Examination of Witnesses (Questions 1-19)|
31 JANUARY 2006
Chairman: Good afternoon and welcome.
Before we go any further I would like Members of the Committee
to very quickly go round the table and declare any relevant interests.
Mr Keetch: I have defence manufacturers
in my Hereford constituency. I have also visited the United States
twice as a guest of the UK Defence Forum to talk about ITAR waivers
and other Defence Ministry policies to members of Congress in
the United States of America.
Malcolm Bruce: I am not aware of any
Peter Luff: I do have defence manufacturers
and suppliers to defence manufacturers in my constituency; apart
from that, none.
Judy Mallaber: I have members of my constituency
who work in Rolls-Royce in Derby and I am a member of Amnesty,
so where that leaves me, I do not know!
Richard Burden: Ditto, I have got a number
of constituents who work in defence-related industries and I am
a member of Amnesty.
Chairman: I have a number of constituents
who work in defence industries. I am a member of the trade union
Amicus and also a member of Amnesty.
Mr Hoyle: Lindsay Hoyle, I am a member
of Amicus and I also have constituents who work within the defence
industry and defence companies within my constituency.
Mr Crausby: I have members of my constituency
working in the defence industry and I am one of the joint chairs
of the All-Party Amicus Group and a member of Amicus.
Linda Gilroy: I have constituents who
work in the defence industry and I am a member of the Transport
& General Workers' Union and I am Vice President of the Society
of Maritime Industries.
Mike Gapes: I am a member of the Transport
& General Workers' Union and I guess some of my constituents
work in defence industries but I am not sure how many.
Sir John Stanley: I am not aware of any
defence manufacturers in my constituency, sadly.
Mr Hamilton: I am a member of the trade
Robert Key: I have defence establishments
in my constituency and defence suppliers and manufacturers in
Chairman: Thank you very much.
Richard Burden: Could I add my membership
of the Transport & General Workers' Union, which I forgot.
Q1 Chairman: We will draw a line
there. In the interests of transparency we felt that was important.
Mr Hayes, would you and your colleagues like for the record to
introduce yourselves, please?
Mr Hayes: I am David Hayes, Chairman
of the Export Group for Aerospace and Defence, Head of Export
Controls for Rolls-Royce plc.
Mr Salzmann: I am Brinley Salzmann,
and I am the Exports Director of the Defence Manufacturers' Association
and Secretary of the Export Group for Aerospace and Defence.
Mr Marshall: Derek Marshall, I
am Director of Aerospace Defence and Homeland Security for SBAC,
a trade association.
Mr Wilson: David Wilson, I am
the Export Compliance Manager for Electronic Data Systems UK and
a Member of the Export Group for Aerospace and Defence.
Ms Peers: I am Bernadette Peers,
I am the Compliance Manager for the Strategic Shipping Company,
who are a freight forwarder who move predominantly military supplies.
Q2 Chairman: Thank you very much.
You are very welcome. It is good to see you again. Thank you for
your written submissions which have been very helpful. There are
five of you and slightly more than five of us. We will attempt
to keep our questions brief and to the point and it would obviously
be very helpful, given that we have an hour for this evidence
session, if you could keep your remarks short with perhaps one
person responding to each question unless someone else has something
new to say. Forgive me for putting it in those terms but you will
appreciate we want to get maximum value from this session. Obviously
if there are questions that we feel we have not had time to ask
we will write to you after the meeting so that we have got a full
record. Similarly, if you feel there are questions you wanted
us to ask and we did not get round to it, feel free to contact
our Clerk. Could I start by raising the question of the proposed
International Arms Trade Treaty? During the UK's Presidency of
the G8 it was one of the issues that the Government actively pursued.
I would be interested to know what both EGAD and SBAC would like
to see included in an International Arms Trade Treaty.
Mr Salzmann: Certainly I think
I would like to reiterate our support for the principle behind
an Arms Trade Treaty which should establish a much greater degree
of transparency within those signatory nations of the criteria
we should use to assess licence applications. Of course, we have
yet to see the actual details of what is proposed. I would say
that there has been some confusion within the industry and elsewhere
arising from the publicity materials and press articles and letters
in the newspapers which have been put out by the NGOs and others
which are leading some to the presumption that it is focused on
the small arms and light weapons sector. Consistently we see that
and there is this perception that it is focused on small arms,
whereas of course at the moment as envisaged it is all-encompassing
across the military list. I think I can safely say that we would
support as wide-ranging a treaty as possible, encompassing everything
on the British military list, going even further and suggesting
that just controlling items on the military list without seeking
to control the dual-use items (which could be used for the manufacture
of items which are on the military list) should also be covered
by the Treaty. It would be something of a loophole if you did
not also catch the means of production of those items which are
on the dual-use list. So we would perhaps go further and say not
just the military list items but much further than that.
Q3 Chairman: Is there anything that
you would like not to be in the Treaty that you fear might be
in such a Treaty? Have you got any concerns?
Mr Salzmann: At the moment we
are just waiting to see the detail of what comes out.
Q4 Chairman: In relation to the EU
Presidency, I am mindful of the fact that last time we met, industry
raised concerns about the differences in treatment of exports
by different members of the EU. I think Germany was identified
as a cause for concern by a number of you.
Mr Salzmann: Yes.
Q5 Chairman: Have there been any
recent problems in that area? Are there any on-going concerns
of that kind?
Mr Salzmann: There are always
going to be discrepancies in decision-making between the national
governments on export licence applications which they receive
from their companies. That is a continuing situation which I think
is unavoidable, but we are all waiting with bated breath to see
what comes out of the revision of the EU Code of Conduct, which
I think no-one in British industry has had sight of yet and which
we understand is currently with the national governments of the
EU and yet to be ratified and finalised. We have yet to see what
comes out of that and whether that will help to get rid of the
room for discrepancies between national governments when they
make their decisions.
Chairman: Thank you very much.
Q6 Sir John Stanley: As you will
know if you came before the predecessor of this Committee in the
last Parliament, the predecessor Committee has taken a very different
view on policy towards trafficking and brokering from the Government.
Whereas the Government is happy to accept a position whereby UK
citizens involved in trafficking and brokering can be fully within
the regulatory and legal authority of this country, if the trafficking
and brokering is carried out in relation to any items on the military
list in this country, the Government take the view that once they
are outside the territorial jurisdiction of this country, unless
they are engaged in trafficking and brokering in items of torture
or long-range missiles in excess of 300 kilometres in range, they
are totally beyond the reach of British law. When you last came
before us it appeared that you were sympathetic to the Government's
position whereas the Committee have taken the position previously
that all such extra-territorial trafficking and brokering by UK
citizens, wherever carried out in the world, should be subject
to UK law. Do you still adhere to your previous position or have
you modified it in any way?
Mr Hayes: I am not sure that I
would agree that our previous position was necessarily sympathetic
to the Government's position on trafficking and brokering. I think
the view of EGAD would be that there are anomalies within the
trafficking and brokering controls. They are less than ideal in
a number of areas. One of the anomalies is the treatment of UAVs
and equating UAVs with the likes of torture equipment, and an
area of particular concern to the NGO community, and from what
we read in the press, to the public at large, is the application
of the controls to small arms and light weapons. At the moment
EGAD is working on a series of proposals and we are discussing
with NGOs ways in which the controls could be improved to make
them more effective.
Q7 Sir John Stanley: When you say
you are discussing ways to make the controls more effective, are
you saying that you are now willing to contemplate a widening
of UK legislation to extend the controls on trafficking and brokering
to UK citizens overseas engaged in the sale and trafficking and
brokering of items that fall between torture equipment and long-range
Mr Hayes: Not necessarily. I think
probably what we are talking about is looking at better targeting
of extra-territorial provisions to those items which are of the
greatest concern rather than extending full extra-territorial
control over brokering of anything that is on the military list.
Sir John Stanley: When you say
better targeting, for example what about MANPADS, which are a
very significant item and widely trafficked and brokered, do you
not feel that there is a compelling case for them to be within
the existing widened legislation so far as the UK is concerned
and will you also cover this point?
Q8 Chairman: Sir John, forgive me
if I just interrupt. Could we be specific, I think you have raised
an important issue. Small arms; should they be covered? Short-range
missiles; should they be covered, in your view?
Mr Salzmann: I think we are very
sympathetic towards the arguments that they should be covered
but our view is that there should be three categories. Rather
than "controlled" and "restricted", there
should be a third category where the controls are the same controls
on the same activities as for controlled goods but that they have
an extra-territorial dimension. Our main concern is about the
provision of advertising and promotional services where we are
not quite sure what the DTI's aim was in including those in the
regulations. We would be very supportive of the inclusion of small
arms and light weapons in another category of control which would
be extra-territorial in dimension and would catch UK citizens
Q9 Sir John Stanley: So you are actually
agreeing with the proposition I put to you which I thought your
colleague was steering against. You are actually moving in the
direction that the Committee would wish on small arms and light
Mr Salzmann: Small arms and light
weapons, yes, and I believe that on MANPADS, measures are already
underway to make them restricted goods, as far as I am aware.
Q10 Sir John Stanley: Would it not
also be sensible to include explosives, detonators, bomb-making
equipment, some of the standard equipment of terrorist organisations?
Mr Hayes: I would not want to
pre-empt the work that is going on at the moment and the discussions
between EGAD and the NGOs by presuming to reach a conclusion that
has not yet been reached for the purposes of explaining to the
Committee where we are. Where we are at the moment is that we
are currently discussing it and it would be presumptuous in view
of the fact that we have not reached a conclusion to say what
I think they will be.
Q11 Sir John Stanley: Will you please,
when you reach conclusions, make certain that the Committee is
informed as quickly as possible about your conclusions?
Mr Salzmann: Yes.
Chairman: Thank you, we look forward
Q12 Linda Gilroy: There is an increasing
trend for UK companies to be involved in arms production in other
countries. How strongly is that trend developing and what are
the key things driving it?
Mr Wilson: One of the questions
asked was does the licensing regime encourage this to happen,
and I think I would be inclined to say along with my colleagues
that the licensing regime we have in place does actively discourage
taking the production or manufacture of "arms" offshore.
The driver for offshore production, I would say, is exactly the
same for arms' manufacturers, arms' producers and indeed producers
of military software as it is for manufacturers of vacuum cleaners
in that it is much cheaper to do the mechanical production processes
overseas where labour costs are lower, where overall costs are
perhaps lower. It is cheaper to hire high-quality staff. The licensing
process that we have in place makes very sure, in my view, that
when production is taken overseas it is perhaps "build it
to blueprint" so perhaps aircraft parts would be manufactured
overseas, you send the overseas factory a blueprint, a diagram,
and say "make me one of those". The "metal bashing"
element, if you like, can be done much more cheaply overseas in
low-wage environments than it can in the UK. Where there are concerns
like the transfer of technology, particularly if that technology
has American elements in it and is therefore controlled extra
territorially by the Americans as well, the licensing regime works
against sending that technology overseas.
Q13 Linda Gilroy: Yes, I think that
is an issue we can maybe return to some time. The UK Working Group
on Arms suggests that the overseas subsidiary companies in which
a majority shareholding is by a UK parent or where UK beneficial
ownership can be established should be subject to UK export controls.
Does industry have a problem with that?
Mr Wilson: So you would be contemplating
adopting the American view that if there were more than a certain
percentage of UK content in any particular technology it should
be controlled wherever in the world it goes? Do I understand that
Linda Gilroy: Yes.
Mr Wilson: It would lead to a
huge proliferation of extra-territorial controls. As I understand
it, the UK Parliament has said that the United States' extra-territorial
controls are an infringement or are likely to be an infringement
of UK sovereignty; I suspect the same arguments would be applied
against us. Equally, of course, if we have a US daughter company,
son company or whatever, those constraints would presumably attempt
to be applied in the US. I think it would be very difficult to
manage, it would be very difficult to control, but we do already
have the trade controls so if trafficking or brokering is managed
in any way by a UK-based company, which I think the assumption
would be if it was a UK-owned company, then the existing trade
controls on trafficking and brokering would apply in any case,
so I think we already have an oversight of what is likely to happen
without trying to make the export control network yet more complex.
I think what we need to do is make it more simple, more targeted
and I think the existing trade controls that we have do that very
Q14 Linda Gilroy: So the short answer
to the question is you would have problems with it?
Mr Wilson: We would have great
concern with that.
Q15 Chairman: As I understand it,
you said earlier that you felt the present control regime encouraged
licensed production overseas.
Mr Wilson: No, I said that the
present licensing control regime discourages licensed production
Linda Gilroy: I almost asked for
Mr Wilson: It is the financial
aspects which drive production overseas. The licensing regime
makes the transfer of technology to do that more difficult and
imposes controls on it.
Q16 Chairman: But what I thought
you had in mind was the conventional argument, which is that hypothetically
you are a UK company that wants to export arms to a certain place,
to a certain end-user; UK arms export controls prevent that export
from the UK; an obvious thing to do is to broker. The second obvious
thing to do is license production overseas, which was the basis
of my colleague's question. You simply establish establishments
in a second country to manufacture. I would have thought therefore
that the conventional wisdom is that trade controls that focus
on exports from the UK provide some incentive to contemplate the
alternatives, one of which clearly is licensed production overseas?
Mr Wilson: One of the things that
the Export Control Organisation examines when asked to give a
licence for overseas production is what the likely end-use is
going to be of whatever it is that is produced overseas. The biggest
example I can think of of overseas production is where, say, a
company wishes to make military aeroplanes; it is cheaper to have
the metal-bashing element of that done overseas. Similarly, for
some bits of military software, it is cheaper to have segments
of software developed overseas and brought back in. The issue
you are postulating of moving production overseas to avoid the
UK export controls, while it is possible, the technology to do
that needs to be exported under licence.
Q17 Chairman: Yes, that is the Government's
Mr Wilson: And the licensing regime
would make that very difficult because that is one of the criterion
that is examined; "where is it going to go?"
Mr Hayes: I think there is probably
a subtlety here we are not necessarily picking up when we are
talking about licensing production overseas. There is a difference
between licensed production overseas of an end system that is
useable by a foreign military and the licensing of production
overseas of a component which is going to come back to the UK
to be assembled into an end piece of equipment, and we are not
necessarily picking that up.
Chairman: That is important. Thank you.
Q18 Mr Keetch: Can I talk about ITAR
and specifically about JSF. I repeat the declaration I made earlier
that I have been to the United States twice in the last two or
three years to talk to Congressmen specifically about ITAR and
JSF, people like Henry Hyde, Duncan Hunter and others. It really
is incomprehensible to me that on a project that is so important
to the UK, the Joint Strike Fighter, the programme that is going
to equip our future aircraft carriers, a massive investment, where
the UK is the only Tier One partner of the US in terms of that
project, above Canada, above Australia and above Israel, that
an ITAR exemption is agreed between the UK government and the
US administration in 2003 and yet Congress has twice, in 2003
and again in 2004, refused to ratify that. For you, lady and gentlemen,
it must be incredibly frustrating that that has not been passed
by Congress. I wonder if you could just tell us if you think there
are any alternatives to the ITAR that could be brought into play?
Also, do you think there is anything more that Her Majesty's Government
could have done to help persuade Congress or the US administration
to actually pass this particular piece of legislation?
Mr Hayes: In December we were
invited to give evidence to the Defence Select Committee in relation
to this aspect and whilst we fully recognised the political symbolism,
if you like, of the ITAR waiver, the reality is that the waiver
was so limited in scope that it would actually have been of minimal
benefit, particularly in the context of a high-technology programme
like the Joint Strike Fighter. Having said that in our evidence,
we were then invited to put forward our own ideas as to what possible
alternatives there may be to the ITAR waiver as we move forward.
EGAD is working on that at the moment. There was a meeting this
morning to kick off that piece of work so it is in its very early
Q19 Mr Keetch: Could I suggest to
you, Mr Hayes, one thing you might like to look at is a suggestion
that was made 18 months ago to the British government which is
that the alternative to doing this, for exactly the reasons you
talked about, is the treaty that was agreed between the US and
the UK on Trident, which was a specific treaty obligation which
would have allowed for the movement of technology that would have
got over the issues about ITAR. The British government was advised
of this at least 18 months ago. Given that and given the fact
that there is a difference between the British and US systems,
where it is the US Congress that authorises this and not the administration,
are you also aware that it was suggested to the British government
18 months ago that it should seek Parliamentary support for British
parliamentarians to talk directly to UK Congressmen, in order
to try and get this message across, and that was not given the
support of the British government? Do you not think that we have
rather lost an opportunity there and had we sent not just the
Defence Committee across but parliamentarians to talk to Congressmen
we might have got a bit farther on this over the last two years
rather than running around at administration and government level?
Mr Marshall: I am sure we would
have welcomed all the support we could have got. There were some
issues. Digby Jones went out, for example, and a lot was done
by the industry and the Government and we did talk to each other,
but I had not heard of that particular position taken by the Government
and certainly we would have liked to have seen more support as