CORRECTED TRANSCRIPT OF ORAL EVIDENCE To be published as HC 873-i

House of COMMONS

MINUTES OF EVIDENCE

TAKEN BEFORE

DEFENCE, FOREIGN AFFAIRS, INTERNATIONAL DEVELOPMENT

AND TRADE AND INDUSTRY COMMITTEES

 

 

STRATEGIC EXPORT CONTROLS

 

 

Tuesday 31 January 2006

MR DAVID HAYES, MR DEREK MARSHALL, MS BERNADETTE PEERS,

MR BRINLEY SALZMANN and MR DAVID WILSON

 

MR OLIVER SPRAGUE, MR ROY ISBISTER and MR MARK THOMAS

Evidence heard in Public Questions 1 - 91

 

 

USE OF THE TRANSCRIPT

1.	This is a corrected transcript of evidence taken in public and reported to the House. The transcript has been placed on the internet on the authority of the Committee, and copies have been made available by the Vote Office for the use of Members and others.
2.	The transcript is an approved formal record of these proceedings. It will be printed in due course.

 

Oral Evidence

Taken before the Defence, Foreign Affairs, International Development

and Trade and Industry Committees

on Tuesday 31 January 2006

Members present

Roger Berry, in the Chair

Mr David S Borrow

Malcolm Bruce

Richard Burden

Mr David Crausby

Mike Gapes

Linda Gilroy

Mr Fabian Hamilton

Mr Lindsay Hoyle

Mr Paul Keetch

Robert Key

Peter Luff

Judy Mallaber

Sir John Stanley

________________

 

Examination of Witnesses

 

Witnesses: Mr David Hayes, Head of Export Controls, Rolls-Royce plc, and Chairman of the Export Group for Aerospace and Defence (EGAD) , Mr Brinley Salzmann, Exports Director, Defence Manufacturers Association and Secretary EGAD, Mr Derek Marshall, Director of Aerospace Defence and Homeland Security, Society of British Aerospace Companies, Ms Bernadette Peers, Compliance Manager, Strategic Shipping Company Ltd; and Mr David Wilson, Export Compliance Manager, EDS Defence Ltd, EGAD gave evidence.

 

Chairman: Good afternoon and welcome. Before we go any further I would like Members of the Committee to very quickly go round the table and declare any relevant interests.

Mr Keetch: I have defence manufacturers in my Hereford constituency. I have also visited the United States twice as a guest of the UK Defence Forum to talk about ITAR waivers and other Defence Ministry policies to members of Congress in the United States of America.

Malcolm Bruce: I am not aware of any relevant interests.

Peter Luff: I do have defence manufacturers and suppliers to defence manufacturers in my constituency; apart from that, none.

Judy Mallaber: I have members of my constituency who work in Rolls-Royce in Derby and I am a member of Amnesty, so where that leaves me, I do not know!

Richard Burden: Ditto, I have got a number of constituents who work in defence-related industries and I am a member of Amnesty.

Chairman: I have a number of constituents who work in defence industries. I am a member of the trade union Amicus and also a member of Amnesty.

Mr Hoyle: Lindsay Hoyle, I am a member of Amicus and I also have constituents who work within the defence industry and defence companies within my constituency.

Mr Crausby: I have members of my constituency working in the defence industry and I am one of the joint chairs of the All-Party Amicus Group and a member of Amicus.

Linda Gilroy: I have constituents who work in the defence industry and I am a member of the Transport & General Workers' Union and I am Vice President of the Society of Maritime Industries.

Mike Gapes: I am a member of the Transport & General Workers' Union and I guess some of my constituents work in defence industries but I am not sure how many.

Sir John Stanley: I am not aware of any defence manufacturers in my constituency, sadly.

Mr Hamilton: I am a member of the trade union Amicus.

Robert Key: I have defence establishments in my constituency and defence suppliers and manufacturers in my constituency.

Chairman: Thank you very much.

Richard Burden: Could I add my membership of the Transport & General Workers' Union, which I forgot.

Q1 Chairman: We will draw a line there. In the interests of transparency we felt that was important. Mr Hayes, would you and your colleagues like for the record to introduce yourselves, please?

Mr Hayes: I am David Hayes, Chairman of the Export Group for Aerospace and Defence, Head of Export Controls for Rolls-Royce plc.

Mr Salzmann: I am Brinley Salzmann, and I am the Exports Director of the Defence Manufacturers' Association and Secretary of the Export Group for Aerospace and Defence.

Mr Marshall: Derek Marshall, I am Director of Aerospace Defence and Homeland Security for SBAC, a trade association.

Mr Wilson: David Wilson, I am the Export Compliance Manager for Electronic Data Systems UK and a Member of the Export Group for Aerospace and Defence.

Ms Peers: I am Bernadette Peers, I am the Compliance Manager for the Strategic Shipping Company, who are a freight forwarder who move predominantly military supplies.

Q2 Chairman: Thank you very much. You are very welcome. It is good to see you again. Thank you for your written submissions which have been very helpful. There are five of you and slightly more than five of us. We will attempt to keep our questions brief and to the point and it would obviously be very helpful, given that we have an hour for this evidence session, if you could keep your remarks short with perhaps one person responding to each question unless someone else has something new to say. Forgive me for putting it in those terms but you will appreciate we want to get maximum value from this session. Obviously if there are questions that we feel we have not had time to ask we will write to you after the meeting so that we have got a full record. Similarly, if you feel there are questions you wanted us to ask and we did not get round to it, feel free to contact our Clerk. Could I start by raising the question of the proposed international Arms Trade Treaty? During the UK's Presidency of the G8 it was one of the issues that the Government actively pursued. I would be interested to know what both EGAD and SBAC would like to see included in an international Arms Trade Treaty.

Mr Salzmann: Certainly I think I would like to reiterate our support for the principle behind an Arms Trade Treaty which should establish a much greater degree of transparency within those signatory nations of the criteria we should use to assess licence applications. Of course, we have yet to see the actual details of what is proposed. I would say that there has been some confusion within the industry and elsewhere arising from the publicity materials and press articles and letters in the newspapers which have been put out by the NGOs and others which are leading some to the presumption that it is focused on the small arms and light weapons sector. Consistently we see that and there is this perception that it is focused on small arms, whereas of course at the moment as envisaged it is all-encompassing across the military list. I think I can safely say that we would support as wide-ranging a treaty as possible, encompassing everything on the British military list, going even further and suggesting that just controlling items on the military list without seeking to control the dual-use items (which could be used for the manufacture of items which are on the military list) should also be covered by the Treaty. It would be something of a loophole if you did not also catch the means of production of those items which are on the dual-use list. So we would perhaps go further and say not just the military list items but much further than that.

Q3 Chairman: Is there anything that you would like not to be in the Treaty that you fear might be in such a Treaty? Have you got any concerns?

Mr Salzmann: At the moment we are just waiting to see the detail of what comes out.

Q4 Chairman: In relation to the EU Presidency, I am mindful of the fact that last time we met, industry raised concerns about the differences in treatment of exports by different members of the EU. I think Germany was identified as a cause for concern by a number of you.

Mr Salzmann: Yes.

Q5 Chairman: Have there been any recent problems in that area? Are there any on-going concerns of that kind?

Mr Salzmann: There are always going to be discrepancies in decision-making between the national governments on export licence applications which they receive from their companies. That is a continuing situation which I think is unavoidable, but we are all waiting with bated breath to see what comes out of the revision of the EU Code of Conduct, which I think no-one in British industry has had sight of yet and which we understand is currently with the national governments of the EU and yet to be ratified and finalised. We have yet to see what comes out of that and whether that will help to get rid of the room for discrepancies between national governments when they make their decisions.

Chairman: Thank you very much.

Q6 Sir John Stanley: As you will know if you came before the predecessor of this Committee in the last Parliament, the predecessor Committee has taken a very different view on policy towards trafficking and brokering from the Government. Whereas the Government is happy to accept a position whereby UK citizens involved in trafficking and brokering can be fully within the regulatory and legal authority of this country, if the trafficking and brokering is carried out in relation to any items on the military list in this country, the Government take the view that once they are outside the territorial jurisdiction of this country, unless they are engaged in trafficking and brokering in items of torture or long-range missiles in excess of 300 kilometres in range, they are totally beyond the reach of British law. When you last came before us it appeared that you were sympathetic to the Government's position whereas the Committee have taken the position previously that all such extra-territorial trafficking and brokering by UK citizens, wherever carried out in the world, should be subject to UK law. Do you still adhere to your previous position or have you modified it in any way?

Mr Hayes: I am not sure that I would agree that our previous position was necessarily sympathetic to the Government's position on trafficking and brokering. I think the view of EGAD would be that there are anomalies within the trafficking and brokering controls. They are less than ideal in a number of areas. One of the anomalies is the treatment of UAVs and equating UAVs with the likes of torture equipment, and an area of particular concern to the NGO community, and from what we read in the press, to the public at large, is the application of the controls to small arms and light weapons. At the moment EGAD is working on a series of proposals and we are discussing with NGOs ways in which the controls could be improved to make them more effective.

Q7 Sir John Stanley: When you say you are discussing ways to make the controls more effective, are you saying that you are now willing to contemplate a widening of UK legislation to extend the controls on trafficking and brokering to UK citizens overseas engaged in the sale and trafficking and brokering of items that fall between torture equipment and long-range missiles?

Mr Hayes: Not necessarily. I think probably what we are talking about is looking at better targeting of extra-territorial provisions to those items which are of the greatest concern rather than extending full extra-territorial control over brokering of anything that is on the military list.

Sir John Stanley: When you say better targeting, for example what about MANPADS, which are a very significant item and widely trafficked and brokered, do you not feel that there is a compelling case for them to be within the existing widened legislation so far as the UK is concerned and will you also cover this point?

Q8 Chairman: Sir John, forgive me if I just interrupt. Could we be specific, I think you have raised an important issue. Small arms; should they be covered? Short-range missiles; should they be covered, in your view?

Mr Salzmann: I think we are very sympathetic towards the arguments that they should be covered but our view is that there should be three categories. Rather than "controlled" and "restricted", there should be a third category where the controls are the same controls on the same activities as for controlled goods but that they have an extra-territorial dimension. Our main concern is about the provision of advertising and promotional services where we are not quite sure what the DTI's aim was in including those in the regulations. We would be very supportive of the inclusion of small arms and light weapons in another category of control which would be extra-territorial in dimension and would catch UK citizens overseas.

Q9 Sir John Stanley: So you are actually agreeing with the proposition I put to you which I thought your colleague was steering against. You are actually moving in the direction that the Committee would wish on small arms and light weapons?

Mr Salzmann: Small arms and light weapons, yes, and I believe that on MANPADS, measures are already underway to make them restricted goods, as far as I am aware.

Q10 Sir John Stanley: Would it not also be sensible to include explosives, detonators, bomb-making equipment, some of the standard equipment of terrorist organisations?

Mr Hayes: I would not want to pre-empt the work that is going on at the moment and the discussions between EGAD and the NGOs by presuming to reach a conclusion that has not yet been reached for the purposes of explaining to the Committee where we are. Where we are at the moment is that we are currently discussing it and it would be presumptuous in view of the fact that we have not reached a conclusion to say what I think they will be.

Q11 Sir John Stanley: Will you please, when you reach conclusions, make certain that the Committee is informed as quickly as possible about your conclusions?

Mr Salzmann: Yes.

Chairman: Thank you, we look forward to that.

Q12 Linda Gilroy: There is an increasing trend for UK companies to be involved in arms production in other countries. How strongly is that trend developing and what are the key things driving it?

Mr Wilson: One of the questions asked was does the licensing regime encourage this to happen, and I think I would be inclined to say along with my colleagues that the licensing regime we have in place does actively discourage taking the production or manufacture of "arms" offshore. The driver for offshore production, I would say, is exactly the same for arms' manufacturers, arms' producers and indeed producers of military software as it is for manufacturers of vacuum cleaners in that it is much cheaper to do the mechanical production processes overseas where labour costs are lower, where overall costs are perhaps lower. It is cheaper to hire high-quality staff. The licensing process that we have in place makes very sure, in my view, that when production is taken overseas it is perhaps "build it to blueprint" so perhaps aircraft parts would be manufactured overseas, you send the overseas factory a blueprint, a diagram, and say "make me one of those". The "metal bashing" element, if you like, can be done much more cheaply overseas in low-wage environments than it can in the UK. Where there are concerns like the transfer of technology, particularly if that technology has American elements in it and is therefore controlled extra territorially by the Americans as well, the licensing regime works against sending that technology overseas.

Q13 Linda Gilroy: Yes, I think that is an issue we can maybe return to some time. The UK Working Group on Arms suggests that the overseas subsidiary companies in which a majority shareholding is by a UK parent or where UK beneficial ownership can be established should be subject to UK export controls. Does industry have a problem with that?

Mr Wilson: So you would be contemplating adopting the American view that if there were more than a certain percentage of UK content in any particular technology it should be controlled wherever in the world it goes? Do I understand that correctly?

Linda Gilroy: Yes.

Mr Wilson: It would lead to a huge proliferation of extra-territorial controls. As I understand it, the UK Parliament has said that the United States' extra-territorial controls are an infringement or are likely to be an infringement of UK sovereignty; I suspect the same arguments would be applied against us. Equally, of course, if we have a US daughter company, son company or whatever, those constraints would presumably attempt to be applied in the US. I think it would be very difficult to manage, it would be very difficult to control, but we do already have the trade controls so if trafficking or brokering is managed in any way by a UK-based company, which I think the assumption would be if it was a UK-owned company, then the existing trade controls on trafficking and brokering would apply in any case, so I think we already have an oversight of what is likely to happen without trying to make the export control network yet more complex. I think what we need to do is make it more simple, more targeted and I think the existing trade controls that we have do that very effectively.

Q14 Linda Gilroy: So the short answer to the question is you would have problems with it?

Mr Wilson: We would have great concern with that.

Q15 Chairman: As I understand it, you said earlier that you felt the present control regime encouraged licensed production overseas.

Mr Wilson: No, I said that the present licensing control regime discourages licensed production oversees.

Linda Gilroy: I almost asked for clarification.

Mr Wilson: It is the financial aspects which drive production overseas. The licensing regime makes the transfer of technology to do that more difficult and imposes controls on it.

Q16 Chairman: But what I thought you had in mind was the conventional argument, which is that hypothetically you are a UK company that wants to export arms to a certain place, to a certain end-user; UK arms export controls prevent that export from the UK; an obvious thing to do is to broker. The second obvious thing to do is license production overseas, which was the basis of my colleague's question. You simply establish establishments in a second country to manufacture. I would have thought therefore that the conventional wisdom is that trade controls that focus on exports from the UK provide some incentive to contemplate the alternatives, one of which clearly is licensed production overseas?

Mr Wilson: One of the things that the Export Control Organisation examines when asked to give a licence for overseas production is what the likely end-use is going to be of whatever it is that is produced overseas. The biggest example I can think of of overseas production is where, say, a company wishes to make military aeroplanes; it is cheaper to have the metal-bashing element of that done overseas. Similarly, for some bits of military software, it is cheaper to have segments of software developed overseas and brought back in. The issue you are postulating of moving production overseas to avoid the UK export controls, while it is possible, the technology to do that needs to be exported under licence.

Q17 Chairman: Yes, that is the Government's argument.

Mr Wilson: And the licensing regime would make that very difficult because that is one of the criterion that is examined; "where is it going to go?"

Mr Hayes: I think there is probably a subtlety here we are not necessarily picking up when we are talking about licensing production overseas. There is a difference between licensed production overseas of an end system that is useable by a foreign military and the licensing of production overseas of a component which is going to come back to the UK to be assembled into an end piece of equipment, and we are not necessarily picking that up.

Chairman: That is important. Thank you.

Q18 Mr Keetch: Can I talk about ITAR and specifically about JSF. I repeat the declaration I made earlier that I have been to the United States twice in the last two or three years to talk to Congressmen specifically about ITAR and JSF, people like Henry Hyde, Duncan Hunter and others. It really is incomprehensible to me that on a project that is so important to the UK, the Joint Strike Fighter, the programme that is going to equip our future aircraft carriers, a massive investment, where the UK is the only Tier One partner of the US in terms of that project, above Canada, above Australia and above Israel, that an ITAR exemption is agreed between the UK government and the US administration in 2003 and yet Congress has twice, in 2003 and again in 2004, refused to ratify that. For you, lady and gentlemen, it must be incredibly frustrating that that has not been passed by Congress. I wonder if you could just tell us if you think there are any alternatives to the ITAR that could be brought into play? Also, do you think there is anything more that Her Majesty's Government could have done to help persuade Congress or the US administration to actually pass this particular piece of legislation?

Mr Hayes: In December we were invited to give evidence to the Defence Select Committee in relation to this aspect and whilst we fully recognised the political symbolism, if you like, of the ITAR waiver, the reality is that the waiver was so limited in scope that it would actually have been of minimal benefit, particularly in the context of a high-technology programme like the Joint Strike Fighter. Having said that in our evidence, we were then invited to put forward our own ideas as to what possible alternatives there may be to the ITAR waiver as we move forward. EGAD is working on that at the moment. There was a meeting this morning to kick off that piece of work so it is in its very early stages.

Q19 Mr Keetch: Could I suggest to you, Mr Hayes, one thing you might like to look at is a suggestion that was made 18 months ago to the British government which is that the alternative to doing this, for exactly the reasons you talked about, is the treaty that was agreed between the US and the UK on Trident, which was a specific treaty obligation which would have allowed for the movement of technology that would have got over the issues about ITAR. The British government was advised of this at least 18 months ago. Given that and given the fact that there is a difference between the British and US systems, where it is the US Congress that authorises this and not the administration, are you also aware that it was suggested to the British government 18 months ago that it should seek Parliamentary support for British parliamentarians to talk directly to UK Congressmen, in order to try and get this message across, and that was not given the support of the British government? Do you not think that we have rather lost an opportunity there and had we sent not just the Defence Committee across but parliamentarians to talk to Congressmen we might have got a bit farther on this over the last two years rather than running around at administration and government level?

Mr Marshall: I am sure we would have welcomed all the support we could have got. There were some issues. Digby Jones went out, for example, and a lot was done by the industry and the Government and we did talk to each other, but I had not heard of that particular position taken by the Government and certainly we would have liked to have seen more support as well.

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.

Q40 Chairman: Five or six? I do not know really.

Mr Hayes: It is probably the sort of information that if you asked under a Freedom of Information request the response would be that the information is not readily available.

Q41 Chairman: The answer to my parliamentary question was exactly that. I was hoping you guys might know the answer.

Mr Hayes: Sorry.

Mr Wilson: If there is more than a dozen at Gatwick I should be very surprised. It is because of the point which Bernadette made that export compliance is just part of their role.

Chairman: In all seriousness, I appreciate that. Bernadette referred to beryllium. Somebody ought to ask the beryllium question.

Q42 Robert Key: I would be delighted to ask the beryllium question! I understand that if you have a consignment of beryllium which contains more than 50 % beryllium by weight, you need a licence?

Ms Peers: Yes. I did a check on it yesterday. Imagine it is going to Italy, it is ML8 ---

Q43 Robert Key: This is beryllium for an X-ray machine window; that is giving you an example?

Mr Wilson: That is a potential use for it.

Q44 Chairman: Robert, why do you not give your full question because I think the question is important and then we will have the answer afterwards.

Mr Wilson: That is actually pure beryllium, 99 % or more.

Robert Key: Do you want the whole question?

Chairman: I am sure you have a very good question. Let's have the 'Full Monty' - and that is the first time that phrase has been used in a Committee.

Q45 Robert Key: Can you explain to the Committee what happens at ports when goods are exported? What documents are required?

Ms Peers: For beryllium or just in general?

Chairman: Robert, forgive me again, go to the beryllium question.

Q46 Robert Key: Let's take an imaginary UK export to a country outside the European Union which rolls up at, let's say, Dover in a lorry. On board is your consignment of beryllium which because it contains more than 50 % beryllium by weight normally requires a licence. The driver says no licence is required because the regulation provides an exemption for beryllium metal windows for X-ray machines and that is what he has on board. What happens next?

Mr Hayes: We are confusing two controls here. The military list control on beryllium contains a decontrol notice. The dual-use entry contains a control. Again, you have got to come back to the basic question of is this military list or is it dual-use. For the purpose of the question we will assume it is military list.

Q47 Robert Key: Let's assume that it is a window for a military hospital.

Mr Wilson: Not more than 50 % beryllium and not therefore controlled by the military list but ---

Q48 Chairman: The driver says it does not require a licence. What happens next?

Ms Peers: Well, then he goes to the Eastern Docks where there are no Customs (because if you have anything to declare you go to the Western Docks) and he gets on a ferry and away he goes because he is assuming as a driver he has produced his passport and his CMR, which is equivalent to an airways bill (and I do not know what the initials stand for, I am sorry), which basically says what he has got on board which would be windows for an X-ray machine. He would then drive across Europe, transitting various countries. If it was military we then have the issue of the transit licence because you cannot transit EU countries with military equipment without a transit permit, so we are assuming for this example that it is not military so that does not come into it. He would go through the countries. If he is stopped then he would probably say to the Customs agent that it is X-ray windows. They probably will not know because of their lack of knowledge or awareness and on it will go to its end destination. Very few checks will take place.

Q49 Chairman: David, I cut you off earlier, forgive me. Do you want to re-emphasise the point you were making about the confusion?

Mr Hayes: I think it just seems to emphasise the complexity of the controls really. The first decision we have to make is is this item controlled; yes or no. If it is controlled as military, if it is as we describe a 50 % content, then no it is not. If we look at the dual-use control, the one that does contain the 50 % reference, then beryllium metal and alloys containing more than 50 % beryllium by weight are subject to control. The decontrol note says that it does not control the following: metal windows for X-ray machines, so in actual fact if the item we are talking about was a metal window for an X-ray machine it would not require a licence at all.

Q50 Malcolm Bruce: I wondered if I could relate that back to the Export Control Organisation. You said this is what is outside. Is there no interaction between the Export Control Organisation and Revenue and Customs to say these are areas you should be looking out for. Is the reduction in the staffing of the Export Control Organisation going to make it more difficult for them to do that? Should they not be picking some of these things up and saying we should be looking out for them?

Mr Hayes: A lot of the Revenue and Customs work is now intelligence-led. By the definition of that term we do not have access to what it is that they are doing, but you would imagine that it would certainly be possible to identify known high-risk consignees, countries regarded as high risk for either WMD development or diversion of goods, carriers who are high risk, maybe even tariff codes that are regarded as high risk, and you would expect them to base their intercepts on that sort of information. Whether or not they are doing that, we are not really in a position to know.

Robert Key: Chairman, would you like the zirconium silicon question next?

Chairman: I think not actually, Robert. I think we need to draw this session to a close. Mr Hayes, thank you to you and your colleagues. It has been a very helpful session. The transcript will be available on the Internet in about a week. If having read that any further comments are provoked in your mind, please do write to us and, similarly, if any of my colleagues, Robert for example, has a question they would like to ask, we will contact you but, again, thank you very much for your attendance this afternoon.

Examination of Witnesses

 

Witnesses: Mr Oliver Sprague, Research and Policy Adviser, Oxfam and UK Working Group on Arms, Mr Roy Isbister, Head of Export Controls and EU Section, Saferworld and UK Working Group on Arms, and Mr Mark Thomas, Broadcaster and Journalist, gave evidence.

Q51 Chairman: Welcome, good afternoon, Mr Isbister. Would you like for the record to introduce yourself and your colleagues to introduce themselves?

Mr Isbister: I am Roy Isbister and I work on export controls for the NGO Saferworld.

Mr Sprague: I am Oliver Sprague, and I am Research and Policy Officer for Oxfam GB.

Mr Thomas: I am Mark Thomas. I am a journalist, broadcaster and performer. Amnesty have asked me to take their place today which I am very grateful for although I do not represent Amnesty today. I would like to say thank you very much to the Committee for inviting all of us in to speak today.

Chairman: Thank you very much, you are very welcome. We have got an hour for this session. I am going to ask my colleagues to be brief and to the point in the questions that they put to you. Similarly if you could be brief in responding. Can I thank you, however, all of you, for your written submissions which have been very, very helpful indeed and no doubt our questions will be based on those submissions.

Q52 Mike Gapes: Can I begin with questions about the international Arms Trade Treaty. Your memorandum to us is quite helpful. It praises the Foreign Secretary for his admirable leadership in the area, but if you look at the Gleneagles G8 summit, it does not refer to that Treaty and also the UN Millennium summit was disappointing in terms of disarmament questions. How do you assess the progress that has been developing in the last year and what would you like to see included in an international Arms Trade Treaty.

Mr Sprague: I think I will kick off on that one. From where we were last year we have again made considerable progress. I think I spoke to the Committee last year and we were up to 20 governments which had expressed support; we are now up to 43 governments which have said they support an Arms Trade Treaty. Obviously this year more than any other year it is incredibly important. We have two big events that are happening. We have the Small Arms Conference in June and then we have the General Assembly in October, and we hope that a Resolution on an Arms Trade Treaty will be tabled at that meeting. Obviously we have an awful lot of work to do to get that 43 up to nearer 100 governments. In terms of content, I think we should be quite clear, the Arms Trade Treaty is about all arms, it is not just small arms, but there is an important Small Arms Conference happening in June this year which I think is where some of the confusion might have arisen on this issue. In terms of the content, I think NGOs have been campaigning on this for a number of years. We are very clear about what we think the Arms Trade Treaty should look like. Obviously we are not yet at the stage where we have content on the table and governments are going to spend a couple of years looking at this, and we hope to be fully engaged in that process, but we as NGOs are clear that it should be based on existing principles of international humanitarian and human rights law. There is quite a body of law out there that says thou shalt not transfer arms under certain very clear circumstances, so for example international arms embargoes, resolutions by the UN Security Council, treaties which countries might have signed up to, for example the 1980 Convention on certain conventional weapons and the Landmine Treaty. There is also an aiding and abetting-type principle in that you should not authorise arms transfers where it is likely that the use will be for serious crimes against humanity, genocide, et cetera. Then there is a whole category of norms that have been established on non-proliferation, things that we can see, for example, in things like the EU Code of Conduct, the Nairobi Protocol in Central Africa, and these are factors that should be taken into account, they are things like sustainable development, regional security, those types of issues. The importance here is that there is a positive duty on the State not to authorise transfers where there is a risk that those transfers could be used in such ways.

Mr Isbister: Maybe I could just follow up briefly on the process side of things. We have 43 states that have expressed statements in support of the idea of having a trade treaty, but it does have to be recognised that there is a lot of lazy support in amongst that, where states have made a statement and then they think they can put their feet up, their job is done, time to move on. There have been disappointments; for example, what happened at the G8 last year, I think we were disappointed by what we got from that, and the Millennium Plus 5 summit was disappointing. On the other side there has been good stuff, the EU statement in October, the statement from the Commonwealth Heads of Government meeting, which was a very welcome surprise - you had India and Pakistan, for example, putting their support behind the idea of an Arms Trade Treaty, which has not happened before, but looking forward there needs to be a lot more happening, there needs to be a lot more activity. We have praised the Foreign Secretary; there needs to be more support across Whitehall. DFID is starting to make its presence felt but we have seen very little from the Ministry of Defence so far, so we look for support from them. There needs to be resources given to make this happen, it is not just a case of making statements, there has to be money, time and effort going into this and there needs to be work by the UK government to encourage states which have made a statement of support to actually go out and do something as well. If this is just a UK game then it is going to fail. At the General Assembly later this year we need something solid, we need something strong, for example an open-ended working group that looks at how we can take the process of an ATT forward, not a group of governmental experts that will look at whether an ATT is a good idea and is basically kicking this into the long grass. There is a lot that has happened and there is a lot more that needs to happen.

Mike Gapes: Thank you.

Q53 Chairman: It might be worth saying that Members of the Committee have been circulated with a copy of a draft Framework Convention on International Arms Transfers, which has Oxfam, Saferworld and Amnesty International's logos stamped on the top, along with other organisations. I agree that this is not the time to go through the detail of this draft framework, but would it be fair to say that that is the direction in which you feel we should be going in terms of the detail of the international Arms Trade Treaty?

Mr Sprague: Yes.

Q54 Chairman: I assume the answer is yes but, forgive me, I was just trying to say we have seen the draft.

Mr Sprague: We need to be very clear that this is what we as NGOs think should be in it and it is going to be governments that negotiate what is going to be in it. We are encouraged from the speech that the Foreign Secretary gave - I think it was in March last year - that his thinking does appear to be in line with the types of things that we want to see in the Treaty and you can bet that we will be campaigning, lobbying and negotiating hard in the next two years, hopefully after October, to make sure that the Treaty is what we want it to be, it is as close to what we have written on paper as we can get.

Chairman: Thank you, that is helpful. When we take evidence from the Foreign Secretary we will certainly ask him questions along those lines.

Q55 Mr Borrow: I want to touch on another area that you cover in your submission, which is that in the same way as much of British industry has engaged in joint ventures overseas or set up subsidiary companies overseas, the defence industry is going in the same direction. There is this issue that a loophole exists to circumvent UK arms export controls, and I wondered to what extent you feel that it is realistic to actually seek to extend the control to subsidiary companies and joint ventures, and whether in the end it would be effective in actually reducing the movement of arms to countries where we would not want them to go, simply by affecting joint ventures of UK companies. How effective do you think that would be?

Mr Sprague: It is certainly true that the defence industry, not just in the UK, is becoming more global. Our colleagues in the DMA in 1999 were addressing the Defence Select Committee and said that there is hardly a Western defence system that does not have a high degree of UK components and technology within it. The best way of looking at this is through case studies about where we think a potential problem might arise. A qualification from earlier is that for subsidiary companies, my understanding of the law is that the Broking and Trafficking Regulations do not apply to embargoed destinations if subsidiaries are involved, they only apply if a UK citizen or a UK-based company is part of the deal; therefore, if any of the phone calls or paperwork took place within the UK, that would be covered. We might want to just clarify that that is the situation. That is clearly one area that could be looked at immediately and I know Mark might have an example that he wants to talk about where this did happen. There are some examples in the military vehicles sphere, for example BA Systems is now an owner of a South African company, Land Systems OMC. Land Systems OMC has exported a range of vehicles to a variety of destinations that I do not think would have received exports from the UK of the same type of equipment. Those include, for example, the Ivory Coast - which is currently under embargo - Nepal, Uganda and India for use in Kashmir, so there is obviously a control problem from here. It is an area that will need work but, as a first step, things like the embargo legislation on broking and trafficking could be looked at.

Mr Thomas: I would certainly agree with that. I am not sure if you want me to go onto the subject of Ashok Leyland at this stage.

Chairman: I would like to save Ashok Leyland for a few more minutes if possible, because I know other Members want to come in on this. Before we do, the South African example, Mr Sprague, is mentioned in your written submission to the Committee, which is very helpful. Some of the other examples you have mentioned are actually not here and if there are any other examples that you think the Committee ought to think about, then please let us have them. Richard, you wanted to pursue this production overseas point before we then go on to Ashok Leyland.

Q56 Richard Burden: One thing that was in your submission was the Land Rovers, the Turkish made Land Rover Defender 110 military vehicles which were used by Uzbek troops during the massacre of 2005. What you have said about that in your submission is that they were a gift from the Turkish government to the Uzbek government, and you think it is likely that they were produced under licence from the UK by Otokar, the Turkish company, although 70 % of the components were exported from the UK and therefore you say there is a loophole. We actually put this to the Government and said what do you say about this then, and I would like to read out to you what the Government said in response to that, and then perhaps you can give your response to that. What the Government told us was: "We understand that Land Rover sells flat-pack civilian Land Rover Defenders to the Turkish company in question, which then assembles and re-badges them for onward sale under its own name, using its own products and components, and according to designs for which that company holds the intellectual property rights. It is the Government's understanding that these are not Land Rover approved products and it is therefore inaccurate to describe the company concerned as an overseas production facility for Land Rover. Under the EC Dual-Use Regulations ... the UK has no power to control the export of civilian specification Land Rovers. To the extent that the buyer in Turkey converts the civilian vehicles using his own technology and without UK involvement, this is a matter for the Turkish authorities as regards any export from there." That is what the Government said to us and I would be interested in your reaction to that.

Mr Sprague: The first thing to say is that it is a situation that nobody can be very pleased about. There were clearly pictures of Land Rover vehicles used in a massacre of civilians; even the Turkish government voiced its displeasure at Uzbekistan for using its Land Rovers in a way that they were not donated for. I think it is a loophole that 70 % of a vehicle can be sold that bypasses the licensing system and that clearly needs to be looked at because these vehicles are clearly what normal people would understand to be military vehicles. The equivalent of DESO (Defence Exports Services Organisation) in Turkey actually lists these vehicles as military specification; it says the Land Rover Defender 110 of the type that was transferred to Uzbekistan comes fitted with a NATO-style towing hook and rifle clips, both of which to my understanding makes them ML6a under the UK control list. We need to be very clear that these, under the UK definition, would be military vehicles that were sold. 70 per cent of the bits for those vehicles were supplied from the UK; that no control is possible I do not think is entirely true because there is now an EU arms embargo on Uzbekistan and it is my understanding that in cases where there is an EU arms embargo, the EU Dual-Use Regulation applies and civilian components for incorporation into military systems become licensable under an end-use catch-all clause. I am very sure that that is the case, so I do think now that civilian components for vehicles supplied to Uzbekistan from the UK would be subject to UK licensing.

Q57 Richard Burden: On the grounds that there is an embargo.

Mr Sprague: Exactly.

Q58 Richard Burden: I understand that. Let us assume that we were dealing with a situation where there was no embargo. Getting your views about how far you feel the regulations should be tightened, let us give another example where something which would normally be regarded as for civilian use is alleged to be for military use. Caterpillar bulldozers, for instance, have been used for military use in the occupied territories, JCBs are currently being used building the separation wall outside Jerusalem which the Israelis say is a defensive mechanism; would you say that those kinds of equipment should be covered by these kinds of regulations?

Mr Sprague: I cannot talk on the Caterpillar example in Israel, but a balance needs to be struck between a single light bulb and a 70 % flat-pack kit that gets militarised. Somewhere between those two examples I think the control system needs to kick in, and it is the use to which these things could be put which should be the ultimate judge.

Mr Isbister: The case that you give is a very good example of how, wherever you draw the line, you are going to be able to come up with difficult cases that sit pretty much on that line. I would argue that where it is drawn at the moment - I cannot imagine that this is what the Government wants to see, what happened in Uzbekistan with the Land Rovers, I cannot imagine that the Government was happy with that situation so somewhere in the Government someone must be saying "Actually, we have not got it right", and I think we need to do more to explore this. The idea of introducing a catch-all clause that catches components that are designed for a system for military end-use or for a military system, these are things that need to be explored, I do not think the Government is right where it is. The thing that kind of bothers me is that there is a lot of hands thrown up in the air and there is an attitude that this is one for the too hard basket. The transfer of production technology, I do not think we should get too bogged down in talking about licensed production overseas, for example, because then we can miss out on a lot of other ways of transferring capacity, but the transfer of production capacity is crucial. This is a bigger deal than transfers of finished products on three counts. It is a bigger deal because you cannot as readily control the level of production, so with a simple export you know how much has gone, but by transferring capacity you start to lose control over the quantity. Tied into that is you lose the control of the eventual end-use, because again as production goes up you can have additional proliferation of the produced equipment. Even more importantly, you lose control of the intellectual property itself, so the recipient company of that technology can then export that technology. To me, this makes this an area which is key to effective control in an increasingly globalised world, and it feels like we are not grasping the nettle at the moment. It is hard, but it is something that I think we simply are not doing at the moment.

Mr Sprague: There was an inference in the Government's response to you on this case that somehow they were two totally separate companies and that what one did was completely separate from the other. There are a couple of things I just want to throw into the mix to challenge that. That is a picture of the vehicle; it clearly has both Land Rover and Otokar logos on it. Also, this is Land Rover's latest brochure for its military sales; the vehicle that is pictured for sale, because Land Rover in the UK do not make an armoured personnel vehicle, is an Otokar vehicle[1], so Otokar vehicles are in Land Rover's new brochure and they were jointly exhibiting at DSEi[2] this year. Here is a picture of this very same vehicle and you can see the Otokar logo on the bonnet, so to imply that they are two totally separate companies and there is no relationship between the two I think is slightly misleading.

Q59 Richard Burden: Have you gone back to the Government with that evidence?

Mr Sprague: We will.

Chairman: The Committee would be very grateful for copies of that and we will certainly refer it to the appropriate government department for explanation. It would be very helpful indeed.

Q60 Linda Gilroy: Could I just ask for your observations on the reply I received earlier from the defence representatives in which they were saying that the weight of the export licensing control regime actually actively discourages overseas investment and overseas subsidiaries?

Mr Sprague: Obviously, we are not involved in the actual detailed discussions that industry and the licensing regime may have, but from where we sit clearly the defence industry is global. There are examples from all over the place and not just in the UK - there are French companies working on helicopter development in India, Germany is very, very significant in transmission systems, engines, power packs for military vehicles, you have two Austrian small arms companies seeking to do joint ventures and assembling plants, we have Glock moving assembly into the United Arab Emirates, a couple of years ago Steyr were announcing or there was talk about (though this might have actually not happened) moving the entire production of Steyr assault rifles to Malaysia. So this is not just a UK phenomenon, it is a global phenomenon, and the evidence shows that it is happening.

Linda Gilroy: It is a bit difficult to understand their response; it is probably worth probing them a bit more at some point.

Chairman: We can certainly write to them and probe.

Q61 Mr Borrow: I take the point that there is a problem, I also take the point that it is difficult, but I have not heard any ideas as to how to solve the problem.

Mr Isbister: One of the ideas was to use catch-all clauses more effectively, so using this case as an example, these are civilian components but if they are for use within a product which will eventually be a military product, then it should be a case of the exporter raising the hand and saying this is what we are doing, do we need a licence for this, so it is using that system rather than building up a massive control list.

Chairman: If you could provide a further brief written submission on that, it would be incredibly helpful so that we can consider that further.

Q62 Malcolm Bruce: To what extent is this licensing of exports internationally just what is going on in every industry and to what extent is it de facto or intentionally trying to get round licensing controls, and have you got any evidence of the distinction? The industry is likely to say everybody is doing it.

Mr Isbister: I do not think I could comment. Related to this and to your question it is not just a case of the deliberate intention to avoid export controls which is problematic, it is because of this cascading effect that I spoke about, what might at first glance appear to be something that does not need particular attention. The second stage down the line and the third stage down the line might need particular attention, so this is why at the licensing stage there needs to be much closer attention paid to downstream risks, what the potential cascades are and how you can set up a structure to try to address this, even post-export by using the US type system of re-export limitations, production quotas and that kind of thing.

Q63 Chairman: Thank you very much. Mr Thomas, thank you for your two written submissions. Can we deal first with the one in relation to Ashok Leyland? It would be very helpful if you could briefly summarise that case but perhaps then, more importantly, advise the Committee what lessons you draw from that in terms of appropriate export controls.

Mr Thomas: Very briefly what happened was Ashok Leyland, which is a subsidiary of the Hinduja Group, part of Land Rover Leyland International Holdings - which is a UK company - advertised on their website in February 2005 that they had just secured a contract to provide military vehicles for the Sudanese Defence Ministry, for knock-down kit military vehicles that would be assembled in a plant near Khartoum. That appeared on their website, it was announced at IDEX, which is an arms fair, it appeared in Jane's Defence Weekly and was reported in a whole plethora of Indian newspapers. Because of the fact that there are four UK residents or nationals on the board of Ashok Leyland, the Indian company, that would therefore put them in the frame legally if they had anything to do with that deal for Ashok Leyland, the Indian company, to provide trucks for Sudan, an embargoed destination. I spoke to the BBC about that and was given the go-ahead to start investigating it, we approached the company posing as potential buyers, we spoke to people who are involved in the Hinduja Group - Anders Spare and Dheeraj Hinduja - both of whom intimated that they were aware of the deal and were involved in the deal. This would therefore put them within the scope of the law. The BBC, Newsnight, then approached the Hindujas who initially issued very contradictory statements saying that they knew nothing about the deal, that they were not involved in it. There were six lawyers - I do not know what the collective noun for lawyers is, but I probably should not be saying it - and basically they intimidated the BBC from broadcasting that piece. They changed the line throughout the investigation, throughout their discussion with the BBC, saying that they were not military vehicles because they did not have armour-plating, they then changed it to say they were not military vehicles, they were not going to the Sudan Defence Ministry - we said "Well, it is on your website" and they said that is wrong. We said the guy who signed the contract said they were defence vehicles, they said that was wrong, so they continually shifted their line on this until eventually they said "If you broadcast this you will need to put up the licence fee to get the money we are going to take off you in libel." There are several questions to ask about that. The question about the BBC caving in to the intimidation of a company is not perhaps for this Committee, but I think there are three big areas. One is why did Customs not pick up on the publicly available material? The stuff was on the website, it was announced in Jane's, it was announced at an arms fair, there was plenty of information out there. Why was it that this was not picked up on? Sudan, as everyone knows, is an embargoed destination, we are all aware of what has gone on and what continues to go on in Darfur. I spoke to a gentleman from that region who said that the Sudanese government issued military trucks of this type to the Janjaweed who used them to get across the terrain; the gentleman I spoke to had witnessed attacks on villages with trucks of this type being used to support the Janjaweed, so these are part of the logistics of that genocide. Given that, why was it that Revenue and Customs could not do that simple act of putting two and two together? Why could they not pick up on that publicly available material? The second point about that in my belief is the Hindujas' ever-changing line warrants an investigation by Customs. I do not think one will be forthcoming and we have to ask, given that it probably will not occur, given that they ignored the signs that were already there, why is that the case, why is it that Customs have not investigated and are likely not to? People that I have spoken to have indicated that the Revenue and Customs have not got the staff to deal with it, and I draw the Committee's attention to the Regulatory Impact Assessment that was done by the ECO in 2002 about calculating the extra costs that the new regulations on export control would bring to Customs; they estimated it would be approximately between £200,000 and £300,000 and there were no additional IT or training costs envisaged. The year before, just by comparison, Her Majesty's Government announced an additional £90 million to be given to enforcement agencies specifically to target and work on drug trafficking and people trafficking; so on the one hand we have £90 million and on the other hand we have £200,000 to £300,000. That works out at about 0.5 to 0.8 per cent of the budget going to track and enforce arms compared to people and drug smuggling. That probably is actually at the root of it: HMRC does not appear to have the budget and staff to deal with it. The final part of the Ashok Leyland saga and the questions that it throws up are on subsidiaries. The only reason that Ashok Leyland could be investigated and this matter brought up was because British nationals or residents were involved on the board of Ashok Leyland, the Indian company. That subsidiaries are exempted as separate legal entities from the action and divorced from the parent companies I think is a major problem and one that needs to be addressed. When you previously asked what would the difficulties be in this, the US managed to do this; the US, I believe, actually have control over a subsidiary company, they require licences from the subsidiary company and if they do not get those licences there are fines on the parent as well as the subsidiary. If the US can do this and not impair their industry, then I see no reason why the UK cannot.

Chairman: Thank you, that is very helpful. Could I ask if Oxfam or Saferworld have similar examples? This is clearly a case where the allegation is of a UK citizen participating in brokering an arms export to an embargoed country. Are you aware of any other examples that spring to mind? It is safe to say things here actually; I advise you to choose your words slightly more carefully outside of this room of Parliamentary privilege, but whilst you are here you might as well say it. I have been advised to be careful, sorry.

Mr Hoyle: Slander everybody.

Q64 Chairman: It was a serious question because I am interested in the extent to which you have evidence that this may not just be a one-off. Is there any evidence?

Mr Bruce: Did the deal go through?

Mr Thomas: The Hindujas announced that the contract had fallen through, which I regard as a bonus.

Mr Isbister: I would like to point out of course that in terms of brokering the deal does not have to be consummated, if you like, for you to require a licence, so it is not that the law takes effect once the deal is done, it is at the negotiation stage.

Mr Thomas: I know there is one other example. I do not know if Ollie wants to mention the Knights case in Sudan at this stage, but I know there was a gentleman who was found to be brokering the export of military equipment to Sudan who was exposed in The Sunday Times for doing that. Again, the reply when questions were asked about that, about whether it was going to be investigated, was that the authorities have made the appropriate investigations and have said that it is not worth investigating further. One thing I should add to that is I know the reporter who covered that story has copies of end-user certificates and has a whole pile of information that actually implicate the gentleman involved in the supply of military equipment to Sudan and that that gentleman has not been approached at all by any government agency whatsoever to ascertain what information he has.

Chairman: I am sure you have passed your evidence on to the appropriate government authorities. We will certainly pass on the evidence in this Committee to the appropriate government departments and ask for a response because clearly that is important. You have raised a number of key issues that we need to consider.

Q65 Mike Gapes: Can I get back to this point about extraterritoriality because in the previous part of this meeting we asked the question to the defence manufacturers and they said you would not be happy if the US was imposing extraterritoriality, and I can remember years ago the argument between the then Conservative government and the US administration about Cuba, and there was also the Soviet gas pipeline issue many years ago where American legislation was deemed to apply to anybody involved in a company which had relations with that American company. It does raise a complex issue of relationships, and if we take that position of saying that our law applies extraterritorially in every other country, then it does set a precedent which I think has lots of other implications, and I would just be interested in the reaction of you as exponents in this campaign to that issue?

Mr Sprague: Let us talk about extraterritoriality for brokering and trafficking especially with small arms. It was a Government manifesto commitment in either 2000 or 2001 to regulate the activities of brokers and traffickers wherever they are located. In this particular case, because of the way the arms trade works, these controls are needed and necessary and I still do not know why the Government has chosen not to do it for all cases. I know that there are issues around embargoes and that there are currently extraterritorial controls that apply to embargoes, but there is a only a handful of countries where that applies, there is an awful lot of other destinations where the supply of small arms and light weapons could do a great deal of damage but where there is no extraterritorial control. At least in that area, therefore, there does need to be an extraterritorial dimension to our controls. We are in discussion with our colleagues in industry, as you heard recently, and we hope there may well be some movement there, but we are not at a stage yet to see whether we have reached common agreement. We are intending to do so for the 2007 review of the current UK legislation that the DTI is going to start some time in 2007, and we are going to be pressing again very hard for extraterritorial controls in this area.

Mr Thomas: Can I add one very small point to that question? Yesterday I actually talked to an Italian magistrate, a guy called Mr Marpelli who works in Monza. You might be familiar with the case study here, he was the gentleman who was responsible for trying to prosecute a Ukrainian Israeli passport-holder in Italy, who was found in a hotel room with drugs, about half a million dollars worth of diamonds, end-user certificates that were false, trade shipment documents and photographs of the goods arriving which showed the movement of arms through Bulgaria into Sierra Leone and Liberia. He said that the man actually admitted that he did it and he was working for Charles Taylor; so he had the documents (all three sets), he had the diamonds, he had the drugs, he had the gentleman who even confessed that, yes, he had done all of this, and there was nothing he could do. There was no law he could prosecute him under and there was no extraterritorial laws that the suppliers of those weapons could use to actually bring a prosecution. I would argue that that is a case worthy of consideration.

Q66 Mr Hamilton: Not even falsifying certificates?

Mr Thomas: The only thing they got him on was the cocaine.

Q67 Chairman: Thank you for that. I would like to move on, Mr Thomas, to your second memorandum submitted to the Committee. There you say that UK companies may have assisted in the sale of electroshock guns and batons. A number of things arise from that. Do you believe it is companies being ignorant of the law or do you believe that HM Revenue and Customs are not proactively looking at these areas?

Mr Thomas: That is two questions. Firstly, in the cases that I was working on over the past year nearly all the people said that they were not aware of the law at a point when they were confronted about the illegal nature of their actions; however, several of them had also intimated that they wished to conceal their activities and did not want them to become public, which perhaps suggests that they were aware that what they were doing was illegal. One of the companies, TAR Ideal, which was at the DSEi fair, whose brochures had electroshock weapons and leg irons in them, actually said that their brochures had been seen by the organisers who were quite happy with them. It is very difficult to judge whether they genuinely did not know the law or whether they were merely saying that to try and lessen any effect of their actions.

Q68 Chairman: The Government has told this Committee that "[A] trade licence is required for any act calculated to promote the supply or delivery, between third countries outside of the UK, of 'Restricted Goods' which include torture equipment. This does therefore impinge on the advertising and promotion of such equipment by foreign exhibitors at trade fairs in the UK."

Mr Thomas: Fantastic.

Q69 Chairman: First of all, do you welcome that statement?

Mr Thomas: Of course I do.

Q70 Chairman: Good. Are there any other parts of the law in that area that you think need to be clarified, because I think there have to be some doubts about that area?

Mr Thomas: In regards to?

Chairman: Arms fairs and the advertising or brokering of instruments of torture.

Mr Thomas: At one point the DTI did say that promotional materials would be exempted, so the Government's clarification here is incredibly welcome, that if it is advertised then it does breach the law. This is torture equipment, everyone in this room knows what they do, everyone in this room has been to meetings and heard reports of what they get up to; it is absolutely vitally important that we make a huge statement that says this is not acceptable in any way or form, and this includes the advertising of this equipment and the potential sale of it at UK arms fairs. I am very pleased and delighted that the Government has said that.

Q71 Chairman: I have two very quick final questions, Mr Thomas. You obviously attended, as your evidence indicates and is the basis of part of what you just said now, the DSEi arms fair in Docklands in September last year. Did you come across any other potential breaches of UK export laws?

Mr Thomas: I remember seeing the Chinese delegation there, which was quite interesting. When we see the Chinese delegation being taken around the DSEi arms fair, with a British guard of honour, it seems to me very contradictory that on the one hand the British government is saying we have imposed a policy embargo on certain military equipment, we will not sell it to you; however, we will introduce you to gentlemen who will.

Q72 Chairman: We have written to the MoD very recently to enquire about that. Is there anything else we should be pursuing based on the arms fair?

Mr Thomas: There are issues on the arms fair which relate to a whole range of things. Why are people there? They are there to make contacts. That is what they are there to do and I have spoken to arms dealers who have said it is not an A plus B equals C situation; you do not display at the arms fair and people come up to you and say "Great, here is a contract", this stuff will take ages and ages to develop. We have to be very, very vigilant on all the products that the companies produce that exhibit there, whether they exhibit them there or not, because certainly one of the cases I found was that people did not actually exhibit or have any promotional material that indicated restricted goods, but they were quite happy to discuss deals about it under the counter. That should be something that HMRC should also be aware of.

Q73 Chairman: Finally from me, as you know, since 1997 there has been a ban on the export of instruments of torture, and at the time the Government listed quite specifically what they defined as being instruments of torture. This is an issue that has cropped up on a number of occasions since then, but do you have a view about the items on the list? Are there things that, for example, should be on the list that are not, or things that are on the list perhaps that should not be there?

Mr Thomas: I think it is very problematic, because if you itemise exactly what is on the list, what constitutes torture equipment, you then come across immediate difficulties. There are things that can be used which are not on that list which are used all around the world as items of torture. I would like to just show the Committee one of them, which with any luck I have in my pocket here. There is a group of students who are in the room here who have been working with me, they are part of an amnesty group at an Oxford school, and we have been working together on some of the items that are included on the list, and these are not, these are what we managed to get hold of. These are thumb cuffs and you can see that basically they have serrated edges on the inside and you put someone's thumbs inside them. There have been substantial reports on them being used by the Chinese in Tibet, and they are also applied behind the back, so you can imagine that that would be an extremely painful, degrading and ill-treating process. These are not included on the current list; wall cuffs are not included on the current list; sting sticks, which are made in China - they are about two to three feet long, they are a metal rod with barbs all around it. There is no earthly reason, other than to do severe damage with them, for these things to exist. It is perfectly legal for me - indeed the students - to go and broker these things. That is incredible, that we are in a state of affairs where that kind of activity can come along after the statements made by Robin Cook and after the moves made in 1997.

Chairman: Thank you. Before we move on, Robert, you had a question.

Q74 Robert Key: Mr Thomas, did you have any difficulty getting those through the House of Commons security?

Mr Thomas: No, I approached the police beforehand and asked them if I might do this and they said that would be completely fine. They asked me who I was, why I wanted to bring them in and whether I ----

Q75 Chairman: They phoned me to say did I know the man and I said "Yes, he is giving evidence to the Committee this afternoon." They asked me was I prepared to vouch for him and I said yes.

Mr Thomas: Thank you.

Q76 Robert Key: May I ask one little question because it is really interesting to me and I expect a lot of other people. Mr Thomas, what in your judgment motivates people who want to do this sort of exporting and brokering? It is not just money, is it, because the examples you have given us are not very big sums of money, so why do they do it?

Mr Thomas: These things will be used as part of a bigger order. You will often get military kit that is coming in, it might be that we want so many batons, we want so many truncheons, we want holsters, we want holders, we want radio communications, we want knapsacks or camel-bags which can provide water, we want a whole range of things, and these will be part of that. It is simply bread and butter, I think that is the reason why people will do it.

Q77 Mr Hamilton: Can Mr Thomas pass these around so that members of the Committee can have a look at them.

Mr Thomas: I would urge members of the Committee not to play with them. I wonder if I could make just a brief point on restricted goods. Because the EU regulation on torture equipment is going to come into effect at the end of July, that means that the restricted goods that we have already, i.e. electroshock guns, leg cuffs, are going to be potentially removed from the restricted category. We do not know which category they are going to go into and it could mean that actually the DTI and the ECO are going to abolish the leg cuff and electroshock items from the restricted category, and I would urge the Committee to look at that as a matter of great importance.

Chairman: We certainly will do that.

Q78 Sir John Stanley: Thank you, and thank you for your steer about the possible inadequacy of the list of torture equipment, but I would like now to turn to the wider policy issue which is the ambit of the extraterritorial controls applying to trafficking and brokering. Can you tell us, so that we have it for the record, if there is any logic or indeed responsibility in the Government's present legislation to confine these controls to torture equipment and to long-range missiles, but nothing in between?

Mr Thomas: No, I do not see any logic in that at all.

Q79 Sir John Stanley: Do you find it a responsible policy given the trafficking and brokering in weapons that goes on around the world?

Mr Isbister: The Government has made much of the factor that this is a complex area and that is true, it is a complex area, but again that does not mean that you simply walk away from it, and we have raised I suppose as a compromise the idea of at least introducing small arms and light weapons into this. One of the arguments put forward which Mr Gapes referred to is the idea of a precedent et cetera. When the Export Control Bill, as it then was, was going through the debate, before it became the Export Control Act, these arguments were rehearsed at great length. The Home Office had a set of rules or standards that it applied, hoops that you had to jump through, six of them, to qualify for extraterritorial control. We in the UK Working Group, working with lawyers, came to the conclusion that on five of these six counts the extraterritorial controls on arms brokering fit and I think it was, in theory, that you only needed to hit one or two of them to reach that level. That argument was never countered, I never heard an argument against that, but when you talk about precedent and the difficulties that causes, on the issue of arms brokering there is precedent. The US has strong extraterritorial controls, Finland does, Poland does, Estonia does, Belgium does, other countries have semi-extraterritorial controls. The EU common position on the control of arms brokering encourages states to look at introducing extraterritorial controls, so I think we can move forward on this, but given the intransigence so far of the Government on this, this is where we think that especially if we can agree with industry on this, if we can present a united front on small arms and light weapons, maybe we can make some progress.

Q80 Sir John Stanley: Is it not the case that precedents already exist so far as UK legislation is concerned, both in the area of terrorism and offences against children committed by UK citizens overseas? In both those areas are there not already clear precedents in UK legislation?

Mr Isbister: There is more than that as well. Those are two examples, but I seem to recall - it is a long time ago now - that when we were looking at this there were more examples than that. If you want I can go back and look at our old briefings et cetera and see if I can come up with the additional examples.

Q81 Sir John Stanley: Finally, I think you used the word "compromised" a moment ago; are you saying to us that you are watering down your previous position or not, your previous position being the same as the predecessor committee of this one, namely that we consider that extraterritoriality should apply in relation to UK citizens engaged in trafficking and brokering in relation to all weapons on the military list.

Mr Isbister: It is still our position that that should be the case; however, if we can at least get small weapons and light weapons, that is a better situation than we have now, but we would still advocate that this should be applied across the board.

Sir John Stanley: Thank you.

Q82 Robert Key: As part of their effort to cut manpower, the Department of Trade and Industry two years ago suggested privatising the Export Control Organisation - outsourcing it was the way they put it. They then told us they had decided not to outsource the work of the ECO. Did the Government make the right decision?

Mr Isbister: Yes, very much so, but I fear that we may not have heard the last of this. If you look at the statement which was in answer to your question, Mr Bruce, the Government did not exactly say that it was a bad idea, they basically said that there were doubts about the level of benefits involved in privatisation. That would suggest to me that somewhere this is still a possibility, and when you put that together with the staff reductions and the potential that has to mean that the ECO is not capable of doing the same job it has been doing for the last few years, then maybe you end up with a situation of the Government saying well actually now there would be substantial benefits in privatising because the ECO is not doing the job that it could. I am very concerned about this and it is a crying shame that you had the JEWEL review which, by all accounts, did a great deal on improving the performance of the Export Control Organisation and increasing efficiencies, and to follow that up with arbitrarily introduced staff cuts coming in from outside would really seem, from speaking to various people involved with this, putting the future good work of the ECO at risk.

Q83 Robert Key: You said in your memorandum to us that you were concerned that there were still not resources available to police the systems that were adequately tasked. Do you actually have the evidence for that?

Mr Isbister: It was interesting what Brinley from the Defence Manufacturers' Association said. I would agree basically that it is early days from what I understand and it may be that there are internal stresses in the system or maybe not, it may be that there are internal stresses that are still being managed but may be not forever. The ASE Consulting report which was looking at privatisation as an option spoke of the possibility of meltdown of the system if the staffing cuts went through, so I guess it is possible that we are on borrowed time. There are two possibilities, are there not? One is that processing times extend, which obviously the defence industry would not be happy about, but neither are we. We want the system to work quickly because of the EU information-sharing mechanisms. If you are a purchaser and you come to the UK looking to buy military goods, if the UK refuses the licence application then they circulate that information to EU partners, who are then supposed to take that into account if they get a similar request, and to consult with the UK in that event. If the UK is just sitting on an application and not dealing with it, and the potential buyer moves elsewhere, then there is no denial, there is no need, there is no alert to another state that this could be problematic. The other possibility is that there are shortfalls in the quality of decision-making and that could obviously have significant implications. One thing that we do know that has happened is the change in policy on open licences, for example the extension from two or three years for military list or dual-use goods up to five years or even, currently, beyond. I think that is a very worrying development.

Q84 Robert Key: Are you or perhaps Mr Thomas aware of internal pressures in government that sometimes lead to strange decisions being taken? For example, a whistle-blower came to me last year about defence exports to a particular country. He was himself a civil servant and he said that because the Foreign Office had decided they wanted to be nice to this country, in fact they had put great pressure on the DTI to allow a particular export to take place, but the Ministry of Defence were fighting hard, a rearguard action, to stop it happening. Have you come across this sort of thing?

Mr Thomas: Certainly I have come across a whole range of evidence of inter-department conflict on arms licensing, as I am sure the Committee has, ranging from Hawks to Indonesia, to Zimbabwe, to Howitzers to Morocco and Western Sahara, to Tanzanian air traffic control systems. I could go on, but we are running out of time. So certainly I have come across that before and people I have spoken to who have had some understanding of those activities have intimated that it is the DTI and the MoD that have been the primary forces that have exerted pressure for the licence to go ahead in some of those instances.

Q85 Malcolm Bruce: Mr Isbister, you said you did not think we may have heard the end of the potential privatisation of the Export Control Organisation. Given that you do not want it privatised and the defence manufacturers do not want it privatised, and it is essentially the delivery of public policy, what on earth would be the case for privatising it now?

Mr Isbister: The only pressure that I am aware of has been a pressure of economics.

Q86 Malcolm Bruce: Is there a danger that the staff levels could be cut to the point where it cannot do the job and we have to say because we cannot control licences in the public sector we have to ask the private sector to do it for us?

Mr Isbister: That is my fear, that is a possibility.

Q87 Malcolm Bruce: Which would be a preposterous piece of policy really, would it not?

Mr Isbister: If that happened, yes.

Q88 Mr Hamilton: You raised earlier, Mr Isbister, the question of open licences. This Committee has raised that matter with government, and we were told that the government carries out risk assessments relating to Open General Export Licences which are "essentially undertaken in the same way as that for individual licences, i.e. ECO and relevant advisers from the rest of the licensing community will undertake a risk assessment of the proposed licence, considering the countries and activities involved, and taking account of the conditions and limitations specified for the licence." What do you think is wrong with that approach?

Mr Isbister: SIELs, the Standard Individual Export Licences are valid for two years. That is what open licences for military list goods were valid for, and now they are saying that they are valid for five years. If we were calling for a change we would probably call for a tighter time period because a lot can happen in a short period of time.

Q89 Mr Hamilton: But if there are regular checks throughout that period, then why not five years?

Mr Isbister: What would be the difference between a regular check and a new licence application? There are compliance visits carried out; I am not an expert on what goes on in those compliance visits, which is partly because I think there is not enough transparency in what goes on in those compliance visits, but my understanding is that the people who are carrying out those are doing a technical job, they are checking that you are compliant with the terms of the licence. The decision on whether it is a good idea to have the licence or not is surely taken at a different level.

Mr Thomas: If you are going to introduce a greater use of OIELs covering a five year period because of staff cuts within the ECO and because of pressures being put upon them, then are you not adding more work by getting people to carry out more checks? It seems to be slightly contradictory.

Mr Sprague: I do not want to go into the ins and outs of open licences, but one thing that is quite apparent about them is that they are subject to a much lower level of transparency in, for example, the Government's annual reports than SIELs are. There is no data on volume or value, there is no data on incorporation cases or what open licences are going for incorporation, and the only way that we as NGOs and you as Committee members - although you do have access to more information than we do - can scrutinise the Government's policy in regard to some sensitive country destinations is their annual report, so a shifting towards open licences does have a problem in terms of transparency and what is reported to us in the annual report.

Q90 Mr Hamilton: You would like to see more restriction on these open general export licences.

Mr Sprague: I would like to see greater transparency and explanation about what is in those licences being put in the annual report. I know that we are in discussions with government about improving the overall nature of the annual report and the quarterly reporting, so I do not want to prejudice those discussions but that is one thing we will be looking at.

Q91 Chairman: Mark, have you got your thumb cuffs back? I did give an undertaking about Mark Thomas holding the thumb cuffs, but I gave no undertaking as to my colleagues, so I am anxious that you have them back. Thank you very much indeed, it has been a really helpful session and we are very grateful. As you probably heard me to say to EGAD and SBAC an hour ago, we hope the transcript will be on the internet in about a week. If there are any corrections let us know, but if having read that there are points that you want to develop, further examples, feel free to let the Committee know. We will be taking evidence from Malcolm Wicks, the minister responsible for the Export Control Organisation and from the Foreign Secretary, and I think on the basis of what has been said this afternoon we probably ought to have a look at HM Revenue and Customs as well and take evidence, in the light of what you and the previous witnesses said. Thank you very much indeed, we are very grateful.

Mr Sprague: Thank you very much.

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[1] See memorandum submitted by Oxfam

[2] Defence Systems and Equipment International exhibition