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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