TRANSCRIPT
Oral Evidence Taken before the Defence, Foreign Affairs, International Development and Trade and Industry Committee on Wednesday 15 December 2004 Members present Mr Roger Berry, in the Chair John Barrett Mr John Bercow Mr Tony Colman Mr Quentin Davies Mr Nigel Evans Mike Gapes Mr Bruce George Mr Fabian Hamilton Mr Bill Olner Mr Martin O'Neill Sir John Stanley Mr Peter Viggers ________________ Memorandum submitted by UKWG on Arms
Examination of Witnesses
Witnesses: Mr Andy McLean, Deputy Director, Saferworld, Mr Oliver Sprague, Senior Policy Advisor, Oxfam, and Mr Robert Parker, Campaign Manager, Arms and Security, Amnesty International, examined. Q1 Chairman: Good morning, everyone. Andrew, would you like to introduce yourself and your colleagues. Mr McLean: I am Andy McLean, the Deputy Director of Saferworld. This is Rob Parker, the military, security and police co-ordinator for Amnesty International, and this is Oliver Sprague. Mr Sprague: Campaigns and policy officer. Mr McLean: From Oxfam. Q2 Chairman: Thank you. Thank you also for your written submission, which we have found very, very helpful indeed, as always. This year we have taken the sensible step of taking evidence from NGOs and defence manufacturers before we take evidence from the Foreign Secretary, so that we will be better equipped to pose hopefully more interesting questions when we see him in January. There have been a number of things that have happened since we last met earlier this year, including the fact that the government now publishes quarterly reports on decisions in relation to licence applications and we have now had the second quarter of the year. Could I ask you what your impression is of the new quarterly reporting system: How much of an improvement do you think it is over the previous annual reports? Mr McLean: I think it is an improvement in the way it obviously comes out much more quickly and much closer to the time at which the licensing decisions are made. I think that is something which the Committee has urged in the past and we have as well, so I think that is a very welcome development. I think it probably shows a challenge for us all, as well, though - the Committee and the NGOs and also the media - in terms of ensuring that this actually does lead to a greater level of scrutiny and accountability for export licensing decisions, because there is a danger that with these things coming out quarterly then in some ways the impact of an annual report can be dissipated as well in profile terms. I think there is a challenge there for us to ensure that it does lead to an increased level of scrutiny. With regard to the level of transparency within the report, I think there are three areas to which I would like to draw the Committee's attention. Firstly, there is still a need for a greater level of detail in the descriptions of the equipment that is being licensed for export. As we all know, there is the trend now whereby the majority of equipment exported is component parts, electronics equipment, communications equipment. Of course it is much more difficult therefore to get a clear picture of what the impact of this equipment is and the potential use to which it could be put. I think that highlights the need for more detailed descriptions about these component parts, and, in particular, the type of weapons systems into which they are therefore going to be incorporated. I note that in the US annual report, for instance, they do highlight very often the weapons systems within which components will be included; say, for example, military engines for F16 jets. There is also the challenge of the fact that there is very little information on the end users of the equipment that is exported - and that again I know is something which the Committee has highlighted in the past - and I think that is something which still needs to be improved. Also, with the changes in the new licensing system, I think there are still problems in the way the new information on incorporation and brokering is included. On incorporation technologies, it reports the country to which the equipment is being exported for incorporation but not the eventual destination, so it is very difficult of course for us to get a picture as to what the eventual impact of that equipment will be. On brokering, the licence information is given according to the source country from which the brokered transfer will take place rather than the recipient country, so, again, it is very difficult to trace the eventual impact. Although there has been some improvement in transparency and with the speed at which the reports have been released, we still need a lot more detail. Q3 Chairman: Thank you very much for that. In your latest report, you look at each of the criteria and identify a number of end-use countries that raise concerns and issues. There are a number of questions and we may come back to you after this meeting to explore some of those, but, given the time that we have this morning, I would be interested in hearing your views about the licences, particularly in the most recent quarterly report, for example, that cause you the most concern. Which are the licence decisions that worry you the most? Mr Parker: If I may say something, before we go on to specific licences, on the issue of timeliness of the reporting and how useful it is to us. In theory we will be able to track the speed with which export policy changes in relation to events on the ground, with more timely reporting. One specific example: in the Maldives, where there is an excellent open licence for crowd-control ammunition, tear gas and the like, the Government expressed concerns over attacks by police on peaceful protestors in August (so just after the reporting date of the last quarterly report) and also condemned the imposition of a state of emergency in the islands. We will be watching with interest to see whether that has an impact on perhaps potential revocation of the open licence supplying the kind of equipment that the security forces are using in the Maldives. Mr McLean: In terms of licences of concern: in the last quarter, a number, I think. There are a couple of countries, just to highlight. India and Pakistan, obviously - which I know the Committee have raised concerns about under criterion 4 before: still, over the last 18 months, very, very high levels of licensing to both countries and of potentially offensive equipment. Obviously the situation in Kashmir and the stand-off between the two countries has improved somewhat - and we welcome that - but of course I think there is still great potential for a recourse to a more bellicose stance there. I think the fact that in the last quarter there are still open licences going for components to combat aircraft, combat helicopters to both countries, that sort of equipment which clearly has a potentially offensive use, is of concern. To Syria, in the most recent quarter, April to June 2004, there is an open licence for armoured four-wheel drive vehicles, and that follows a previous licence for armoured vehicles in January to March 2004 and a licence for small arms ammunition in 2003, which I think would be of concern to us. Also there is a continued high level of exports to Indonesia of potentially offensive equipment (again, components for combat aircraft, helicopters and so on) which, given the ongoing conflict, particularly in Aceh, causes a number of concerns. Another issue around licences is on incorporation. I do not know if that is something you are going to return to. I would like to highlight there that the second highest recipient of licences for incorporation is Israel, which has received 61 licences for incorporation in the last 18 months. That is second only to the US, which received 64. Israel of course has a very aggressive export policy at the moment: it is the second highest exporter to China, for instance - something which has caused the US to comment very publicly its concern over. The fact that there is no information published about the eventual destination of the goods into which this equipment will incorporated is of great concern to us. Mr Parker: From a purely Amnesty perspective: we always look out for handcuffs, because basically when handcuffs appear in this report it means over-sized handcuffs and we fear there is the potential for them to be used as or turned into leg cuffs, which would be banned from export. We always note when they appear in the annual report. This time of concern would be that there is an export to Egypt and to the Philippines. I know the Committee has looked into this before and received assurances from the government that there was no risk that they would be used in such a way, for torture or something like that, but we do not have that information here in the annual report, so I would just like to flag the Egypt and Philippines cuffs' export. Q4 Chairman: Thank you very much indeed for that. That is very helpful. Obviously in the latest quarterly report we have information under the new Export Control Act; for example, information on brokering by individuals in the UK or companies in the UK, to which you have referred briefly, Andrew. What is your impression of the information the Government is now providing under the Export Control Act and the additional information that that Act requires? Do you have any general observations on that, other than the point you made earlier about the importance of knowing the end use? Mr Sprague: From an Oxfam point of view - well, probably from the point of view of all in the UK Working Group - the information that is provided on the brokering and trafficking type licences is probably inadequate for adequate scrutiny. I think of particular concern is the fact that the licences do not specify the ultimate destination where the brokered goods were going to end up and I think that is primarily what we are all concerned about. We want to know whether those goods are going to countries that prevent a proliferation risk or would violate the criteria contained in the EU Code of Conduct and I would like to see that improve in subsequent quarterly reports - as a matter of some urgency, I would argue. Q5 Mr O'Neill: If I could have a look at the prospects for the Export Control Organisation. As you are aware, the Gershon-driven cost-cutting exercise may well have staffing implications for this area. Do you have any concerns about the impact on the efficiency of the ECO, which I think most people would say has improved? I remember, before this Committee was established, my colleagues and I in the DTI Select Committee had terrible trouble trying to get the system moving more quickly. It took several reports and kicks before things could happen, but now that it is happening do you have any worries about it stopping? Mr McLean: I think these proposed cuts are bad news and I think there is a real risk that it could lead to less scrutiny and it could lead to less transparency. As you say, I think there is a sense that the operations of the department are improving. Obviously this is a challenging time, when, as the Chairman said, the provisions under the new Export Control Act are being implemented and so the department is now having to process these new types of licence applications which they have not had to do before. If there are to be these cuts - and I think about 25 per cent has been mooted - then I think there is a great risk that that could lead to a greater proportion of equipment going on open licences, which will of course lead to less transparency, because they are quicker to process, and I think it could also lead to a greater resistance from the Government to increase transparency in certain areas. I note that in the Government's response to your last report there was not an "in principle" objection to providing information on end users; the objection was that this would put an onerous strain on resources - and, of course, as resources are being cut, where is that extra capacity going to come from? I would say that in the current climate, when the Government is putting so many resources internationally into trying to increase global stability, prosecute the war on terror and so on, that really increasing the resources for proliferation control is the way in which things should be heading rather than actually seeking to cut them. Q6 Mr O'Neill: The other side of the coin is that you might get back to the old situation where it took far longer for the applications to be processed. Mr McLean: Yes. Q7 Mr O'Neill: And I suppose you could end up with a back-log which, in some ways, from your point of view, I would imagine, would be almost as much the unintended consequence of an ill wind. Mr McLean: I think that is not really the key issue. These cuts in the Export Control Organisation, I would have thought, are somewhere where there is a common ground really between the defence industry and NGOs, because obviously they are seeking a quicker licensing process and we are seeking greater scrutiny and transparency. Mr O'Neill: The other thing of course is that it might be, if savings have to be found, that they could be found perhaps by increasing the charges or imposing charges rather than doing it the other way round. How would you feel about that? The cost of the licence might be increased; there might be charges imposed on the applicants. Sometimes the sums are comparatively small in relation to the whole contract. If there was a pro rata way of calculating it: for example, there are 10,000 applications, 4,000 ratings, and if you had a two tier system and if you had percentages for each one, it might provide the kind of income which the Government could then use to fund the operations, so that we could have it but it would be slightly more expensive for the arms control manufacturers. Chairman: It might be a question more appropriate to put to our next group of witnesses. Q8 Mr O'Neill: I am merely asking for an opinion. It would be wrong to suggest we only had one option: staff cuts. Mr McLean: That sounds a sensible suggestion and we would certainly favour that. Q9 Mike Gapes: Could I take you on to what is going to happen next year. The UK has the presidency of the G8 from January of next year onwards, and then from the beginning of July the presidency of the European Union. What would you hope would come out of that? Mr Sprague: It has been a very significant year for us for export control issues. I think it is marvellous news that the UK Government has committed itself to support the Arms Trade Treaty and obviously, as you have mentioned, 2005 is a big year with the presidencies of the G8 and the European Union. I think for the G8 we would like to see the UK working with G8 partners between now and the Summit in trying to ensure that reference to the ATT, or at least the principles of the Arms Trade Treaty, are included in the communiqué of the G8, building on from the decision in 2008, I think, in Japan, where they issued a statement on small arms and light weapons. In terms of the EU presidency, I expect we might come on to this but there has been a year long review of the EU Code of Conduct and one of the things that has come out of that review has been the need to provide greater clarity on how you implement the individual criteria. Certain criteria have been particularly problematic. There has been some great work done on the simple development criteria, which we might come on to later, but I would say a useful priority for the UK presidency would be to build on this initiative and maybe look at criterion 2. There has been a welcome development: I do not know if it has gone through yet, but it appears there has been a change to the wording of criteria 2, the human rights criteria, with a more specific reference to international humanitarian law, which of course makes the EU code more consistent with the Arms Trade Treaty, and I would think it would be extremely helpful to develop operative guidelines, a sort of instruction kit, if you will, on how to implement the States' existing responsibilities under international law. That would be, I think, a major step forward in the EU harmonising itself towards the principles of the Arms Trade Treaty and a greater building block towards achieving that treaty. Q10 Mike Gapes: Do you and your colleagues have any hopes or expectations for next year? Mr McLean: I think the transfer controls issue is key. We would be looking to the G8 really to take a good stance on support for an arms trade treaty. Obviously in 2006 we have the review conference of the UN Programme of Action on Small Arms Control, so I think we are looking to agreements in the EU and the G8 next year as providing a key stepping stone to a wider international agreement in 2006. I think we would also on the EU code welcome the introduction of a "presumption of denial" for exports to regions of instability. Obviously one of the key aims of the new code is to promote a convergence in export policies and practices of EU Member States, and yet, as we see in the EU annual report, there is still a wide divergence of the application of the criteria towards particular countries of concern. So I think the agreement of a general presumption of denial to particular countries in regions of instability would be an important point. Then I think the issue of arms brokering and transportation is key. Again, we would like to see the G8 build on its work on arms brokering and support the development of an international and legally binding instrument on arms brokering, and within the EU we would like to see the common position on arms brokering expanded to ensure that extra-territorial controls are mandated across the European Union and also the neglected issue of transportation agents addressed. There has been a lot of focus on the brokers and not much on the people actually moving the weapons, and I think possibly the idea of a code of conduct for transportation agents, with agreed international standards which they would sign up to, would be an important move there. Q11 Mike Gapes: The EU Code of Conduct some of my colleagues will deal with later on. There is also the Arms Trade Treaty and I think that will be dealt with by somebody else. You talk about regions of conflict. We have seen recently worrying developments in Congo again. Africa is very high up in terms of regions of conflict, or parts of Africa. The Africa Commission is also due to be coming out with a report relatively shortly which links into this whole G8 process. Do you have any expectations specifically about Africa or any hopes? Mr McLean: Yes. I think the Africa Commission is a very welcome innovation. I think it is very encouraging that in their draft programme, which they published a month or so ago, there is a recommendation to establish an international arms trade treaty and also an international legally binding instrument on arms brokering. I note that those two recommendations were also echoed in the recent report of the UN high level panel on new security threats, so support for this is building. But I think it is also important, as you say, actually to address the problem of the proliferation of weapons within Africa. I think there, providing greater support to sub-regional organisations and to countries in the development of national and regional action plans, is a very important way forward to addressing the problem on the ground as well as the international supply. Mike Gapes: Thank you very much. Q12 Mr Colman: Perhaps I could make a declaration of interest: since the last meeting of this Committee I have become a patron of Saferworld, and I hope that example will be followed by our next set of witnesses, all of whom have said to me individually that they support the way that Saferworld works, and perhaps we could look to other people coming forward from the arms' manufacturing industry also to be supporters of Saferworld. My question really follows on to the Arms Trade Treaty which Mr Gapes has brought up. Obviously I am interested that Mr Sprague from Oxfam feels it is a positive situation. Could you open that out a bit further. Have you been consulted? Has the coalition putting forward the Arms Trade Treaty been consulted since the Foreign Secretary made the announcement at the Labour Party Conference in September saying that he will in fact be taking this forward in the way you have described? Mr Sprague: I think it is true to say the Government are thinking about how they are going to take it forward, but we have had some very encouraging correspondence, which restates the commitment, and they say they specifically want to work on developing countries and building up - which I assume is through the transfer controls initiative and trying to establish the ATT principles and trying to bring in the international humanitarian law aspect - within that process. The Government are meeting us formally, I think tomorrow, to discuss our ideas and our plans, and there is a very important meeting that is going to happen in Tanzania - which has been driven by Finland, who have emerged as one of the leading champions of the Arms Trade Treaty - in mid-February. I think for the first time 20 governments or maybe even 30 governments from around the world who are warm to the idea of the treaty will meet to discuss and to formalise how to take it forward, and I am encouraged to note that the UK Government are having bilateral discussions with the Finish Government about how the UK can play its full part in that process. From where we were last year, we have made significant progress, which is why I am so optimistic, and something like an arms trade treaty will move from something that was a nice idea maybe two years ago, to something that in my lifetime working and campaigning in with Oxfam will actually happen. Q13 Mr Colman: We have a list of seven countries that up to the end of September have expressed support for the treaty, one of which obviously was Finland. Perhaps you could let the clerk separately have a list afterwards of where we are on the 30, because that sounds significantly more promising. At the meeting tomorrow, are you expecting to meet with the Secretary of State from DfID, as well as from FCO, given the emphasis that you have just made that it should be a developing country sign-up as well as, if you like, EU/North America and Japan. Mr Parker: The Government is basically going to face the same obstacles that the NGOs identified when trying to put forward this idea of an arms trade treaty; namely that it is not going to work unless you get the support of the major exporting nations. Also, there is a danger that if it is seen as an initiative by industrialised developed nations to limit other people's access to weapons, then it will also fail. There is a lot of work to be done on those issues. From an international campaigning perspective we are very encouraged, I would agree with my friend from Oxfam, in that a year ago these governments were not talking about an arms trade treaty and now, thanks to the public campaigning by NGOs all over the world, not only has the UK come forward as the first major exporter in support of this, but so have other countries, representing five different world regions. So we are starting to tackle the idea that this really has to be a call from all over the world, both affected regions and supply regions. Q14 Mr Colman: A small-arms survey last year showed that, I think, 18 African countries were manufacturing small arms, and that was 90 per cent of the small arms circulating in Africa. Colleagues will be talking about small arms subsequently in questions on that, but I again come back to ask: Is DfID in fact going to be represented at the meeting tomorrow? Mr McLean: The meeting tomorrow is with the Foreign Office but we would certainly welcome a meeting with the Secretary of State for International Development, because, as you say, this is something which has to be pushed across government and the dialogue with developing countries obviously can be critical in that. Q15 Mr Colman: Is Mr Parker concerned that there would need to be an unacceptable watering down of the details of the Arms Trade Treaty in order to pull in the manufacturers from the north. Mr Parker: That is certainly a concern. We would not want to see the criteria watered down in any way but part of the debate is: Will the eventual instrument be politically binding or legally binding or will it cover all arms or small arms only? These are all up for debate and we will be taking forward with the UK Government as to its intentions on this tomorrow. Q16 Mr Colman: Please keep us informed and perhaps have a talk with the clerks about your meeting with the Foreign Secretary so that we are up to speed on what is going on. Mr McLean: We will do. I think your point about the need to engage the major players which you have just mentioned shows the importance of the G8, because within the G8 you do have the major weapons' exporters. That really is a critical opportunity next year to begin dialogue on this issue. Q17 Mr George: The arms embargo imposed by the EU on Libya has been terminated, as you know. Do you have any comment on that? Should it have been terminated? After all the "Great Leader" was rewarded for his actions. Are you prepared to accept the terminating of the arms embargo or do you have any reservations? Mr McLean: I think we do have reservations. Obviously the steps which Libya has taken to announce its weapons of mass destruction are very welcome and we do not underestimate the significance of that. But I think we would question whether lifting the arms embargo was really the right carrot for that. It was obviously one of the first things that flowed from there and I think the major concern about that is Libya's past role as a proliferator of arms on the African continent. There is well documented evidence about the supply of weapons to Charles Taylor at the time when Liberia was under an arms embargo, so I think real questions have to be raised about the potential risk of diversion of any weapons that will actually be sent to Libya. I think it probably sends the wrong signal at this time when we have not had the chance to see whether the reforms that are under way in Libya are actually going to bed in and when we are not yet really convinced of the arms export control systems and records which the Libyans have in place. Mr Sprague: I think it is also bringing the inter-related point of transportation into this because Libya is a major hub for global air transport - a combination of economics and geography: the fuel is cheap there and also it is in the right place for aircraft to come and refuel - but from my research and work on the arms trafficking and the embargo-breaking sort of gun-running activities, so many of the aircraft pass through either Benghazi or Tripoli on their way down to the conflict spots. So I think we need to think very carefully about how we can control that, and, hopefully, one of the things we can do is to start putting some money and resources and training into customs officials at the airports in Libya to look through paperwork on flights and to check that they are legitimate and they are not going to be going to undesirable end-users, because for me it is a clear problem. Mr Parker: One other slightly tangential aspect of the Libya issue is that there has been talk of setting up asylum processing camps in Libya and elsewhere in North Africa to process asylum seekers coming to the EU. We would have concerns primarily because of previous treatment of asylum seekers and detainees by the Libyan authorities but also whether that would possibly lead to exports as incentives for countries, perhaps Libya, to set up such camps. There are already proposals for the Italians to send down speedboats, thermal imaging equipment and that kind of equipment, specifically for these kinds of processing camps. So it is one to watch for the future. Q18 Mr Evans: The China-EU arms embargo has been in place since 1989. The French and the Germans have been pushing hard to get that lifted. There was a summit at the Hague on December 8 and a press release came out from the Chinese afterwards saying that they were very content that the EU now were working towards lifting that embargo. Whilst Britain is not leading the campaign, it seems to suggest that they will go along with whatever is decided. What do you think the consequences will be of lifting the arms embargo on China? Mr Parker: Fifteen years on and there is still no redress for the victims of the Tiananmen Square crackdown. There are still activists imprisoned for their peaceful activities related to getting an investigation into what happened at Tiananmen Square. Amnesty has seen no substantial improvement in the human rights situation in China and we would really pose the questions to the EU: What signal does this send to human rights defenders who are imprisoned for their activities in China? What leverage does the EU then maintain, if any, over China if it gives up the arms embargo in terms of human rights? What measures will the EU take to ensure that China does not interpret this as the EU saying, "Well, we do not really care about all the activists who are still in prison from the Tiananmen Square crackdown"? We could also then look at the role of China as a proliferator and the role of regional stability, but I think from Amnesty's point of view we were concerned about what message this would send to human rights defenders still in prison in China. Mr McLean: One of the arguments put forward for lifting the embargo is that the consolidated criteria could do the job very well instead. I think that is an erroneous argument because, as you see from our audit, we do have concerns about the implementation of the consolidated criteria to a number of countries around the world and I think the EU embargo is having an impact. Out of the 22 Member States who reported licences in 2003, 17 licensed nothing to China. So I think the arms embargo is having an impact there over and above what the consolidated criteria would have on their own. Mr Sprague: It is probably more a point for our colleagues to follow these discussions, but, in terms of the industrial cooperation with the US, my analysis of the situation would be that the US would have severe concerns with the re-export of US technology to China because their position is even more robust than the EU's. Maybe there is a consistency of policy point here because one of the main strong reasons for the incorporation guideline changes of a couple of years ago was the fact that we need to maintain very strong strategic and industrial relations with the US. I have my concerns about the changes to those guidelines, but it seems like this may well undermine that very statement. Q19 Mr Evans: It does appear that the United States, Japan, Taiwan have huge reservations about it but we will be talking with our Foreign Secretary shortly and this is going to come out no doubt. If he says, "We would be quite happy and content for the embargo to be lifted because we have the EU Code of Conduct Criteria to ensure there is not proliferation," what would your view be to that? Mr McLean: It would be the point I made to you previously, that the embargo is having an effect over and above the EU Code of Conduct, and I think the fact that 17 out of 22 States did not licence anything in 2003 is an indication of that. Obviously, of course, China is potentially a huge market and so if the embargo is lifted there will be substantial economic and industrial pressure within the EU Member States to launch an export drive into China, so I think it is quite clear to me that if we do relax the embargo that will lead to a liberalisation of export policy. Q20 Mr Evans: Are you happy that the EU Code of Conduct is sufficiently rigorous to ensure that there is not going to be a problem? Mr McLean: Not the way in which it is being currently implemented, no. Obviously UK exports to China, as well as having to meet the test of the embargo, currently have to meet the test of the consolidated criteria, and yet there were something like £76.5 million worth of exports in 2003 and £37.5 million January to June 2004 - and that is including things like components of military helicopters, components of military aero engines and technology for the production of combat aircraft. So that is going with the dual safeguard of both the embargo and the criteria. I think if you have the criteria alone, unless they are elaborated and more tightly implemented they would not do the job. Q21 Mr Bercow: I would like to question you on the EU Code of Conduct on arms exports, in respect of which there does seem to be a pretty stark difference between the current stance and ambition of the Government on the one hand, and the current stance and ambition of yourselves on the other. Very specifically, as I understand it, the Government's position is to say, "Well, we should harmonise EU Member States' reporting methods and we could very usefully examine the legal status of the code and consider the rather important issue of whether that code should become the common position, but ministers reckon that the present information sharing system is adequate. Your magnum opus on the subject is really very much more ambitious, as I am sure you will acknowledge. You want the code to include consideration of corruption in the arms trade; all exports of relevant equipment; police equipment and components, to bolster transparency and information exchange; to widen the impact of the criteria to include legislative and administrative capacity; to harmonise annual reporting. There is literally a plethora of subjects: tackling licensed production overseas; the transit of arms, etcetera, etcetera. There is a big difference. May I ask you in the light of that, and given that you are in the world also of real politique which of those agenda items you regard as the most important. What would you go to war over? - if I may put it that way. Mr Parker: The figure that is quite illustrative of this, extrapolating from the Foreign Secretary's comments in his last evidence session to you, is that it appears that around 25 per cent of the consultations result in an undercut at the moment. That would appear to be quite a high figure for a system which is based on common interpretation of criteria, so I think that anything that can help the common interpretation, harmonise the interpretation of the criteria, is our priority. We would probably go for changing the wording of the criterion to start with. As you say, in the real world there has been a year's review and there have been maybe one or two tinkering changes to the criteria but that does not seem to be up for grabs at the moment. So we would put forward the idea that the UK should be promoting the development of substantive guidelines, along the lines of those that have been developed from criterion 8, to enable people to interpret the criteria in a common way. Out of all the criteria, our priorities would be numbers 2 and 4 and it would be interesting to have a conversation around criteria 5 as well and the issue of national security and how states are interpreting that one. Q22 Mr Bercow: How have you been involved in the review? Although it is not for us to advise you - and you do not need any advice from us on your campaigning techniques - have you been able concretely to demonstrate that the effect of the existing code, which you regard as too restrictive and too weak, has been to allow the continuation of the spread, for example, of small arms to destructive effect in human terms? In other words, are you able to demonstrate to ministers that unless they take a more robust stance of mind, which you favour, there is going to be greater repression because there already has been - and you give the examples - and further loss of life, because there already has been - and you can give the examples. Mr Parker: I think I would point to the fairly recent Amnesty report: Undermining Global Security: the European Union Arms Exports, which does just that and goes through picking examples where we feel states have either deliberately or unintentionally let things slip through, resulting in human rights violations. Mr Bercow: I very much appreciate that. May I say, Chairman, Mr Parker has just added to my extensive Christmas reading list. Q23 Chairman: I have just asked the clerk to request copies for the Committee. Mr Parker: Of course. Mr McLean: That is a very good question and obviously the ultimate litmus test of the effectiveness or otherwise of the criteria is being able to demonstrate that impact on the ground. But I do not think that is the only test we should be looking for. I think it would be a mistake if all the debate on export licensing focused on specific instances where NGOs could demonstrate that exported equipment had had an abusive effect on the ground because obviously the great stride with the EU Code of Conduct is that it is a risk-based system of assessment. I think it is important that officials are looking at and we are scrutinising whether the Government is taking an effectively cautious enough approach in its licensing: Is it fully assessing the future risk that this export could be used for internal repression or regional stability? That requires a much more far-sighted assessment rather that just whether there is evidence of that particular piece of equipment having been used in a specific instance in the past. Q24 Mr Bercow: You touched on criterion 8 amongst the different criterion you have mentioned. Are you aware that the Government is participating in a group to produce a users' guide, so that people can make better use of that criteria which is often seen to be a weak link. Do you think the Government is taking into consideration your concerns when developing this users' guide? Mr Sprague: We produced this report in May last year which is looking at precisely this issue. The UK has been particularly active in working in this working group on criterion 8. Although it has not been agreed formally, we hope agreement is going to be reached on 2 December with the EU COARM meeting - but it looks like it might slip until early January. We do believe that the guidelines they have produced broadly reflect some of the recommendations we make in here, so we do think it will help. It is a horrible pun, but it is the weak person's criterion. I think even from the last report there has still only been one UK refusal on the grounds of sustainable development. I think the wording on the criterion itself is slightly problematical because I think it sets the threshold very high because it talks about a "serious risk of undermining sustainable development" which I think it is actually difficult to work out, whether something is a serious risk or not. I think if we just look at a UK example from the annual report, in the last quarter there is a very large increase of equipment to Nigeria. The last quarter figure is significantly larger than any of the previous reporting periods, if you look at 2002/3 or the first quarter of 2004, and this includes equipment such as artillery systems and four-wheel drive vehicles. It is entirely possible that this equipment is for use for peacekeeping but without a further elaboration in the actual reporting it is very difficult for us to tell that, so it would raise serious concerns here about the sustainable development impact of those transfers. Q25 John Barrett: You mentioned there has only been one refusal in 2003. I wonder if you or your colleagues have any comments on the fact that there has only been one refusal in the space of five years. Mr McLean: I think it is surprising. When you look at the high value of UK exports, then I think you would expect more than one licence to have been refused. We would certainly hope that with these new extrapolated guidelines the number of licence refusals would increase, not just in the UK but across the EU, because it is much clearer to officials how actually this criterion should be implemented. But I think the point the Committee has made in the past, about the need and importance of assessing the cumulative impact of licensing decisions on sustainable development and not just the impact of one specific licence, was very important. I think that is now the position of the Government in the EU but it is important to ensure that that actually happens in practice. Q26 Sir John Stanley: In this all-party Committee we nonetheless decided in our report on the Government's secondary control legislation under the Export Control Act, House of Commons paper 620, to quote a very important sentence from the Labour Party's general election manifesto in 2001: "We will legislate to modernise the regulation on arms exports with a licensing system to control the activities of arms brokers and traffickers wherever they are located." In our report we drew attention to the fact that the Government, by applying these secondary controls solely to missiles with a range in excess of 300 kilometres and to certain types of torture equipment, was only touching an absolutely fractional amount of the trafficking and brokering trade. I would judge, myself, less than one per cent - given that long-range missiles are outside trafficking and brokering, and are entirely done government to government, and, as far as the torture equipment is concerned, it is said it should be included but as we all sadly know there are any number of instruments of torture that you can construct if you get denied access to certain types of handcuffs. In our report, we made the recommendation in paragraph 50: ".... that the Government should seek to extend extra-territorial control of all the trafficking and brokering which, if conducted in the UK, would not be granted a licence." That was a unanimous conclusion of these four Committees. The question I would like to ask all three of your organisations - and do respond verbally now but I am also going to encourage you to search your filing cabinets and all the research facilities that you have - is: Do you have actual evidence that you can provide to the Quadripartite Committee of UK individuals or UK companies overseas actually engaging in trafficking and brokering of a huge cache of weapons that so far are outside the secondary control legislation? As we all know, the overwhelming volume of weapons that are trafficked and brokered are small arms, automatic weapons, rocket propelled grenades, explosives and so on. It would be interesting if we could have factual evidence, particularly before we see the Secretary of State in January, as to the evidence you have as to trafficking and brokering by UK individuals and companies overseas brokering weapons to destinations that would not be granted early licence if carried out in the UK. Mr Parker: I guess we should start by saying that of course these people would not have needed to go overseas until May 2004, because their activities were not controlled in this country when they were in-country either, so in theory that kind of paints the picture of how hard it is to track these people down if they only would have had to go overseas since May. If I may, there is a case closer to home which could be seen potentially as a test case for the Export Control Act involving a UK broker reportedly brokering equipment to Sudan. Recent press reports and an Amnesty Sudan report have named the company. Their supporting documents seem credible and I believe that the company is now under investigation, so I will not go into detail here, but it would seem to us that one of the stated purposes of the Export Control Act was to stop the UK being used as a base to supply weapons into conflict zones and this would appear to be a good test case. Whether that individual would then go off-shore because they found the legal teeth of the Export Control Act were starting to tighten, is another point, but I am sure we can look for instances where we do have on record UK citizens trying to engage in this kind of activity. Mr Sprague: Of course we fully support - and it is our view as well - the decision that we should have full extra-territorial controls on arms brokers and traffickers. The UK position is possibly now out of step with, for example, the EU common position on arms brokering and a more recent OFCE document on arms brokering which actually talks about the desirability to extend extra-territorial controls. I notice that a recent US congress report has again pointed at the fact that the UK only have partial extra-territoriality and they are looking to that as a weakness. I can think of one specific example that I know of involving a UK broker. This was done through a press investigation but I have seen some of the documents, and this was basically a UK broker who was operating and regularly does operate out of Bulgaria. He even had his own mobile phone. Although he did not end up supplying, because the operation was a sort of sting operation with a journalist who was doing it, he was openly prepared from Bulgaria to negotiate the supply of small arms to Syria at a very, very interesting time vis-à-vis the conflict in Iraq and some of the conversations that the journalist had with this individual make it clear that the possibility of diversion to other destinations from Syria, including Iraq, might be possible. Now this is clearly somebody negotiating a deal from outside of the UK, from Bulgaria. I know that the same individual has operating bases in Kenya, for example, as well as Bulgaria. That is just one example. It did not, thank God, result in an actual transfer but clearly the intent was there. Q27 Chairman: I am conscious that we are in a public session and it might be information that it is appropriate you could pass on to us privately. If investigations are taking place, we do not want to jeopardise them. I am as anxious as Sir John, we all are, to have information of that kind; I am just careful about not going too far into detailed discussion of individual cases. Mr McLean: One other brief point on arms brokering. If you look at the range of countries in the recent report from which weapons are being sourced, it does not of course give you the destinations but it is a very, very wide range of countries from which weapons are being brokered. Of course it does not tell you the location of the broker but it does give you a very good indication of the internationalisation of this trend. If arms brokers are sourcing weapons from places, even including Sri Lanka, then surely it is not beyond their wit to move out of UK soil and actually to organise the deal. Another point around your question as to what percentage of the trade will actually be covered by the existing controls, is that, again, that is going to be quite difficult to get at because of lack of transparency in the report, because under the brokering licences it does not list in the reports the type of equipment there. I think if that type of equipment was listed, then it would actually enable us to see what proportion actually is of the type of weapons that we are talking about. Sir John Stanley: I fully agree with what the Chairman has said, if there are any issues of breaching sub judice, but, as far as the Committee is concerned, in so far as you are able to be specific, possibly even referring to press reports and so on, it would be very helpful for the Committee to be able to be as specific when the Foreign Secretary comes in front of us. Q28 Chairman: As Sir John has said, we would be very interested to have any information on this at all. Mr Sprague: The case that I referred to was actually submitted as part of the evidence to the secondary legislation and consultation process so it should actually appear somewhere in a public document. Chairman: We will ask the clerk to make sure we have it. Q29 Mr Hamilton: May I return to the issue we touched on at the beginning of the session and that is licensed production overseas to countries that are purchasing a product from the UK. Many of those countries demand that a certain proportion of what they buy is manufactured in their own country. During the past year the Government has announced the sale of Hawk jets to India. I understand that 42 of the 66 jets ordered are to be produced under licence in India. You have all commented on licensed production in the past. Do you have any specific concerns about this Hawk jet deal? Mr McLean: Yes, we have, and significant concerns - partly because of the essential risk that the transfer could result in an increase in regional instability and a breach of criterion 4. It has been well documented that, although Hawks are training jets, they do have a ground attack function that could be very useful in the mountainous terrain of Kashmir. Also, one of the reasons the Indian air force is keen to acquire trainer jets is to train their pilots to fly faster fighter jets that are capable of carrying a nuclear payload, so I think there is a serious concern about abetting future proliferation as well. As you say, the fact that some of these planes will be manufactured in India then of course loosens the degree of control we have over the deal and the potential re-export, for example. So I think it is a good example of how there is this growing trend towards licensed production and it does inevitably mean that the UK Government then has less control over the use to which these weapons will be put. A linked point to draw the Committee's attention to is the role which the UK now plays in exporting production equipment to other countries. Sometimes this may be part of licensed production deals, sometimes it may not, but, in the last 18 months, trawling through the report I have a list of 77 states to which the UK has supplied either software, technology equipment or components for overseas production. Q30 Mr Hamilton: Could you let us have a copy of that. Mr McLean: I can. And that includes a lot of countries which have raised a lot of eyebrows. So I think that is an important thing to keep an eye on in this globalised defence world as to the role which the UK is potentially playing in assisting the development of production facilities overseas. Mr Parker: We have an example of a case study where French helicopters built under licence in India, including all sorts of component parts from around the EU, have subsequently been given to Nepal - basically attack helicopters that we do not feel would have been given licences from within the EU. So that is illustrative of the risk of further proliferation once the equipment has been made. Q31 Mr Hamilton: Do any of you have any evidence that British goods manufactured under licence or exported from the UK could have been used in Kashmir in that conflict or have been re-exported for end use elsewhere? Mr McLean: Of course these Hawks have not yet been built. The licence was only granted the last year. Q32 Mr Hamilton: I mean, any other arms that have been exported or manufactured under licence in India. Mr McLean: Again, the issue is about risk. It is not actually necessarily about evidence of things being misused on the ground in Kashmir. We do not have people on the ground in Kashmir, so we do not have that direct evidence. But the question we need to be continually asking ourselves and ensuring that the Government are asking is: Is the criterion being implemented? and the criterion is a risk-based assessment about the potential use of this equipment for internal repression or regional instability. Q33 Mr Viggers: American legislation the International Traffic in Arms Regulations (ITAR) severely limits the export of weapons and technology from the United States. It is a wish of both President Bush and our Prime Minister that the UK should be given a waiver from those regulations - the famous ITAR waiver. This was agreed between the President and the Prime Minister in February 2001. The House of Representatives Committee on International Relations produced a very critical report which said that the British export licensing system was porous. What is your view of the US House of Representatives Committee on International Relations' report which criticised British regulations? Do you think these criticisms were valid? Mr McLean: I think one of the things they were looking for was a notification of onward exports of equipments within which would have been US components. I think that is something which actually we would encourage the UK to provide to the US. I think it would be very useful in terms of beginning to establish a greater transatlantic dialogue on export issues and a potential convergence in export policy between the UK and the US. I think it is also actually the type of end-use agreement that we would encourage the UK to ensure is inserted into licences which we are granting to other countries as well. Obviously, if we are expecting that to happen of the recipients of British arms, then I think it is only fair that we would be expected to do it to the US as well. So I think that particular criticism we would share. If the UK did introduce that system, it would be very positive. Mr Sprague: There was another quite stinging criticism from the US report that I think is quite relevant. They make a point around the five nations' agreement, in that the UK has agreed prior notification for re-export for commercial reasons and the American committee quite rightly point out that that seems to be inconsistent with the view not to want to do it for matters of national security and US national interest. That seems to be quite a strong point. Chairman: Thank you very much indeed again. If we have any further questions to ask of you, we will obviously contact you. We hope to produce a report early next year, for reasons that may be pretty obvious. If there is any additional information you feel the Committee ought to be aware of in relation to our inquiry please do not hesitate to contact us. Thank you very much.
Memorandum submitted by Export Group for Aerospace and Defence
Examination of Witnesses
Witnesses: Mr David Hayes, Export Controls Compliance Manager, Rolls-Royce plc, Mr Tim Otter, Vice President, Business Development, Smiths Detection, Mr Michael Bell, Export Controls Consultant, BAE Systems, and Mr Brinley Salzmann, Exports Director, Defence Manufacturers' Association, Export Group for Aerospace and Defence, examined. Q34 Chairman: Gentlemen, good morning. We note that the Defence Manufacturers' Export Licensing Group have been rebranded and you are now the Export Group for Aerospace and Defence, or EGAD. You are very welcome as always. Can I thank you also for the written submission you made in respect of this meeting. It has been very helpful. Perhaps I ought to kick off the questions. Could I start with the issue of the arms embargo in relation to China which you do refer to in your submission. Could I ask you to briefly identify what you think are the main risks and the main opportunities of lifting the arms embargo? Mr Salzmann: I do not personally think there will be much in the way of additional opportunities for the British defence industry arising from this. Certainly the practical experience of a lot of our member companies who have applied for export licences for China for equipments which are well outside the scope of the EU embargo is one where refusals are extremely common. I know for instance of three instances last year of member companies which applied for licences for the supply of non‑offensive, non‑weapon related naval equipment to China where the licences were refused and I am aware of some instances this year as well. I do not think there will be any increase in business opportunities for British defence companies in China but there is, as was referred to by Oliver from Oxfam, a certain threat of what the American reaction would be to the removal of the embargo, especially if that were to result in another EU Member State approving a licence for something which was previously caught by the embargo. I think one thing that could be said is the removal of the embargo will not have any effect on British suppliers in that I cannot possibly envisage a scenario in which equipment which would previously have been caught by the EU embargo being approved by the British Government when assessed against the EU criteria. Q35 Chairman: Who do you think would benefit then from the lifting of the embargo? Mr Salzmann: Of course there is a lot of political symbolism in the embargo and as been reported in the press, a lot of it driven by non‑defence commercial interests because of Chinese perceptions and Chinese annoyance at the continuing embargo being in place. It has been reported widely in the media that the Chinese are wanting to put relations with the EU on a more traditional basis and are wanting the embargo removed. So it could well be that it is more commercial business interests rather than strict defence business interests which would potentially gain from the removal of the embargo. Certainly I can confirm that as far as I am aware no‑one in the British defence industry is doing any lobbying of any kind to the British Government supporting the removal of the embargo, so we are fairly neutral about the whole thing because we do not see that there are any particular benefits to us to be had from it. Q36 Chairman: Given the strong views that the US has on this issue, do you think there is any risk that US trade with Europe will be damaged if the embargo is lifted and that might in any way impact on British defence manufacturers? Mr Salzmann: We fully support the British Government's reported efforts to try to strengthen the EU embargo to satisfy and allay the American Government's concerns and the American politicians' concerns on this, and also to introduce some greater degree of transparency so that the Americans can be more satisfied that the Code of Conduct will be preventing any additional defence sales to China, and that they can then see the proof through greater transparency that that has been the case. Q37 Mr O'Neill: I was asking previous witnesses about the Export Control Organisation and they may come at it from a slightly different standpoint to your own. How do you envisage the impact of the imposed, probably Gershon driven, efficiency savings affecting the smoothness of the operation? Mr Salzmann: We would be concerned about that greatly, as we say in our submission. At the moment the feedback from member companies is that the licensing system appears to be working more expeditiously and more efficiently than at any time in living memory. It appears to be working extremely well. We would not want to see any retrograde steps taken as a result of Treasury‑inspired arbitrary cuts in personnel and resources allocated to export control. As we have said in our submission, at this time when there is increased recognition of the importance of export controls, if the staff really are surplus to requirements for the licence processing then surely they can be reallocated to what we call missionary-type work, going out there trying to be more proactive, trying to identify companies who currently are operating outside of the system, either deliberately or inadvertently. Q38 Mr O'Neill: One of the problems is that we have just had a major review. We have the unusual circumstance of both yourselves and the NGOs being broadly in sympathy with the direction in which the organisation is going. One thing I am not very clear about - and I do not think in our brief we have had any information about - is the charging process at the moment for the licensing procedures. Mr Salzmann: There are no cost charges made for licences in the UK. There was a proposal made in the Green Paper in 1996 to introduce such charges but by the time the White Paper came out in 1998 that had been put to one side. We do have naturally, as you would expect, some concerns about that but we do also recognise that there is charging, for instance, in Australia, the United States and I believe Germany for licences, so there are other countries who have charging for licences. We would have some concerns. Certainly we would have concerns for instance about the charging for rating inquiries because that could act as an encouragement to non‑compliance for those companies who do not know whether the goods are licensable or not. We want to encourage them to apply for ratings and to find out, not to put anything in their way which might discourage them from doing that. Mr Bell: Could I add a couple of points there. The first is that the costs to companies are already significant in terms of compliance. We are audited, we need to keep records, we need to make sure that everybody is compliant, so it is not as if it is free already. The second is it is not a licence like a TV licence or a dog licence, the licence is not a guarantee that you will be able to export. It is always made clear that if circumstances change the licence may be withdrawn or its conditions changed and I cannot see that the Government can operate in any other way. So charging one for a licence of that nature does seem to be rather unreasonable. Q39 Mr O'Neill: I think the point is that you are getting a service for free when a number of other government departments in the export business, when they offer it, actually require people to pay for the advice and assistance they are getting. I just wonder if you want to maintain the quality of the service, which I think we all agree has improved, that it may well be that some form of charging, whether it is on a per licence application basis or a percentage of the value of the contract, might be a way of ensuring the quality of the service. Mr Bell: It is quite likely to encourage non‑compliance. Mr Otter: Yes. I think I am also right in saying - and I stand to be corrected - that in those countries, if for instance you are an NGO and you want a copy of the export licence report you have to pay for it at market rates so there is a quid pro quo. If you want to go and find out information from US regulator you have to pay for it even as a member of Congress, I think. Mr Hayes: I share my colleagues' concerns about the number of companies who are operating currently outside the system. One good example of that would be when the new legislation was enacted I believe in excess of 250 companies registered to use the general export licence technology for military goods. It is reasonable to conclude that as a minimum the bulk of those companies were previously operating outside of the system and there is a very real danger of erecting barriers to compliance which would discourage companies from coming on board rather than encourage them. Mr Evans: Following last time when representations were made to us by this group relating to the fact that you thought that Britain was far more severe than any of our EU partners in the way that they interpret various rules and regulations and the time that they take to progress applications and so on, we made a recommendation in our report, number 48 (I am sure you remember well) and in the Government's response they gave us a kicking, quite frankly, for believing you on virtually every count, particularly you Mr Otter who made some severe allegations. We had said to the Government, "Come on, shape up, we are losing out," and they refuted virtually everything that you had said on things like painting some equipment blue so it could get through (that is the French Government ) that you could just phone up the German Government and get an answer over the phone within 36 hours whereas it takes many days for us. The Government virtually refuted every allegation apart from the one on riot shields and even then they say they are looking at that one themselves. Here is your opportunity to get your own back. 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? 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 ten 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. 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 States 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 for, 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 and 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 to risk that 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 policy 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 other 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 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. 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? Q60 Mr Hamilton: Gentlemen, on 22 September this year, as you know, the UK arms embargo on exports to Libya was lifted. Could you tell us how well placed British companies are to enter this market? Are you in a better or worse position than other EU companies? Mr Salzmann: Certainly British companies are interested in the Libyan market and they are looking at what opportunities might arise, but I think it is safe to say that it is not going to be open house where you can sell anything you want to the Libyans. All licence applications will still have to be judged against the EU Code of Conduct and I am perfectly certain that the British Government will have concern about particular types of equipment - weapons systems, riot control equipment, more sensitive high tech equipment - going to the Libyans so, as I say, it is not going to be a completely open market where British companies are going to be able to sell anything they want there. British companies could be at a slight disadvantage in that the USA has still maintained its embargo on US munitions list items to Libya and an awful lot of the British equipment has American munitions list component systems and sub‑systems contained within it. Therefore, British companies would not be able to bid those systems. They would have to try to identify potential alternative sources of supply to replace the American content before they could bid for anything to the Libyans. At the moment I do not think anybody has sight of what the Libyans shopping list is and what exactly it is they are looking for. As I say, a lot of what they might be looking for the British Government would not allow British companies to supply in any case when judged and assessed against the EU Code of Conduct. Q61 Mr Hamilton: Does anybody else want to comment? Mr Otter: At the risk of getting another good kicking from the Government (but then that is what being a second row forward is all about ‑ I kick back) I know for a fact that the Libyans have already got equipment that Smiths would produce and have had for some years, and it was supplied by Finland and France, end of story, so we are not even thinking about going there because it is a done deal. Q62 Mr Hamilton: How does our export control licensing system compare with other EU states as far as Libya is concerned? Does everybody take the same view on what can and cannot be sold? Mr Salzmann: I think that would be open to interpretation. I am sure that would be open to interpretation between the various governments. The removal of the embargo is all about interpretation of the Code of Conduct. Q63 Mr Hamilton: Presumably that puts British companies at some considerable disadvantage from what you are saying? Mr Otter: I would think so. I cannot make a definitive statement but quite obviously from Smiths narrow perspective as opposed to NBC UK's general perspective, our competitor equipment is already there. Mr Salzmann: Until we have got a constituency of test cases of which companies are applying for licences and see what is approved and refused, we cannot tell at this stage. Mr Otter: From the NBC and defence industry's point of view, British companies are just not wasting their time going about applying for the licences or the 680s. Q64 Mr Davies: Am I right in thinking that the burden of the testimony we have just been hearing from Mr Salzmann and Mr Otter is that the interests of our country in the defence industry would be enhanced if the responsibility for administrating and enforcing the EU Code was a single responsibility, say in the hands of the EU Commission rather than left to the individual Member States to apply this Code in various ways and often in ways more favourable to the arms exporters. Is that right? Is that a reasonable and logical conclusion to draw from what you have just said? Mr Bell: No, in the sense that whatever industry might feel about this, the fact is that the administration of defence exports is a national responsibility. Q65 Mr Davies: I know it is at the moment. I am simply saying is it not a logical conclusion from what you have said this morning that it would be in our interests if in fact the administration and enforcement of the Code were in a single hand? Mr Otter: I think if there was an EU embargo on a country then there is at least discussion worth having about whether the EU administered licences to that country. Q66 Mr Davies: To avoid the differential problems of enforcement you have just drawn attention to which always seem to work against the interests of this country? That is the testimony we have received from you this morning and I am drawing what I think is an inescapable and logical conclusion. Mr Salzmann: Although the British Government when we raise these points in meetings with them say that there are other cases when other EU Member States will refuse licences which the British Government would not. Q67 Mr Davies: Do you know of such cases? Mr Salzmann: Not off the top of my head, no. Q68 Mr Davies: Does Mr Otter know of such cases? Mr Otter: No. Mr Davies: I think the point is established. Q69 Chairman: I think your proposition would be very difficult to implement from my discussions with the French. Mr Bell: I wonder if I could just make one additional point. We have been rather rude about the DGI this morning but there are many features of the British system which are very good, notably the open licensing system, and I would hesitate to have that scrapped and that baby thrown out with the bath water, so I think any changes would need to retain the virtues of the British system, whatever else happened. Q70 Mr Viggers: I am still not really sure what your priorities are in the review of the Code of Conduct. Are we harmonising up or harmonising down? What steps would you like to see taken? Mr Salzmann: I think efforts to try to harmonise up the interpretations to what we regard as being the high level that the UK has, and trying to harmonise and make the Code of Conduct stricter. Certainly, as I said earlier on, we feel that that is going to be necessary before the removal of the arms embargo in China. To satisfy American concerns, the EU's Code of Conduct has to be strengthened and also of course there needs to be harmonisation in terms of reporting and transparency. We would love to see other EU Member States producing the same sort of quality of work and reporting that the British Government does. Q71 Mr Viggers: Is it the Code of Conduct which needs to be harmonised up or is it the interpretation of it by different Member States? I suppose that is another way of asking the same question. Mr Hayes: Arguably the Code of Conduct is harmonised anyway. It is the same Code of Conduct in all of the countries, therefore almost by definition it has to be the interpretation of that Code which needs further work. Q72 Mr Viggers: Are you expecting that you will have to disclose more information or less after harmonisation? Mr Hayes: Given that the reporting that is already done by the DTI is the most transparent within the EU, I would not expect the result to be that even more transparency is required from every Member State. I think it would be more a case of the other Member States endeavouring to emulate the reporting transparency of the DTI. Q73 Mr Viggers: And are the EU regulations and the harmonisation of them a factor which comes into discussion with the United States over the ITAR waiver? How do the two inter‑relate? Mr Bell: They have not inter‑related at all. The American authorities have chosen to regard the relationship as strictly bilateral. They accept that our controls are "comparable" and, as has been said earlier, the agreements do require acceptance of American re‑export controls, and that I think is about where matters stand. Q74 Mr O'Neill: The Export Control Act came into force on 1 May this year and there have been about four different Orders as well. When you last gave us evidence I think our report reflected what you and the NGOs and ourselves thought that perhaps a fresh look at the administration of export licences as a whole would be desirable. That was rejected by the DTI who felt that the new system should be allowed to bed down but they did bring in road shows and the like. You yourselves were, I think, quite concerned that at least some of the people involved in exporting armaments did not really know how the old system worked and they were not really sure how the new one was going to work. Have things improved with the road show system and the various booklets that have been published, are you conscious of people having a clearer idea of what is going on? Mr Salzmann: I think things have improved to a certain extent. Certainly the road shows and the awareness activities undertaken to try to promote awareness within the United Kingdom industry of the new regulations helped to galvanise awareness of the existing regulations where some companies have slipped through the cracks. There are companies that suddenly became aware of the fact that they had been doing things for 20 or 30 years without licences and now they have found they need them. It has helped to a major extent but the feedback we are getting from a number people, including the export control consultants who operate in this country ‑ and there are less than half a dozen of them ‑ is that more is needed because, as one of them said at a seminar last month, the industry is divided between three types of people, the good, the bad and the ignorant, and there is still an awful lot of ignorance out there on the part of some people so certainly we warmly commend the DTI's efforts at promoting awareness but more needs to be done, which is why I made the comment earlier on that maybe the resources which the DTI now finds are surplus to requirements for licensing could be more effectively re allocated to missionary work to try to find these other people. Q75 Mr O'Neill: One last point, I think the estimate was made prior to the implementation of the legislation that it would probably cost a large company about half a million pounds over and above existing costs. Was that estimate an exaggeration or has experience shown that it has been more expensive? Mr Bell: We did produce a rough order of magnitude estimate from our company BAE Systems. We estimated that the extra costs amounted to about £1.8 million in the six months leading up the implementation of the Orders on 1 May, so I think the figure of half a million is a substantial under‑estimate for us. Q76 Mr O'Neill: I think the point is, with respect, it was not preparing for it, it was that once it was in place it was going to cost half a million. You could spread the £1.8 million over several years because hopefully there will not be that many changes that will be that expensive in the future. Obviously you are the biggest. A "large" company may not be the biggest one, so perhaps your argument is not, with respect, the most relevant. Mr Hayes, you are not quite the same size but of similar magnitude. Mr Hayes: In our case we estimated that the cost of the additional training arising from the legislation would be in the region of half a million and that has actually proved to be an accurate estimate. Q77 Mr O'Neill: You have come in on budget, which is one of the things that British Aerospace does not always do, of course! Mr Otter: That could be like manifesto promises! Q78 Sir John Stanley: I think you were in the room when we had the earlier exchange about trafficking and brokering. I want to understand better than I do now whether you have real as opposed to gut reaction objections to our recommendation that the Government should seek to extend extra territorial control to all trafficking and brokering which if conducted in the UK would not be granted a licence. I absolutely understand where you come from. As companies in the private sector, you have an instinctive nervousness about any government proposal to extend regulation into your area of life. I understand that and I sympathise with it, but as members of the Defence Manufacturers' Association you are law‑abiding, responsible companies and you have a huge level of reputational risk, and I find it difficult to believe that you would want to circumvent arms export licensing controls by going overseas and engaging in selling your products to countries where you would not be granted an export licence if they were sold out of the UK. If I could put the question to you, if you could dump instinctive nervousness to one side, do you have any actual, genuine, real live objections to the extension to the present extra-territoriality of defence export controls generally on the basis that if they were conducted in the UK they would not be granted a licence? Mr Salzmann: We would not know whether they would be granted a licence or not until we had applied for a licence and received a refusal, therefore no corporate entity could make that decision as to whether that would be licensable by the British Government or not without seeking a licence. That is a pre‑condition as to what deals would need to be licensed which no companies can actually satisfy. Q79 Sir John Stanley: Surely you would be able to establish that from the DTI, would you not? Mr Salzmann: Not without applying for a licence because the advisers in the FCO and MoD would want the full information which is provided in a licence application in order for them to make a detailed proper and assessment as to whether that licence should be approved or not. Q80 Sir John Stanley: Can I put it to you the other way round. Would you as responsible law‑abiding companies want to get into a position whereby you got involved in an offshore arms deal which would inevitably be picked up by the media, and no doubt by this Committee ‑ I hope ‑ would involve you in a hugely bad reputational position? Mr Salzmann: No, but of course it is very difficult to try to define in legal terms what constitutes an act of trafficking and brokering. It is a bit like a few years ago an American judge commented in a court, "I know what pornography is but I do not know how to define it." We all know what it is we want to try to control or curtail ‑ the supply of Bulgarian Kalashnikovs to Sudan or whatever ‑ but it is very difficult to define that in legal terms without sweeping up a whole raft of other commercial activities which are the norm within supply chain relationships. Mr Otter: I think what you are saying could be done if there were a different model in place, and one of the things we have put in our written submission is that rather than wait for the period when the DTI come along and say that is when we start reviewing, that this Committee, industry and the NGOs sit down together and work out what it is we want to do so that at that period we can enact the legislation that we think is right rather than waiting for that period to transpire, then go through it, so that is another year or two years before you get to a new system. I think that has to be an option and a way forward. Everybody should sit down now, work out what it is we really want to do, and then do it, and it depends on a different model of licensing. It depends perhaps on the way the Germans and French do it which is they license you to carry out a deal with that country and unless they tell you to stop, you can continue. I think that has to be the way forward and it would also help deal with the issues of shortage of staff and goodness knows what else. Mr Hayes: I think one of the inherent dangers of extra-territoriality is the level of complexity and the effect of the law of unintended consequences. Mr Otter is an expert on the law of unintended consequences because a lot of his activities have been swept up by the new controls which perhaps were not intended to be. Turning specifically to the question of extra‑territoriality, not within the context of trade controls but within the context of technical assistance and transfers of technology, the Government set out to render the transfer of software or technology by a UK person subject to control where this was intended for use outside the EC. In the main Order the Export of Goods, Transfer of Technology and Provision of Technical Assistance (Control) Order, they actually use the word "transfer" in relation to extra territorial activity and then define the transfer as an act taking place within the United Kingdom. So therefore it is arguable that the extra territorial provision they intended to put in place there is not actually effective. That illustrates the complexity that we are dealing with. Mr Bell: Assuming that the extra-territorial controls are effective, it seems, as I think the NGOs mention, particularly odd that they are applied to long‑range missiles and UAVs which are only sold to governments. Q81 Sir John Stanley: That is what I said. Mr Bell: With the support indeed of our own Government. The only effect of that is greatly to complicate the life of our friends in MBDA and increasingly us in BAE Systems as we go into the UAV business, and to inadvertently criminalise Brits working on programmes which are covered by restricted goods controls in third countries. This does seem to be a strange way to go on. Chairman: Thank you, gentlemen. Sir John got the right answer to the last question there. We are very grateful indeed, as always, for your presence, and indeed for your written evidence. You have offered to respond to some specific questions we have raised. If we have any further ones we will get back to you. But thank you again for your attendance this morning; it is greatly appreciated. |