Examination of Witnesses (Questions 20-39)
MR DAVID
HAYES, MR
BRINLEY SALZMANN,
MR DEREK
MARSHALL, MS
BERNADETTE PEERS
AND MR
DAVID WILSON
31 JANUARY 2006
Q20 Mr Keetch: So you would support—because
this is a decision made by US legislators and not by the Administration,
a very different position to that which we have in the UK—UK
legislators having a role in trying to persuade Congressmen and
Senators on the other side of the pond of the importance of this
and that might be a way to go—through a treaty obligation
which would not have the limitations of ITAR as opposed to what
the Government has been pursuing in the last two years?
Mr Marshall: The only comment
I would make on that is I think it is very important that we take
a co-ordinated approach and that the Government, Parliament and
the industry speaks with one voice and seeks the same thing. Hopefully
the proposals that we will be preparing are something we can talk
to you about and to the Ministry and so on.
Mr Salzmann: Also included in
the co-ordination has to be US industry which also has the same
frustrations.
Mr Hoyle: Even with the best endeavours
of Paul Keetch going there twice they have still refused to lift
the ITAR waiver!
Mr Keetch: I did my best!
Mr Hoyle: We recognise that and
we recognise failure unfortunately; maybe a third time you can
win them over, Paul.
Mr Keetch: At least I tried!
Q21 Mr Hoyle: Obviously the ITAR
waiver is something that is holding back the future of the Joint
Strike Fighter, which is a huge investment for the UK. Do you
believe that the programme is now completely at risk?
Mr Hayes: Absolutely not. I would
not even agree that the lack of an ITAR waiver in the form in
which it is drafted is holding back the JSF programme.
Q22 Mr Hoyle: Okay, I welcome that,
but the whole problem is you can still go ahead with the aircraft
but it would not allow you to have final assembly, intellectual
rights, and you could not export or service other people's aircraft
as it stands. Do you not think that is a major problem for the
future of UK aerospace?
Mr Hayes: I think that is a problem
that goes beyond purely regulatory and ITAR concerns. That is
probably something for other people certainly within my company
and the other companies involved to address. From a purely export
control point of view the lack of an ITAR waiver is not actually
having any impact on the programme.
Q23 Mr Hoyle: Just a final question.
They seem to be at odds over a future STOVL version of the Joint
Strike Fighter. What effect will that have on UK aerospace and
in particular Rolls-Royce?
Mr Hayes: I think we need to wait
and see what the outcome of the US Defense Review is to determine
what the forward path for the programme is and, in particular,
the STOVL version, to be able to establish what impact that will
have.
Q24 Mr Crausby: It seems to me that
the current wisdom is that ITAR is completely dead anyway. We
are now being advised that it did not matter anyway, so I just
wonder what all the fuss was about. We are now being told that
ITAR is nothing to do with the Joint Strike Fighter and it would
be no use if it was passed. I just wonder why we have had all
this argument. Has it just been about pride or something? Really
the bottom line is is it possible for us to secure a Joint Strike
Fighter (which is clearly a bargain in financial terms because
it is a cheap plane in relation to what it would cost us if we
had to develop something at that level ourselves) so is it possible
to purchase that and get full use out of it, or should we be considering
at this point that without the technology transfer of the kind
that Lindsay Hoyle mentioned that would allow us to have independence
with the Joint Strike Fighter and certainly to update it, is there
any point in the Joint Strike Fighter or should we go and look
at alternatives?
Mr Hayes: Just as the UK government
looks at export licensing decisions on a case-by-case basis so
does the US government, and there is no blanket ban on the transfer
of technology relating to the Joint Strike Fighter; far from it.
I do not think we said that the ITAR had nothing to do with the
Joint Strike Fighter; we said the ITAR waiver was having no impact
on the Joint Strike Fighter programme. The ITAR has a lot to do
with the Joint Strike Fighter and we are having to deal with issues
but we are dealing with the issues, and we are working within
the existing licensing systems to make the programme work. Are
those systems ideal? No, which is why we do need to look at the
alternatives.
Q25 Malcolm Bruce: You mentioned
the Export Control Organisation and when I got wind of the fact
that the Government were considering privatising it in the spring
of last year I first of all tried to raise it with Patricia Hewitt
who pretended that the Export Control Organisation was the Export
Credit Guarantee Department which therefore enabled her to say
they had no plans to privatise it. Unfortunately, the Evening
Standard three days later quoted a DTI press officer who said
they were investigating privatising, so I tabled a written question
that Malcolm Wicks answered after the Election on 21 July saying
that the plans had been reviewed and they had no plans or they
were not going to take forward the privatisation. From your point
of view was that the right decision?
Mr Salzmann: Yes, we were not
supporters of the proposals to privatise the Export Control Organisation
and they made the right decision. We are naturally disappointed
to have seen the staff and resource cutbacks which have taken
place within the Export Control Organisation which, for instance,
in just one area have resulted in the complete removal of their
in-house capability to provide expert guidance on encryption matters,
but we are supportive of the decision which has been made not
to privatise the ECO.
Malcolm Bruce: The problem really was
that it was part of the attempt to reduce staffing rather than
a sensible way of delivering an important and, I would argue,
political service?
Mr Hayes: Yes.
Mr Marshall: Across the board
in the DTI.
Q26 Malcolm Bruce: Just on that point
I think the staff has reduced from 156 to 117 in the last two
to three years. I do not know whether there are any further reductions
and you have already hinted that some services have been lost.
You gave it a very good review before. You mentioned a specific
point and that is one that perhaps is worth taking up. In terms
of the turnaround of the service have you noticed any deterioration?
Mr Salzmann: No, no, at the moment
performance has been extremely good but we do not know what hidden
stresses of the system this might be hiding. How stressed is the
Export Control Organisation in dealing with the workload? Are
they at maximum capacity with little capability to absorb things
like holidays or extended sick leave? We just do not know.
Q27 Malcolm Bruce: Your concern would
be that it has slowed up the process; the NGOs' concern is that
it has led to compromises. Perhaps it is unfair to ask but from
what you have said are you aware of any compromises in the process?
Mr Salzmann: Not that I am aware
of.
Q28 Malcolm Bruce: Apart from the
loss of service to yourselves?
Mr Salzmann: No.
Chairman: It is very good from the Committee's
point of view as well because in the past when the Committee has
asked a lot of questions of government, we have been advised that
it might slow down the work of the Export Control Organisation
if we ask too many. Clearly this is no longer a problem and we
are delighted to hear this, it is very encouraging.
Q29 Mr Hamilton: Can we move on to
the question of weapons of mass destruction and strategic export
of items that might help countries wanting to develop weapons
of mass destruction programmes. There are obviously two ways in
which these could be controlled. One, as you know, is the list
of controlled goods and the other is end-use. Really my question
to you is do you feel that the end-use controls which are currently
in place are adequate or should they be strengthened?
Mr Wilson: That is a very difficult
question to answer. The end-use controls as they stand are perfectly
adequate. However, what is woefully lacking is public understanding
of those controls because the only people who understand end-use
controls as they are currently drafted are people who are intimately
involved in export compliance all the time, if you like the export
compliance professionals of exporting companies, who are the people
you would expect to know about end-use controls. However, the
problem with end-use is that people are finding ever more novel
pieces of kit to take into, for example, terrorist use. An example
I can give in very general terms is a colleague of mine was approached
by a car dealership and told they had a very large order from
a country to which they do not normally export those cars for
certain components and could anybody think of a reason for this.
Well, the reason was that those components turned out to be ideally
useable in low-grade, low-cost missile systems and because the
potential exporter had flagged up this potential concern and he
had reason to be concerned and flagged it up, the export would
have been controlled under the end-use control had he applied
for a licence to do so. What we do not know is how many more potential
manufacturers of low-grade missile systems or whatever else, are
going and buying parts on the open market because if you have
a UK export compliance programme and process you ask yourself
for each export a series of questions which leads you to query
what might otherwise be known as a suspicious export. In other
words, you ask yourself a set of questions that would lead you
to wonder whether or not it is being used for WMD end-use. If
you do not have an export compliance process because you are not
normally controlled by either the dual-use list or the military
list, and therefore you have no idea about military controls,
you see no reason to ask yourself those questions and therefore
any such export goes completely unchallenged. That is our concern,
that we do not know the scope of items that are being bought for
end-use. I think the classic example is somebody from Boots the
Chemist having, to their great surprise, an order of home-brew
beer kits stopped because indeed those kits are caught by the
dual-use regulations because they are a biofermenter of greater
than a specified capacity. So while they are being exported to
the Middle East for poor expats to brew their own beer they could
equally well be diverted to somebody else's biotoxin programme,
and that is an innate part of dual-use and end-use controls because
unless you can work out in advance what the terrorist is going
to use it for and therefore try and stop him getting hold of it,
the control is pointless, so it does rely totally on people asking
the questions and thinking "Is there an illicit use for this
particular order?" But I cannot see an answer to it.
Q30 Mr Hamilton: Presumably, if you
have a suspicion you still have to report that to the authorities
if you are a manufacturer or exporter?
Mr Wilson: You only know you have
a responsibility to report that if you are normally a responsible
exporter and you have a compliance programme because normally
you are exporting military goods. If you are a routine exporter
of civilian car parts you do not know anything about it.
Mr Hayes: In a nutshell, the system
works perfectly well for people who are already inside it. People
who are outside of it are completely unaware of it and therefore
have never done it.
Chairman: That is the problem.
Q31 Mike Gapes: Is there not a problem
then that as we get greater globalisation, and use of the Internet
and ease of purchasing of supposedly innocent products, it is
almost impossible to regulate this?
Mr Wilson: Absolutely.
Mr Hayes: Without looking at WMD,
it is relatively easy to find material that is subject to control
(because it is on a control list) readily available on the Internet.
Mr Wilson: Like, for example,
an underwater digital camera which is controlled under the dual-use
list because it takes more than X number of photographs and works
more than six feet under water. It has been controlled for some
time but is now readily available almost anywhere.
Q32 Richard Burden: Is there anything
more that could be done then to publicise this better? If you
are on the inside of the system you are subject to controls; on
the outside you do not know about them. Is there more government
could be doing about that? Is there more industry could be doing
to get this kind of message across about these obligations, indeed
perhaps organisations and bodies like your own who are experts
in defence export issues?
Mr Wilson: Certainly I feel that
part of the DTI's outreach programme could perhaps be beefed up,
again it would need more staff, but the DTI's outreach programme
tries very hard to reach regional chambers of commerce, for example,
and almost overwhelmingly the answer from regional chambers of
commerce is, "no, we do not export arms". So I come
back to Mr Salzmann's earlier point that because there has been
continual press emphasis on arms—meaning small arms, light
weapons, missiles and whatever—the things that are actually
as big a risk to the security of the country are being glossed
over.
Mr Salzmann: One of the fundamental
problems which exists in trying to get to the companies who are
operating outside the system, who do not think export controls
are anything to do with them, is how do you get to them? If you
organise seminars and workshops on export controls and put out
fliers about them, they take one look at it and say, "Export
controls have nothing to do with me, I deal with car parts",
and throw it in the bin. How do you get to them and get them to
realise this is something which they need to pay attention to?
Mr Hayes: To give you some idea
of the potential scope of the problem, some years ago when Mike
Coolican was at the DTI, he estimated that somewhere in the region
of 35% of UK companies who should be applying for export licences
are not, and that is probably still reasonably endemic.
Ms Peers: I think another way
to get the message across to exporters is if you stop their goods
leaving. That comes back to enforcement, which I know is covered
in the next two questions, but it is something I feel quite passionately
about. If you try and stop the goods leaving which involves having
Customs officers also being made aware of the types of products
that could be used (and their knowledge, sadly, is quite limited)
then if the goods do not leave the company loses money and that,
sadly, is what companies understand. If the goods are stuck on
a port somewhere or at an airport waiting for the DTI to rate
goods against the end-use, or the military list or the dual-use
list, they understand that it is costing them money and they then
sit up and listen. That is how some of the end-use companies come
into the fold because their goods are stopped. Sadly, resources
in the Customs are quite low and not many shipments are stopped.
Chairman: That is very helpful and I
am glad we have had all those comments on the record.
Q33 Robert Key: Can I ask Mr Salzmann
if he believes that HM Revenue and Customs have got the balance
about right between making sure that exports do not get into the
wrong hands and not obstructing properly licensed exports?
Mr Salzmann: They have a difficult
balance to try to achieve given their limited resources. It is
very noticeable and pointed that the new name is Revenue and Customs,
and the main focus and priority is revenue generation, looking
at the smuggling of cigarettes and alcohol and things of that
nature. It is a very difficult balance to try to achieve within
their limited resources but there are fundamental problems which
are being experienced.
Ms Peers: One of the major problems
there is the new exports system. It is a system whereby people
declare their goods for export and let's take an example (not
beryllium because it is a good example but I will try something
else) of a military item going to Italy. If you try and enter
that into the new export system to say these goods are military
and going to Italy, you get a declaration that tells you "declaration
not required on C status consignment". These goods are going
to the EU so they are in free circulation. The fact they are controlled
has no relevance at all in the new export system. That to me is
a major failing. If you have got a decent freight forwarder who
will appreciate that these are controlled goods and could be under
a SIEL, they will therefore go to Customs and try and make local
arrangements to get the SIEL, Standard Individual Export Licence,
declared in order that the proper process is followed. Another
freight operator who sees that declaration may just send the goods
on the back of a lorry or on an aeroplane to a destination in
the EU and they are not recorded anywhere for Customs purposes.
Q34 Robert Key: My constituents find
it very hard to understand why it is reporters and press and NGOs
sniffing around who seem to find out when things go wrong. We
were told in the Government's response to this Committee's last
year's report that there are just two central investigation and
intelligence teams trying to police all of this but it says that
"they look into all significant allegations and intelligence
in relation to breaches of export controls". We keep hearing
this today, that there are not adequate controls and there are
not enough people in the job in Revenue and Customs to make the
system work. Is that the case?
Ms Peers: Yes, the effectiveness
of any legislation—and the Export Control Act is a great
example—is how well it is enforced. If it is not enforced
it is like the mobile phone in the car. If I know I am not going
to get stopped by a policeman then I am going to talk on my mobile.
If an exporter does not think he is going to get delayed at a
port or an airport, not through any fault of his own but if he
has got a compliance programme in place and he does do the right
thing, he hands it to an agent who gets that declaration that
tells him nothing more needs to happen, then the agent is then
non-compliant and the goods go and there are very few stops at
Heathrow or any other port, because of lack of resources.
Q35 Robert Key: But you also said
that the knowledge of the officers on the job was limited as to
what should and should not be going through or what they should
be looking for.
Ms Peers: There is a lot that
could be done here also. The DTI—and I hope it still carries
on—goes round ports and airports and does awareness training
for Customs officers on export control. It is a tiny part of their
job. They have to deal with drugs, they have to deal with tobacco
which also bring in revenue. Going back to Brinley's point, it
is Her Majesty's Revenue and Customs in the name change; revenue
seems to be their thing. If they have no way of checking—and
there are tools coming in from the DTI, for example, where they
can type in accelerometer or say what the entry is but they need
to know what an accelerometer can do. It is on the dual-use list
and can be used for all sorts of things; it can make a missile
hit its target hence it is controlled. If they do not know what
they are looking at, and in the NES (New Export System) there
is no flag for the destination of a commodity code, then it is
difficult for them to have that intelligence. The only time certain
goods get stopped on route six (route one is where declared goods
are stopped and examined; route six means no checks are done and
it goes through)...As a freight forwarder we know that the only
time any goods under licence are stopped, not from route six but
over to route one, is if they have a commodity code 93, which
is arms and ammunition. It is good that those are being stopped
but there are lots of other items on the control list which should
be looked at also.
Q36 Robert Key: Why does EGAD say
"that there is a large amount of enforcement activity against
the non-compliance which is being undertaken all of the time,
but very little information on this ever gets into the public
domain". Why not?
Ms Peers: It would be one part
of the problem to solve it by naming and shaming, but it is not
going to solve the problem, it is just part of what could be done
to improve public awareness and exporter awareness—that
if they do it wrong there will be penalties or their goods will
not go, and then they may sit up and listen.
Q37 Robert Key: Would electronic
licences and application-tracking facilities for exporters help?
Ms Peers: I think there would
be even less checks than there are now. I personally have concerns
about it and I feel that EGAD probably would also.
Mr Hayes: They would not help
in the context of the current NES system because the current NES
system is not picking up paper licences and it would not have
the facility to recognise the same thing in an electronic format.
Q38 Robert Key: Do you think it is
fair to say that the general public find it pretty outrageous
that the Government does not seem to be taking this seriously?
There are not enough people, they are not properly trained, they
are not serious about electronic tracking systems. You seem to
be saying that you would welcome a general tightening up in these
areas. It is no skin off your nose.
Ms Peers: A lot of the big companies
put a lot of money, time and effort into compliance and it is
an expensive business training all your staff, making them aware
of all the controls and trying to police it within the company.
It makes little sense that the non-compliant small firms, who
know nothing is going to happen, who do not bother with any additional
expense and then ship their goods wherever they want to, starting
off perhaps in the EU where they do not have to declare the goods,
then I think there is a need for more enforcement by Customs to
help the good, compliant companies to feel it is all worthwhile.
Robert Key: Thank you very much.
Q39 Chairman: You have all made the
point about the importance of resourcing this work properly. Brinley
used the phrase "limited resources" twice in two sentences
which is pretty pointed. Have you any idea of the order of magnitude
of, say, the full-time equivalent staff at Revenue and Customs
who are working on strategic export controls? Are we talking about
300, 1,000, what kind of numbers are we talking about?
Mr Hayes: I do not think it is
something we can determine.
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