Examination of Witnesses (Questions 34
- 39)
WEDNESDAY 15 DECEMBER 2004
MR DAVID
HAYES, MR
TIM OTTER,
MR MICHAEL
BELL CB AND
MR BRINLEY
SALZMANN
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.[4]
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 publicly 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 some 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.
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