Examination of Witnesses (Questions 193-199)
MR DAVID
HAYES, MR
BRINLEY SALZMANN,
MS BERNADETTE
PEERS AND
MR DAVID
WILSON
19 APRIL 2006
Q193 Chairman: Mr Hayes, may I welcome
you and your colleagues. We are very grateful for the opportunity
to have a presentation from you on your experience of export and
trade controls. Perhaps we ought to start by inviting you to introduce
yourself and your colleagues for the record and then we would
be very happy to hear what you have to say and then, if you are
agreeable, we will pose questions to you as we go through.
Mr Hayes: I am David Hayes and
I am the Chairman of the Export Group for Aerospace and Defence.
The colleague on my left is Brinley Salzmann, the Secretary of
EGAD, and then Bernadette Peers and David Wilson.
Q194 Chairman: You are very welcome.
Mr Salzmann: First of all, we
would like to thank the Committee for inviting us to come and
brief you on the practical aspects of export control and trade
control compliance; we are very grateful. On slide two, you can
see that this is a slide about EGAD and it shows the number of
industrial bodies which are supporters of EGAD or sponsors of
EGAD. We have got all of the national defence-related trade associations
and also the CBI have now joined, which shows the breadth of industry
which we now represent. Just to reiterate, we are very pleased
to have this opportunity to talk to you because predominantly
we realise that most of the interest and coverage of export controls
certainly in the media is at the strategic level of what British
companies should be allowed to sell and to do, whereas what concerns
us far more is the practical implementation of that overall strategic
policy and the question of, "When do I need an export licence
or trade control licence and how do I go about trying to get and
use one?", as we have said to the Committee before, so to
have this opportunity to brief the Committee on this practical
implementation of the overall policy we welcome warmly.
Mr Hayes: What we would like to
cover, and please do interject with questions as we go through
at any point, is the classification of goods or what the DTI refer
to as "rating", which is the process of deciding whether
or not an item is subject to export controls and, if it is, where
precisely within the control list it falls. Then there is the
licensability and licence use, the practicalities of how to make
an export, details of what happens within companies when they
are subject to compliance audits from the DTI and some additional
aspects of other export control regimes, particularly relating
to the US and the EU. Classification—this really is the
fundamental basis of export controls. If you get the rating wrong,
then everything else falls because of that wrong decision. The
rating is the basis on which all the other decisions are made
and the rating determines, if a licence is licensable, which licences
it is possible to use and which it is not possible to use. The
ratings are made against the EU control list for dual-use goods
and the UK's military list in relation to military goods or part-military
goods, and also any item can become controlled, as you are aware,
under the end-use and catch-all controls. If you look at the list,
it is actually quite useful to look at the control list in that
light. The thin piece at the top is the UK military list and the
thick piece at the bottom is the EU dual-use control list, and
the reason for that is fundamentally because the military list
is based on design intent. Fundamentally, if an item is specially
designed or modified for a military use, that is subject to export
control. The EU dual-use list is actually based on design parameters
or characteristics of the goods or technology concerned, so it
is a lot more involved in terms of its interpretation, but it
is interesting to note that in a typical quarter there are something
like one and a half times as many standard individual export licence
applications for military goods as there are for dual-use, if
you exclude the EU countries and the CGEA countries for which
no licence is required for dual-use goods. It is an interesting
comparison because it would imply that the military industry is
one and a half times as large or one and a half times as active
as the dual-use industry which is perhaps a little difficult to
believe.
Q195 Chairman: Do you mean you do
not believe it?
Mr Hayes: I think there is a perception
that export controls are effective against a coalition of the
willing at the moment. There are a lot of defence companies who
have very active export control practitioners and there are a
few dual-use companies who do, but I think there is a perception
that the dual-use controls are to a greater or lesser extent not
as well scrutinised and well enforced as the military controls.
That is particularly worrying in today's environment where we
are told that we are under an increased threat of terrorist attack
from things, including weapons of mass destruction, yet most of
the goods and technology which will be required to construct a
weapon of mass destruction are actually controlled on the dual-use
list and not on the military list, so, on the face of it, it would
appear that at the moment we are in danger of giving the greatest
scrutiny to the area of the least risk in some respects. The catch-all
control, that in itself can be a little problematic to interpret.
Catch-all controls apply, as the name implies, to absolutely anything.
One aspect of the control which is often misunderstood is that
these controls only apply to goods and technology which are not
controlled of themselves. The reason for that is because if the
item is controlled, then it is subject to licensing and end-use
consideration forms part of that licensing process. It is only
where the goods are not controlled of themselves that you need
to bring in a catch-all to say, "Well, we want to catch absolutely
anything that might be going to a programme for the construction
of a weapon of mass destruction, a missile for the delivery of
that weapon or to military end-use in an embargoed country",
so the catch-all controls only apply to those goods which are
not controlled of themselves.
Q196 Chairman: How do manufacturers
know whether what they are producing might fall into the third
category? The first two are clearly defined.
Mr Salzmann: In general you would
find it is only those companies who are aware of export controls
who will be aware that there is an end-use control. If you are
not aware of export controls, you would not even be aware of the
fact that there was an end-use control and that you needed that
licence.
Q197 Chairman: I was hoping you would
say that because that is my understanding too.
Ms Peers: Or if the goods were
stopped at Customs and then the company would become aware.
Q198 Mr Keetch: Have you actually
had instances where, through ignorance, if you like, companies
are actually doing things which are illegal and, therefore, they
find themselves on the wrong side of the law?
Mr Wilson: To give you an example
the other way round, and that is some time ago now, a Citroen
dealership which happened to have somebody working in their parts
department who knew about export controls entirely by accident
rang up and said, "We've got this very strange order for
150 Citroen hydraulic pumps and we don't sell Citroen hydraulic
pumps in that country", so when the system looked and investigated,
it turned out that said hydraulic pumps were small, robust, of
high capacity and absolutely perfect for making the flight control
system of a missile, so that was because somebody knew and rang
the system up and said, "Can you investigate this for me?",
but it was only because somebody knew and it would never otherwise
have been picked up at all.
Mr Salzmann: Also there is some
confusion with people in the industry that export controls are
to do with arms, bombs, missiles, tanks, that sort of thing, and
"It is not to do with my body armour, is it?" Yes, it
is, and it is only when they get caught by Customs or they happen
to get into a conversation with somebody like myself or someone
else that they suddenly realise that they are subject to export
controls.
Q199 Judy Mallaber: In that example,
if somehow Revenue and Customs have picked that up, and otherwise
it would not have been known about, what then would have happened
and what would have happened to the company?
Mr Wilson: The end-use control
controls goods that a company has been told, has reason to believe
or suspects, may be used for a weapons of mass destruction purpose,
and the inspection relies entirely on the good faith that the
manufacturer or the exporter has been told or knows and relies
entirely on the intelligence services having found out and told
them in advance. It would be unreasonable for Customs, for example,
to suspect, in the case I have just chosen, a consignment of hydraulic
pumps because there are hundreds and thousands of consignments
of hydraulic pumps going all over the place, so it relies entirely
on people knowing about the system, people understanding and people
knowing what the system is, and that is where it falls down, I
feel.
Ms Peers: If those goods were
stopped by Customs, there is a process in place where Customs
would then contact the DTI's Technologies Unit who have a 24-hour
pager service. The DTI will then have rated those goods with as
much information as they could have done and made a decision on
whether or not those goods were licensable and then potentially
give a licence or refuse a licence and the goods are the property
of Customs, so they could either make the company pay a fine to
get them back or pay to get the goods back, so it is a matter
for Customs then if that situation could have happened.
Mr Hayes: Within companies it
is fundamentally an awareness issue because the people best placed
to determine whether or not an order is suspicious are people
within the company who are dealing day to day with orders for
that sort of product and think, as the individual in this case
did, "Well, that's peculiar", but then they have to
make the leap from, "Well, that's peculiar" to, "Well,
who do I tell that I think this is peculiar?".
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