Quadripartite Select Committee Written Evidence

Supplementary memorandum from the Export Group for Aerospace and Defence (EGAD)

  Further to the oral evidence that we gave to the Committee on 31 January 2006.

  Firstly, we found it very illuminating that at the start of our evidence session, the Committee Members went around the room to declare any relevant interests, and when they did so all of them concentrated on defence industrial activity within their constituencies—none of them declared any interests involving any relevant dual-use companies or academic institutions who operate within their constituencies, despite the fact that they, too, are also governed by export control matters. This, perhaps, reinforces the perception that export controls focus on defence equipment, rather than reflecting the more broadly-based nature of strategic export controls. This is particularly disconcerting given the focus on terrorism and WMD and the fact that most WMD related items are controlled by dual-use and not military related legislation. It could be argued that the greatest focus is on the area of least risk to our national security.

  I can confirm that we are involved in constructive discussions with representatives from some of the NGO organizations about possible areas of agreement for proposed modifications to the existing trade controls, including with regard to the expansion of extraterritoriality in a number of technology areas, which we hope to be able to submit jointly to the DTI when it undertakes its stated review of the Export Control Act 2002, in 2007. We will be happy to ensure that the Committee is made aware of the outcome of these discussions and the nature of our proposals, when this is reached.

  With regard to the question of the trend towards establishing production facilities overseas, there are a wide range of motives behind this. The trend in globalisation of industrial activity in general is continuing. Increasingly countries around the World do not wish to be perceived as being markets, but as being partners, not willing to purchase our goods made in our factories, but wanting to manufacture the items themselves in-country. This trend is being further increased by the growing prevalence of offset demands around the World. In addition, the need to cut costs, to remain commercially competitive and to allow defence budgets (such as our own) to stretch further in meeting the ever growing aspirations of our Armed Forces, means that UK firms frequently have to seek to make use of offshore sources of supply in low cost economies, perhaps through the setting up of local production facilities.

  As David Wilson stated during our evidence session, export controls actually act as a brake on this globalizing trend, in that any UK firms who wished to set up such licensed production facilities would already have to apply for export licences from the British Government for the necessary transfer of technology (ML22) and, almost certainly, production machinery (ML18 and various dual-use ratings) needed for any manufacturing plant to be established overseas. Such licence applications would be assessed by the British Government officials involved against the criteria within the EU Code of Conduct, including, amongst others:

    —  Criterion 5c: "The risk of reverse engineering or unintended technology transfer";

    —  Criterion 5d: "The need to protect UK military classified information and capabilities";

    —  Criterion 6c: "[the record of the buyer country with regard to] its commitment to non-proliferation and other areas of arms control and disarmament . . . "

    —  Criterion 7: "The existence of a risk that the equipment will be diverted within the buyer country or re-exported under undesirable conditions."

    —  Criterion 7c: "the capability of the recipient country to exert effective export controls."

  With regard to proposals to exert some kind of extraterritorial reach by the British Government over the exports which take place from such offshore production facilities, we would warn that this could potentially encounter some serious jurisdictional conflicts. For instance, whilst the USA does, indeed, have various extraterritorial controls of its own on re-exports of US technology as well as on the exports of offshore subsidiaries of US firms, it also has in place the Foreign Ownership, Control or Influence (FOCI) regulations, enforced by the USDoD's Defense Security Service (for details of which see: www.dss.mil/isec/FOCIFAQs.htm) which can, and does, prevent offshore interests (including UK firms) from being able to exert control over (or even, in some circumstances, to be able to be made aware of) the activities of their US subsidiaries.

  We are in the process on finalizing our paper to the House of Commons Defence Committee on what now, post-ITAR Waiver, for UK-US bilateral defence trade and collaboration, and will ensure that the Quadripartite Committee is also passed a copy of this paper at the same time. We would certainly warmly welcome the involvement and assistance of British Parliamentarians, as part of a co-ordinated approach, in presenting the UK's views to their US counterparts.

  We would like to put on record EGAD's support for NGO proposals for something more effective than is currently being planned to be introduced to control the export of and trade in torture equipment. We believe that the only effective way in which this can be done is through the creation of a torture equipment end-use control. As it is possible to use anything for torture (eg recent reports of the use of electric drills in Iraq for this purpose) you, therefore, need a control mechanism in place which is able to catch anything, rather than going down the EU's deeply misguided and doomed approach of trying to come up with a definitive list of torture equipment items. This is the only logical way in which this can be done, and is based on existing practice with regard to the WMD and military end-use controls. It could be easily achieved by the British Government through the simple expedient of including "torture" within the "any relevant use" definition of the existing controls. Whilst we realise that there will be the same inherent problems with such a control as there are with the implementation and enforcement of the existing end-use controls, such an initiative would clearly state that the British Government is taking this seriously and determined to do something effective about it and to give itself the necessary legislative powers to be able to do so.

  We were extremely gratified to receive the questions from the Committee about the "nitty-gritty" of export controls, especially dealing with the end-use controls and what happens in the interaction with HM Revenue & Customs, and are very desirous to give the Committee a further evidence session, on the morning of 19 April, on the practical issues which export control compliance staff within Industry have to grapple on a daily basis. Far from being (as all too frequently perceived by many) a simple, mundane, administrative clerical task, export control compliance is, in fact, a vital expert function, dealing with highly complex technical and legal matters, often encompassing different national export control regulations. Some companies have sadly learnt the hard way, after their inadequately trained and resourced export control compliance staff have failed to formulate and implement effective compliance systems. We welcome the opportunity to demonstrate to the Committee the actual day-to-day practicalities involved in framing and implementing effective compliance procedures within companies to deal with not only our own national regulations, but also those of other countries to whom UK firms can also, on occasion, be subject.

  We hope that the above additional comments may be of interest to the Committee.

March 2006

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