Examination of Witnesses (Questions 180
- 199)
TUESDAY 20 APRIL 2004 (Morning)
CAMPAIGN AGAINST
THE ARMS
TRADE
Q180 Chairman: The point I was really
getting at was that the volumes involved are of such an order
in relation to military construction and things like that, that
they will get the lion's share of it because of the size of it.
Ms Feltham: Yes.
Chairman: I just wanted to clarify that
point.
Mr Berry: My maths have gone skew-whiff
today! The claims paid, less the claims recovered, less the premiums
earned, is in fact £497 million. The subsidy over the 10-year
period, which is a perfectly reasonable period to take, is actually
half a billion, not a billion. The point is still valid. Over
that 10-year period something like half a billion was the net
cost.
Q181 Mr Clapham: Ms Feltham, could
I take you to paragraph 18? My objective here is to try and clear
up a couple of technical issues. In paragraph 18, which is on
case impact analysis, you make the point that the ECGD does not
require a case impact analysis for applications for which an export
licence is needed.
Ms Feltham: Yes.
Q182 Mr Clapham: Presumably, this
is because that assessment would be required by the Export Control
Organisation.
Ms Feltham: Yes.
Q183 Mr Clapham: That being the case,
is it not a sensible way of avoiding duplication?
Ms Feltham: We do not have huge
faith in the Export Control Organisation and the systems there,
but even leaving that aside, the Export Control Organisation and
the export licensing process does not cover either environmental
impact—which I would argue in military goods is usually
highly negative—and certainly does not cover the corruption
aspects that Transparency International have given evidence on.
Those are not covered by the export licensing process, but they
are by the ECGD's new processes.
Q184 Mr Clapham: You are saying that
the impact analysis is not covered by the Export Control Organisation.
I thought that it was.
Ms Feltham: In those two aspects
it is not.
Q185 Mr Clapham: Returning to your
point on the environmental analysis, which is not part of the
licensing consideration, could that not be added for example by
the ECGD as a licensing consideration, if it was felt appropriate
to do so? Have you put that argument to the ECGD?
Ms Feltham: They are well aware
of the fact that both civil airliners and military goods are not
getting their case impact analysis. As we are arguing that they
should not be giving any cover for military goods, we are not
particularly pushing on this one. It also would seem somewhat
odd to be pushing hard on the environmental side, when military
airliners are chasing around and are obviously not great for the
environment. Certainly the whole of the corruption side does feature.
Arms cases are mentioned quite frequently on that ground, and
that is what we have looked at rather more.
Q186 Sir Robert Smith: Listening
to your earlier exchanges, you are very much focused on the arms
trade. Would you see any merit, as a first step, in separating
the export credit guarantees into separate funds for arms and
defence trade, and a separate fund for civil and construction,
so that at least you could see the transparency?
Ms Feltham: It could be a first
step, yes. From the transparency point of view and getting the
whole debate properly out into the open, then that would be a
step in the right direction. Although we are against all arms
exports, we also see that the trade is not going to end overnight,
and steps do need to be taken. Maybe that would be a step, combined
with transparency and a commitment to trying to get all the ECAs
to stop supporting military goods. There has been some movement:
Gordon Brown did stop export credits, for unproductive expenditure,
to the very poorest countries. Not many of them did have any export
credits for military goods, but that sort of thing could be extended.
There is a great case—and the old head of the IMF supported
it—for pushing on that front in these international fora,
and for taking these incremental steps.
Q187 Sir Robert Smith: You also say
in your submission, "the transparency of the ECGD has improved
for its export guarantees, but regret that this has not been the
case for its insurance business". How significant is the
lack of transparency on the insurance side?
Ms Feltham: It looks as if they
are terribly transparent now because, as I said, you get this
long list of deals; but when you look at it, that is only about
a third of the cover, so there is a lot there that is hidden.
Even with the kind of cover with which they list contracts, companies
are permitted to say, "no, that is commercial in confidence",
and they are excluded; so you do not get the full picture. Probably,
some of the least savoury deals—and I do not know whether
they are military or not—would be the ones that the people
have asked to keep quiet.
Q188 Mr Berry: In paragraph 21 you
say that the Campaign against the Arms Trade has estimated that
the subsidy to arms exports amounts to about £750 million
a year. Can you communicate to the Committee how you arrive at
that figure?
Ms Feltham: We used quite a lot
of research that was done by other organisations, in particular
the Oxford Research Group and Saferworld, but we also added some
of our information to that. We have used things such as the Defence
Export Services Organisation, the Armed Forces defence attachés
and we have looked at various fixed costs; then we have taken
from that the monies that go back to government—the commercial
exploitation levy—from arms exports. We came up with that
sort of figure. Research and development is one of the huge things
which perhaps the other organisations did not use. One of the
big problems is the lack of transparency and lack of figures.
In some ways, this was trying to get the debate pushed. Other
groups were publishing their own information at the same time,
and for the Defence Committee the MoD economists, working with
the University of York, published their report; and they felt
that the cost of a 50% cut in arms exports would be comparatively
modest and short-term, and after that it was fairly economically
neutral. Therefore, decisions about the arms trade and exporting
arms ought to be taken on grounds other than economic grounds.
Although people are talking about jobs, and it obviously does
affect individuals at least in the short-term, overall it was
economically neutral to the economy.
Q189 Mr Berry: I recall some of the
studies. Would it be possible for you to provide the Committee
with the document that explains how that £750 million figure
was arrived at? I suspect I have seen it, frankly, but I have
forgotten. From the Committee's point of view, we would like to
see how robust we think those estimates are. What proportion of
that figure do you estimate comes from the activities of the ECGD?
Ms Feltham: At that time, a couple
of years ago, it was about £230 million, so about a third
or just under.
Q190 Mr Berry: Taking your 10-year
period, the average would be something like £50 million a
year ECGD. It would suggest that the subsidy is rising, if that
is the case.
Ms Feltham: There are other subsidies
on top. The breakdown on loss of premiums, for example, have
Q191 Mr Berry: Yes.
Ms Feltham: I think you have the
Ingram brothers coming this afternoon, who will explain.
Q192 Mr Berry: Any further clarification
on those two issues about the total subsidy and the contribution
of ECGD to that would be gratefully received.
Ms Feltham: Yes.
Q193 Sir Robert Smith: You said that
the MoD person said it was economically neutral, but you recognise
there is an impact on individuals in areas with large defence
businesses.
Ms Feltham: Certainly.
Q194 Sir Robert Smith: Do you have
a response to the other argument in favour of export credit guarantees
for military use, which is the MoD's argument that we need weapons
at the moment as part of our defences and need to be able to buy
them and therefore need them manufactured? We therefore need a
viable supply base. Whilst they may be economically neutral, they
are still very important to the national interest because they
provide us with the kind of technology that we can control.
Ms Walton: I do not think there
is any longer a national arms industry. Certainly, BAe systems
supplies more to the Pentagon, and Lockheed Martin employs people
in the UK, so it is very much a global industry. For many of the
products it seems as though the export potential is being looked
at before what the Government would consider for the UK, so it
is being led the other way round. You cannot get Hawk exports
to India unless the UK buys its Hawks, rather than something that
might be more appropriate. There is a whole question about whether
military defence is what is needed in the 21st century when the
challenges are other than that—terrorism and world threats,
and you end up with Eurofighter. I think there is a whole lot
of questions like that that need to be addressed, and yet the
Government only seems to address them through committees such
as the Aerospace Innovation and Growth team, for instance, or
at European level the Group of Personalities, which seem to be
very heavily loaded with arms manufacturers rather than bringing
in alternative viewpoints. There is a great discussion along those
lines. There is a lot more discussion to have with constituents—your
Lancashire constituents—and others as well about whether
or not job security and the economic viability of those areas
is best served by having a big company employer which is constantly
going to the Government for subsidies and feels constantly under
pressure to export weaponry into troublesome areas of the world.
Q195 Mr Hoyle: I recognise the point
you are making that if we did not supply Hawks to India, the money
would be spent elsewhere. The fact is that they would have bought
either MiGs or F16s; they would have bought something else. What
worries me is that you are saying, "if we do not have a defence
aerospace industry in the north-west, do not worry; if you have
got to defend yourself, buy it off the shelf from the Americans"
and all we are doing is transferring the jobs somewhere else.
That is the danger of the argument you are putting forward. In
fairness, you have not mentioned that there is a lot of technology
transfer that comes out of the defence industry that is used in
civil practice, so there are a lot of spin-off benefits, and those
ought to go into some of the estimates as well. Nobody has worked
out what the value of that is and how many jobs are being created
through technology transfer. That is very important, and I think
we both agree on that. The more that we can use technology transfer,
the better it is.
Ms Feltham: It could be that it
is the other way round: military uses civil technologies as well.
If those jobs were freed up, the people could immediately be looking
to develop for a civil market, so you would not have to transfer
it; it would be being developed for that straightaway.
Q196 Mr Hoyle: Have you any evidence
of that, because I have not?
Ms Feltham: No, because that is
what the economy is at, at the moment. I think, though, if you
sat down and thought about it, those jobs could be thought of
straightaway. There is a lot of possibility there. I think you
have to free the mind a bit from this idea that defence equals
the military aircraft produced in the north-west. Your constituents
could be making something a lot more worthwhile than they are
at the present. As for buying from the Americans, I am not suggesting
that we just buy F16s; I am suggesting that actually I do not
feel much safer because Britain has vast attack aircraft that
were actually designed for a European war which is not likely
to happen.
Q197 Mr Djanogly: What is your view
on the ECGD's new policies on bribery and corruption?
Ms Feltham: A great advance. We
largely work with other groups for comment on this, and particularly
The Corner House, which you are taking evidence from this afternoon.
We were pretty pleased when we saw the announcement at the beginning
of April. It does look like a step forward. I think there should
be a means for not giving any more cover to a company if there
is evidence that they have been involved in corrupt practices;
but it certainly is a step in the right direction.
Q198 Mr Djanogly: Presumably they
do not go to address your wider concerns at all.
Ms Feltham: No, but on the bright
side, we were pleased, as was mentioned earlier, about the five
cases to the National Criminal Intelligence Service. We do not
know what companies are involved. We do know that several of the
contracts underwritten by the ECGD have been the subject of articles
in the Guardian and elsewhere suggesting that there had
been improper practices; but it would be interesting to see what
comes out.
Q199 Judy Mallaber: In paragraph
15 of your evidence you set out five further actions that you
would like ECGD to take against corruption. You heard the exchange
earlier with Transparency International on what ECGD regard as
the limitations on their legal powers. In your view, do the five
additional actions that you are suggesting require new legislation?
Ms Feltham: I would bow to Transparency
International expertise in this area. I took it from what they
were saying that it would not, and in fact the ECGD's new cover
covers at least the A-D, and the only thing that is outstanding
to some large degree was not giving any further cover to companies
that were found to have been making illegal payments.
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