Quadripartite Select Committee Minutes of Evidence

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 relevant interests.

  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 union Amicus.

  Robert Key: I have defence establishments in my constituency and defence suppliers and manufacturers in my constituency.

  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 missiles?

  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 overseas.

  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 weapons?

  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 to that.

  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 correctly?

  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 effectively.

  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 oversees.

  Linda Gilroy: I almost asked for clarification.

  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 argument.

  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 stages.

  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 well.

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