Examination of Witnesses (Questions 200-219)
MR DAVID
HAYES, MR
BRINLEY SALZMANN,
MS BERNADETTE
PEERS AND
MR DAVID
WILSON
19 APRIL 2006
Q200 Malcolm Bruce: Do Customs do
any kind of awareness training? I can think of a lot of small
companies in the engineering field, chemicals, automotive, what-have-you,
who would not be thinking about defence at all because that is
not their business. Is there anything more to encourage them just
to have in mind that this could be the case and they should think
about it?
Ms Peers: The DTI do actually
go around the country to various Customs ports and airports and
do awareness training sessions on export control, but for a Customs
officer it is just another small part of his daily work and they
are interested in revenue-collection as opposed to sometimes export
control, but yes, there is awareness training that does go on,
but it is quite limited and it is fitted into their otherwise
working day.
Q201 Linda Gilroy: In Brinley's letter
of 28 March, you remind us that the export controls also apply
to academic institutions. Are there issues you are aware of there
that we ought to be aware of or is that a little bit more difficult
to pin down?
Mr Hayes: It is a difficult one
to pin down because some of the subjects which are being taught
in academic institutions can border on areas which are now subject
to export control, so, for example, providing someone with technical
assistance inside the UK for any relevant use which encompasses
weapons of mass destruction, detection systems for weapons of
mass destruction, that sort of area of technology, if we wanted
to provide that sort of technical assistance to anyone even inside
the UK, knowing that that information was going to be used outside
of the EU, then that is a licensable activity. It would require
a fairly close look at some of the research activities they are
taking on probably at postgraduate level within some of the academic
institutions, but a reasonable surmise would be that some of these
fall within the ambit of licensable activity.
Mr Salzmann: There is a considerable
lack of awareness within academia and, dare I say, in many quarters
a lack of willingness because it is a completely different culture,
whereas if you go along to a company and explain to them export
controls, once you have got their attention and persuaded them
that yes, they are subject to export controls, then they want
to understand how to deal with it. I have had feedback myself
and personal experience of people in academia who say, "No,
this is infringing my freedom of speech. I am not going to burden
myself with trying to deal with these regulations", so there
is a totally different culture there.
Q202 Sir John Stanley: Is there any
responsibility under existing legislation and procedures on the
exporter and manufacturer to check out not just the type of goods
which are going to be exported as to whether or not that might
require a licence, but also to check out the company or the individual
who is placing the order? You clearly obviously do your normal
credit reference checks to see whether they are good for the sum
of money involved, but is there any obligation on you to make
any other checks to establish whether this may just simply be
a nameplate company and maybe someone is using a particular nameplate
to engage in the trafficking and brokering of the equipment in
question when it has got beyond UK jurisdiction?
Mr Wilson: It is part of the DTI's
code of good practice, but not a formal obligation on companies.
American law, which I will come to later, does actually place
a formal obligation on the exporter to check against what is called
the "denied parties list", but UK law does not.
Mr Hayes: It is a difficult area
as well because you made an interesting connection between the
manufacturer and the exporter, but they are not necessarily one
and the same. The very act of the classification of goods, rating
of goods, can be immensely difficult even for government licensing
officers because in some areas of the control list, particularly
the dual use, the information that is required in order to determine
whether an item is licensable or not is not available other than
to the original equipment manufacturer, so the controls actually
place an impossible burden both on the exporter and on the government
licensing authorities.
Q203 Mike Gapes: On the relationship
between individual EU countries and the EU list, has there been
a change as a result of enlargement of the European Union in the
enforcement and applicability? Is there a variation of standards
within different countries and would it be fair to say that some
of the newer members of the European Union are less aware of,
and less engaged in, these matters than some of the older ones?
Mr Hayes: It is a difficult one
to answer because you are not always comparing apples with apples.
In terms of what is controlled, then the EU control list is directly
applicable under an EU Regulation in all Member States and all
EU Member States are obliged to apply the EU code of conduct on
arms exports, but their licensing systems differ widely and the
amount of information that is available differs widely. You are
only too familiar with our own annual report and that is the best
annual report that I am aware of that is available anywhere in
the EU. In some countries there is no information available at
all.
Q204 Mike Gapes: Would it be fair
to say that those countries which have had very extensive arms
export policies, but were previously not within the NATO framework
or perhaps in the Warsaw Pact framework and were then post-Warsaw
Pact engaged in massive arms exports in central and eastern Europe
will have to change their way of operation as a result of the
application of the EU list and the EU rules?
Mr Hayes: I think it probably
is true because they are moving into a different arena of regulation,
but some of them are actually undertaking a lot of activity in
that area at the moment. I am in the Slovak Republic myself next
week at the request of the US Department of Commerce to do an
industry outreach programme on export controls.
Q205 Mike Gapes: So things are getting
better, are they, in that area?
Mr Hayes: Yes, I think they are,
but again they are getting better amongst the population that
is willing to take this on board.
Ms Peers: Also a lot of the awareness
training is coming out of the US outreach budget and of course
they are educating exporters in foreign countries on best practice,
which is the US practice, which of course the UK would disagree
is the best practice, but at least they are doing something. To
defend Romania here who are not yet a member of the EU, but very
determined to become a member, they have produced an annual report
and they have only been doing export control for 10 years and
they are determined to do the right thing, so each country within
the EU and potential future members are trying to do the right
thing, but it depends on the willingness and the budgets that
they have available to them to do this sort of work.
Q206 Chairman: How much outreach
does our Export Control Organisation do?
Ms Peers: Within the UK it is
fairly extensive. They also assist occasionally, if this is still
the case, but they used to go across to various countries like
Romania and Bulgaria and provide outreach assistance to some of
the non-governmental organisations who were running seminars and
events there. Whether that is still the case or not, I am not
sure, but certainly over two years ago it was happening.
Mr Wilson: There is one catch
of course to the DTI's outreach programme which is that it sends
its information to the boards of trade, departments of trade and
commerce or whatever in areas, but only those people who think
they are going to be affected bother to attend.
Q207 Mr Keetch: What about places
like Jersey and the Isle of Man, are they covered by this, and
British overseas territories, would we be doing outreach there?
Mr Wilson: They are a sort of
hybrid because you do need an export licence to export stuff to
the Channel Islands, for example.
Mr Keetch: But it is true, for example,
is it not, that there have been cases where companies in the Channel
Islands have exported huge amounts of arms and then those arms
have been moved elsewhere?
Q208 Chairman: I did not catch the
answer to that question. Is the answer yes or no?
Mr Wilson: Well, the official
answer is that I could not possibly comment.
Q209 Chairman: And the unofficial
answer would be?
Mr Wilson: There is more than
a suspicion, shall we say.
Q210 Mr Keetch: Certainly it is true
to say that there have been reports that companies based in the
Channel Islands have purchased arms, which is surprising when
you would not presume that companies in the Channel Islands would
want to purchase large numbers of assault rifles, for example.
Mr Wilson: It is certainly true
that is the case.
Q211 Chairman: I think we had better
move on with the presentation.
Ms Peers: Moving on to slide six,
we have put "berillium" in because it is an example
to show the difficulties of classifying goods. The deliberate
mistake is that `beryllium' is spelled incorrectly there and using
the new open DTI tool which they have developed which is very
good, you type in a product and it will tell you where it falls
in the military list or the dual-use list. However, if you type
in `beryllium' incorrectly, it will come back and tell you that
there are no matches found which is incorrect, so you have to
know what the product is before you can enter it. It is basically
a word search, so if you typed in "shotgun", you would
get no matches found because in the military list a shotgun is
defined as a smooth-bored weapon, not as a shotgun, so it is a
useful tool, but you need to be mindful that you have to be educated
enough to use it, which unfortunately in some cases a lot of export
clerks are not. They are given paperwork to deal with and they
get that out the door. The difficulty with beryllium is that it
could come back, if you are using the DTI tool, as "no licence
required" because it says `no matches found'. It then does
tell you to look further, but if you are an export clerk who has
just been told to get something out of the door, you would not
know where to look. It could come back though as military because
there is an entry in the military list for beryllium, but there
is also an entry in the dual-use list for beryllium, so now you
are going into deeper territory of what exactly is the classification
of this mix of beryllium. Then if you decided that the definition
in the dual-use list and the military list does not match the
quantity or item of beryllium that you have, then you are fairly
confident in saying that there is no licence required. However,
you then have to consider, "Well, it is not licensable in
its own aspect, but does it come under the catch-all? Where is
it going? Who is it going to? What is its end-use application
going to be and, therefore, could it be caught by the catch-all
and be brought back into licensability?" Therefore, just
to stress, the rating of a product, if you have not manufactured
it, could be extremely difficult for most export control practitioners.
Mr Salzmann: The issue of rating
is much more complex than some people might believe. For instance,
David Hayes and I went to a conference once where somebody mentioned
a case of a particular client they had who had applied for the
rating for the export of a chemical process flow chart to China.
The chemicals which went in at one end were not licensable and
the chemicals which came out at the other end were not licensable,
but for a few milliseconds in the course of the process something
licensable was produced which could then be extracted, so they
applied for a rating with the DTI to see whether they needed a
licence or not and after seven months the answer came back, "We
don't know. What do you think?". It can be very complicated.
In terms of the licences which are available, there are of course
various licences. The standard individual export licence application
is the most stringent form of licence and it is value-specific,
quantity-specific and consignee-specific. You have to provide
a raft of supporting information, including a valid end-user undertaking
to support it. Certainly in the UK system, end-user undertakings
are scrutinised extremely carefully. I believe that something
like 25% of all end-user undertakings submitted by companies are
actually rejected by the DTI as being inadequate and they can
be rejected for all types of reasons. I heard a few years ago
of an end-user undertaking from the Norwegian Air Force which
was written on a double-sided sheet of paper and the DTI came
back and said, "No, do it again. It has to be on two single-sided
sheets of paper", so 25% of end-user undertakings are rejected.
Also lots of queries are raised when they are looking at the licence
applications and I believe that something like 50% of all SIEL
applications result in queries being raised against them and those
queries sometimes can be of great technical depth with more technical
information being required, something which was not clear, inadequately
completed paperwork submitted by the company, or it can on occasion
be incredibly banal and somehow get through the filter back to
the company. For instance, I know of a company a few years ago
which had submitted its licence application for the export of
some machine guns and the question came back, "These machine
guns you want to export, what are they for?", and there are
only a set number of purposes that a machine gun has. One of my
favourites was a licence application a few years ago for the export
of some bird-scarers to an airport overseas and the query came
back, "These bird-scarers you want to export, what are they
for?". Of course when queries get raised, it delays the processing
of the licence because the clock stops while the query has to
be dealt with.
Q212 Judy Mallaber: It raises the
question as to, from your experience, how knowledgeable are the
people that are looking at the applications and what technical
expertise do they have? It is clearly hard for them to cover the
whole range.
Mr Wilson: I speak from experience
having once upon a time been one of those advisers. Generally
the Foreign Office has no technical personnel at all. The DTI
has the Technical Unit, but the majority of the processing is
done by administrators and, similarly, with most of the processing
in DFID. Quite a lot of the processing advisers within the Ministry
of Defence have a technical understanding and are capable of passing
that kind of advice and information back to the other government
departments, so in general a sharp adviser within the Foreign
Office will pick up an application for, say, a bird-scarer and
ring up one of the other advisers and say, "What does this
bird-scarer thing do?", and they say, "Well, actually
it is a small thing that makes a bang", and they go, "Okay,
fine", but if there is somebody new or somebody not terribly
switched on or they are having a bad day, it may just get rejected
with requests for further information.
Mr Salzmann: There was another
case a few years ago of a company which applied for an export
licence for the supply of some Hawk jet spares to Indonesia and
the query came back, "What's a Hawk jet?" I would bet
anyone in the FCO knew what a Hawk jet was and the Indonesian
country desk officer would have known.
Q213 Peter Luff: Chairman, this is
actually a very serious point because such a fundamental question
should not need to be asked. It suggests that there is not the
expertise there to deal with much more complex and difficult questions.
The reason we are laughing is because it is so bizarre, but it
is really very worrying.
Mr Wilson: We do actually wonder
if it is the same sort of thing as the judicial question of "What
are the Beatles?", going back some time, but is it just asking
the question for the record?
Q214 Judy Mallaber: In your judgment,
would they be more likely to ask questions when it is ludicrous?
Are they more likely to query things which should not be queried
or more likely to miss things which could be used for export purposes
that we do not want?
Mr Wilson: In my opinion, they
are more likely to ask questions on things which were not a problem.
Ms Peers: What has to be remembered
here as well, I believe, is that there are targets that the DTI
like to meet and they want to turn licence applications around
in 21 working days in 70% of the cases. Now, what happens is that
when they send the application back to the exporter with a question,
the clock stops, so, with all the staff cuts and if they are inundated
with work, it could be quite an easy situation to stop the clock,
send it back to the exporter and then they are not harming their
targets. That could be the case or it could be that maybe the
advisers have asked a question, they have sent it back to the
company, the company answers that question and then when it gets
processed again, it goes to a different adviser who will then
ask a different question and it then goes back to the exporter,
all of which is not harming the target time, but it is delaying
the licence application for the exporter, so these are other issues
which could be going on in the background also.
Mr Salzmann: In terms of the silly
questions which get raised, they only come back to the company
occasionally because most of the time they get filtered through
the process by MoD or DTI. Also, in their defence, I would have
to say that with the reorganisational changes which have been
taking place within the Foreign and Commonwealth Office and having
dedicated staff, I think there are far fewer queries now coming
out. Whereas in the past it used to be fielded to all country
desk officers across the FCO who are very highly intelligent people,
but they had a lot of work on and, therefore, they did not have
the technical expertise, now there is a corps within the Department
who deal with all the licences and, therefore, they are building
up a bedrock of knowledge which is extremely valuable and is helping
to avoid these mistakes happening nowadays.
Q215 Mike Gapes: My question actually
follows on very nicely from what you have just said. How much
continuity of staff is there in terms of dealing with these matters
or is this the kind of job which is the graveyard job that nobody
wants to do and they will do it on sufferance and get out of it
as quickly as possible and, therefore, there is an enormous churn
of people?
Mr Salzmann: There is of course
in the FCO a certain turnover of staff. I remember in 1996 in
response to the Green Paper, that we did actually in our original
draft submission put together a proposal for there to be an interdepartmental
department which just dealt with export licences, but one of our
executive committee members, who was an ex-civil servant, begged
me to take that out because he said he would not wish that job
on his worst enemy.
Q216 Chairman: At which point, shall
we move on with the presentation. You have given us lots of helpful
information and thank you.
Mr Salzmann: The open individual
export licences are in many ways the gold card for companies which
give them the flexibility they need to respond to urgent requirements,
so what they do for that is they submit a matrix of goods which
they might want to export to set consignees in particular markets.
The OIELs get considered and the processing time is a matter of
many months for these to come through. They are considered very
carefully by government officials and if there are any doubts
or any queries at all, they will be rejected for that very particular
market, so if you were to apply for seven items for six countries,
if there are any doubts at all, it will be rejected and you would
be told that you need to apply for SIELs for those particular
destinations or those particular goods. One of the problems which
exists with OIELs is that, in my experience in the past, some
companies have received the OIEL, having applied for it and it
having taken many months to be processed, and they do not bother
looking at it. They put it away in the safe, cover it in cotton
wool to safeguard it, but by not looking at it they have not realised
that in fact the OIEL which has been issued to them does not actually
have the coverage that they applied for. There have been a number
of instances like that where people have not read the OIELs which
they have actually received. Then there are the open general export
licences which basically cover the least contentious goods going
to the least contentious destinations where, in essence, the licences
would be issued in any case. For instance, the OGELs which exist
in support of government MoD contracts, those licences were applied
for by companies who supply equipment to our own Armed Forces
overseas and they would invariably be issued and it is almost
inconceivable the scenario where such a licence would ever be
refused and, therefore, instead of going through the bureaucratic
process of having to apply for licences, SIELs or whatever, to
do this, they have got the open general export licence to cover
that. OGELs, as I say, cover the least contentious goods going
to the least contentious destinations where approval is inevitable,
but there are, in terms of using OGELs, considerable inconsistencies
and a few problems. We have to encourage companies all the time
to read the terms and conditions of the OGEL to make sure that
it is applicable to them and there have been a number of instances
where people have not read the OGELs properly which they have
wanted to use. There are a number of inconsistencies, but one
of them is the fact that in one of the annexes, there is always
a list of countries and sometimes it is a list of countries which
are covered by the OGEL and sometimes it is a list of countries
which are excluded from coverage by the OGEL and this can cause
confusion for people who do not read the OGELs properly.
Q217 Richard Burden: This question
is in relation to the OIELs and it goes back to what Mr Hayes
said at the start about maximum scrutiny being on the area of
minimum risk in relation to military equipment and dual-use goods.
The period for an OIEL for military goods is two years and it
is three years for dual-use goods. Is there a logic to that or
is that another example of what you are saying?
Mr Hayes: I think a logic to that
is perhaps slightly in the mists of time, unless you are aware
of it.
Mr Wilson: Frankly it is bound
to change again. We complained that there was no particular reason
for it, apart from it being policy, and the DTI has seen sense
and is going to standardise the process.
Q218 Richard Burden: Which way? Is
it going to come down?
Mr Wilson: I think they are going
to three years.
Q219 Richard Burden: Three years
for all of them? Would that be reasonable, in your view?
Mr Wilson: It would, yes.
Mr Hayes: They are also looking
at the argument for making the duration of a licence for a different
period, possibly a longer period, say, for the known duration
of a particular contract, and then they will make the licence
for the known duration of that contract rather than relicensing
for the sake of relicensing.
Mr Salzmann: Finally, there is
the trade control registration for the general trade control licence
which exists, which again acts like an open general export licence
for companies to have to register against. In the notes which
I have sent to you, there is a decision-making tree, which is
a copy of a simple tree to illustrate how companies try to go
through the process of deciding which type of licence they need
to apply for in any particular instance.
Mr Wilson: Going back to the record-keeping
part of this, it is a fairly considerable administrative burden
on a company that exports. It is not simply a matter of keeping
a shipping register. Traditionally, companies that exported tangible
goods, things you could stick a label on, made a shipping register
and made a note alongside it, saying, "This is what we have
exported and this is the licence we are exporting it under".
When the law changed with the new Export Control Act, the other
things that companies were required to keep track of were intangible
transfers, and there has been a lot of discussion over how they
were to be recorded, but the principle now is that you record
the first intangible transfer of a series. If you set up a technical
discussion with a company in, say, France, on military goods and
you are transferring technology backwards and forwards, you are
required to record the first transfer between your company and
that foreign company and you record when that series of transfers
ends, so that is the record-keeping part of it. The next part
is that for standard individual licences, you are required to
present those to Revenue and Customs so that the licence can be
decremented because the licence says that you are allowed to export
100 widgets to Afghanistan, say, and you send your first 50 widgets
in a container to Afghanistan and you send with the freight forwarder
said licence and Customs send the licence to Afghanistan, so then
the company has to apply for another licence for the remaining
50. What is supposed to happen is that you present the licence
to Customs, Customs cross off 50 and write in "50 left",
send it back to the company and the company then use it for the
next consignment. What, however, happens is that there is an over-recording
of exports both in terms of value and quantity and that makes
your reports perhaps inaccurate, shall we say, because if the
company has applied for a licence for 100 widgets, exports 50
and then has to apply for another licence for the remaining 50,
the company is recorded as having exported 150 widgets, whereas
they were actually only exporting 100, so there is an administrative
snag there.
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