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UNCORRECTED TRANSCRIPT OF ORAL EVIDENCE To be published as HC 873-iii

House of COMMONS

MINUTES OF EVIDENCE

TAKEN BEFORE

QUADRIPARTITE COMMITTEE

 

 

STRATEGIC EXPORT CONTROLS

 

 

Wednesday 19 April 2006

MR DAVID HAYES, MR BRINLEY SALZMANN

MR DAVID WILSON and MS BERNADETTE PEERS

Evidence heard in Public Questions 193 - 242

 

 

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Oral Evidence

Taken before the Quadripartite Committee

on Wednesday 19 April 2006

Members present

Roger Berry, in the Chair

Mr James Arbuthnot

Mr David S Borrow

Malcolm Bruce

Richard Burden

Mike Gapes

Linda Gilroy

Mr Paul Keetch

Robert Key

Peter Luff

Judy Mallaber

Sir John Stanley

________________

Witnesses: Mr David Hayes, Head of Export Controls, Rolls-Royce plc, and Chairman, Export Group for Aerospace and Defence (EGAD); Mr Brinley Salzmann, Exports Director, Defence Manufacturers Association, and Secretary, EGAD; Mr David Wilson, Export Compliance Manager, EDS Defence Limited, and EC Member, EGAD; and Ms Bernadette Peers, Compliance Manager, Strategic Shipping Company, gave evidence.

Q193 Chairman: Mr Hayes, may I welcome you and your colleagues. We are very grateful for the opportunity to have a presentation from you on your experience of export and trade controls. Perhaps we ought to start by inviting you to introduce yourself and your colleagues for the record and then we would be very happy to hear what you have to say and then, if you are agreeable, we will pose questions to you as we go through.

Mr Hayes: I am David Hayes and I am the Chairman of the Export Group for Aerospace and Defence. The colleague on my left is Brinley Salzmann, the Secretary of EGAD, and then Bernadette Peers and David Wilson.

Q194 Chairman: You are very welcome.

Mr Salzmann: First of all, we would like to thank the Committee for inviting us to come and brief you on the practical aspects of export control and trade control compliance; we are very grateful. On slide two, you can see that this is a slide about EGAD and it shows the number of industrial bodies which are supporters of EGAD or sponsors of EGAD. We have got all of the national defence-related trade associations and also the CBI have now joined, which shows the breadth of industry which we now represent. Just to reiterate, we are very pleased to have this opportunity to talk to you because predominantly we realise that most of the interest and coverage of export controls certainly in the media is at the strategic level of what British companies should be allowed to sell and to do, whereas what concerns us far more is the practical implementation of that overall strategic policy and the question of, "When do I need an export licence or trade control licence and how do I go about trying to get and use one?", as we have said to the Committee before, so to have this opportunity to brief the Committee on this practical implementation of the overall policy we welcome warmly.

Mr Hayes: What we would like to cover, and please do interject with questions as we go through at any point, is the classification of goods or what the DTI refer to as "rating", which is the process of deciding whether or not an item is subject to export controls and, if it is, where precisely within the control list it falls. Then there is the licensability and licence use, the practicalities of how to make an export, details of what happens within companies when they are subject to compliance audits from the DTI and some additional aspects of other export control regimes, particularly relating to the US and the EU. Classification - this really is the fundamental basis of export controls. If you get the rating wrong, then everything else falls because of that wrong decision. The rating is the basis on which all the other decisions are made and the rating determines, if a licence is licensable, which licences it is possible to use and which it is not possible to use. The ratings are made against the EU control list for dual-use goods and the UK's military list in relation to military goods or part-military goods, and also any item can become controlled, as you are aware, under the end-use and catch-all controls. If you look at the list, it is actually quite useful to look at the control list in that light. The thin piece at the top is the UK military list and the thick piece at the bottom is the EU dual-use control list, and the reason for that is fundamentally because the military list is based on design intent. Fundamentally, if an item is specially designed or modified for a military use, that is subject to export control. The EU dual-use list is actually based on design parameters or characteristics of the goods or technology concerned, so it is a lot more involved in terms of its interpretation, but it is interesting to note that in a typical quarter there are something like one and a half times as many standard individual export licence applications for military goods as there are for dual use, if you exclude the EU countries and the CGEA countries for which no licence is required for dual-use goods. It is an interesting comparison because it would imply that the military industry is one and a half times as large or one and a half times as active as the dual-use industry which is perhaps a little difficult to believe.

Q195 Chairman: Do you mean you do not believe it?

Mr Hayes: I think there is a perception that export controls are effective against a coalition of the willing at the moment. There are a lot of defence companies who have very active export control practitioners and there are a few dual-use companies who do, but I think there is a perception that the dual-use controls are to a greater or lesser extent not as well scrutinised and well enforced as the military controls. That is particularly worrying in today's environment where we are told that we are under an increased threat of terrorist attack from things, including weapons of mass destruction, yet most of the goods and technology which will be required to construct a weapon of mass destruction are actually controlled on the dual-use list and not on the military list, so, on the face of it, it would appear that at the moment we are in danger of giving the greatest scrutiny to the area of the least risk in some respects. The catch-all control, that in itself can be a little problematic to interpret. Catch-all controls apply, as the name implies, to absolutely anything. One aspect of the control which is often misunderstood is that these controls only apply to goods and technology which are not controlled of themselves. The reason for that is because if the item is controlled, then it is subject to licensing and end-use consideration forms part of that licensing process. It is only where the goods are not controlled of themselves that you need to bring in a catch-all to say, "Well, we want to catch absolutely anything that might be going to a programme for the construction of a weapon of mass destruction, a missile for the delivery of that weapon or to military end use in an embargoed country", so the catch-all controls only apply to those goods which are not controlled of themselves.

Q196 Chairman: How do manufacturers know whether what they are producing might fall into the third category? The first two are clearly defined.

Mr Salzmann: In general you would find it is only those companies who are aware of export controls who will be aware that there is an end-use control. If you are not aware of export controls, you would not even be aware of the fact that there was an end-use control and that you needed that licence.

Q197 Chairman: I was hoping you would say that because that is my understanding too.

Ms Peers: Or if the goods were stopped at Customs and then the company would become aware.

Q198 Mr Keetch: Have you actually had instances where, through ignorance, if you like, companies are actually doing things which are illegal and, therefore, they find themselves on the wrong side of the law?

Mr Wilson: To give you an example the other way round, and that is some time ago now, a Citroen dealership which happened to have somebody working in their parts department who knew about export controls entirely by accident rang up and said, "We've got this very strange order for 150 Citroen hydraulic pumps and we don't sell Citroen hydraulic pumps in that country", so when the system looked and investigated, it turned out that said hydraulic pumps were small, robust, of high capacity and absolutely perfect for making the flight control system of a missile, so that was because somebody knew and rang the system up and said, "Can you investigate this for me?", but it was only because somebody knew and it would never otherwise have been picked up at all.

Mr Salzmann: Also there is some confusion with people in the industry that export controls are to do with arms, bombs, missiles, tanks, that sort of thing, and "It is not to do with my body armour, is it?" Yes, it is, and it is only when they get caught by Customs or they happen to get into a conversation with somebody like myself or someone else that they suddenly realise that they are subject to export controls.

Q199 Judy Mallaber: In that example, if somehow Customs & Excise have picked that up, and otherwise it would not have been known about, what then would have happened and what would have happened to the company?

Mr Wilson: The end-use control controls goods that a company has been told, has reason to believe or suspects, may be used for a weapons of mass destruction purpose, and the inspection relies entirely on the good faith that the manufacturer or the exporter has been told or knows and relies entirely on the intelligence services having found out and told them in advance. It would be unreasonable for Customs, for example, to suspect, in the case I have just chosen, a consignment of hydraulic pumps because there are hundreds and thousands of consignments of hydraulic pumps going all over the place, so it relies entirely on people knowing about the system, people understanding and people knowing what the system is, and that is where it falls down, I feel.

Ms Peers: If those goods were stopped by Customs, there is a process in place where Customs would then contact the DTI's Technologies Unit who have a 24-hour pager service. The DTI will then have rated those goods with as much information as they could have done and made a decision on whether or not those goods were licensable and then potentially give a licence or refuse a licence and the goods are the property of Customs, so they could either make the company pay a fine to get them back or pay to get the goods back, so it is a matter for Customs then if that situation could have happened.

Mr Hayes: Within companies it is fundamentally an awareness issue because the people best placed to determine whether or not an order is suspicious are people within the company who are dealing day to day with orders for that sort of product and think, as the individual in this case did, "Well, that's peculiar", but then they have to make the leap from, "Well, that's peculiar" to, "Well, who do I tell that I think this is peculiar?".

Q200 Malcolm Bruce: Do Customs do any kind of awareness training? I can think of a lot of small companies in the engineering field, chemicals, automotive, what-have-you, who would not be thinking about defence at all because that is not their business. Is there anything more to encourage them just to have in mind that this could be the case and they should think about it?

Ms Peers: The DTI do actually go around the country to various Customs ports and airports and do awareness training sessions on export control, but for a Customs officer it is just another small part of his daily work and they are interested in revenue-collection as opposed to sometimes export control, but yes, there is awareness training that does go on, but it is quite limited and it is fitted into their otherwise working day.

Q201 Linda Gilroy: In Brinley's letter of 28 March, you remind us that the export controls also apply to academic institutions. Are there issues you are aware of there that we ought to be aware of or is that a little bit more difficult to pin down?

Mr Hayes: It is a difficult one to pin down because some of the subjects which are being taught in academic institutions can border on areas which are now subject to export control, so, for example, providing someone with technical assistance inside the UK for any relevant use which encompasses weapons of mass destruction, detection systems for weapons of mass destruction, that sort of area of technology, if we wanted to provide that sort of technical assistance to anyone even inside the UK, knowing that that information was going to be used outside of the EU, then that is a licensable activity. It would require a fairly close look at some of the research activities they are taking on probably at postgraduate level within some of the academic institutions, but a reasonable surmise would be that some of these fall within the ambit of licensable activity.

Mr Salzmann: There is a considerable lack of awareness within academia and, dare I say, in many quarters a lack of willingness because it is a completely different culture, whereas if you go along to a company and explain to them export controls, once you have got their attention and persuaded them that yes, they are subject to export controls, then they want to understand how to deal with it. I have had feedback myself and personal experience of people in academia who say, "No, this is infringing my freedom of speech. I am not going to burden myself with trying to deal with these regulations", so there is a totally different culture there.

Q202 Sir John Stanley: Is there any responsibility under existing legislation and procedures on the exporter and manufacturer to check out not just the type of goods which are going to be exported as to whether or not that might require a licence, but also to check out the company or the individual who is placing the order? You clearly obviously do your normal credit reference checks to see whether they are good for the sum of money involved, but is there any obligation on you to make any other checks to establish whether this may just simply be a nameplate company and maybe someone is using a particular nameplate to engage in the trafficking and brokering of the equipment in question when it has got beyond UK jurisdiction?

Mr Wilson: It is part of the DTI's code of good practice, but not a formal obligation on companies. American law, which I will come to later, does actually place a formal obligation on the exporter to check against what is called the 'denied parties list', but UK law does not.

Mr Hayes: It is a difficult area as well because you made an interesting connection between the manufacturer and the exporter, but they are not necessarily one and the same. The very act of the classification of goods, rating of goods, can be immensely difficult even for government licensing officers because in some areas of the control list, particularly the dual use, the information that is required in order to determine whether an item is licensable or not is not available other than to the original equipment manufacturer, so the controls actually place an impossible burden both on the exporter and on the government licensing authorities.

Q203 Mike Gapes: On the relationship between individual EU countries and the EU list, has there been a change as a result of enlargement of the European Union in the enforcement and applicability? Is there a variation of standards within different countries and would it be fair to say that some of the newer members of the European Union are less aware of, and less engaged in, these matters than some of the older ones?

Mr Hayes: It is a difficult one to answer because you are not always comparing apples with apples. In terms of what is controlled, then the EU control list is directly applicable under an EU Regulation in all Member States and all EU Member States are obliged to apply the EU code of conduct on arms exports, but their licensing systems differ widely and the amount of information that is available differs widely. You are only too familiar with our own annual report and that is the best annual report that I am aware of that is available anywhere in the EU. In some countries there is no information available at all.

Q204 Mike Gapes: Would it be fair to say that those countries which have had very extensive arms export policies, but were previously not within the NATO framework or perhaps in the Warsaw Pact framework and were then post-Warsaw Pact engaged in massive arms exports in central and eastern Europe will have to change their way of operation as a result of the application of the EU list and the EU rules?

Mr Hayes: I think it probably is true because they are moving into a different arena of regulation, but some of them are actually undertaking a lot of activity in that area at the moment. I am in the Slovak Republic myself next week at the request of the US Department of Commerce to do an industry outreach programme on export controls.

Q205 Mike Gapes: So things are getting better, are they, in that area?

Mr Hayes: Yes, I think they are, but again they are getting better amongst the population that is willing to take this on board.

Ms Peers: Also a lot of the awareness training is coming out of the US outreach budget and of course they are educating exporters in foreign countries on best practice, which is the US practice, which of course the UK would disagree is the best practice, but at least they are doing something. To defend Romania here who are not yet a member of the EU, but very determined to become a member, they have produced an annual report and they have only been doing export control for ten years and they are determined to do the right thing, so each country within the EU and potential future members are trying to do the right thing, but it depends on the willingness and the budgets that they have available to them to do this sort of work.

Q206 Chairman: How much outreach does our Export Control Organisation do?

Ms Peers: Within the UK it is fairly extensive. They also assist occasionally, if this is still the case, but they used to go across to various countries like Romania and Bulgaria and provide outreach assistance to some of the non-governmental organisations who were running seminars and events there. Whether that is still the case or not, I am not sure, but certainly over two years ago it was happening.

Mr Wilson: There is one catch of course to the DTI's outreach programme which is that it sends its information to the boards of trade, departments of trade and commerce or whatever in areas, but only those people who think they are going to be affected bother to attend.

Q207 Mr Keetch: What about places like Jersey and the Isle of Man, are they covered by this, and British overseas territories, would we do be doing outreach there?

Mr Wilson: They are a sort of hybrid because you do need an export licence to export stuff to the Channel Islands, for example.

Mr Keetch: But it is true, for example, is it not, that there have been cases where companies in the Channel Islands have exported huge amounts of arms and then those arms have been moved elsewhere?

Q208 Chairman: I did not catch the answer to that question. Is the answer yes or no?

Mr Wilson: Well, the official answer is that I could not possibly comment.

Q209 Chairman: And the unofficial answer would be?

Mr Wilson: There is more than a suspicion, shall we say.

Q210 Mr Keetch: Certainly it is true to say that there have been reports that companies based in the Channel Islands have purchased arms, which is surprising when you would not presume that companies in the Channel Islands would want to purchase large numbers of assault rifles, for example.

Mr Wilson: It is certainly true that is the case.

Q211 Chairman: I think we had better move on with the presentation.

Ms Peers: Moving on to slide six, we have put 'beryllium' in because it is an example to show the difficulties of classifying goods. The deliberate mistake is that 'beryllium' is spelled incorrectly there and using the new open DTI tool which they have developed which is very good, you type in a product and it will tell you where it falls in the military list or the dual-use list. However, if you type in 'beryllium' incorrectly, it will come back and tell you that there are no matches found which is incorrect, so you have to know what the product is before you can enter it. It is basically a word search, so if you typed in 'shotgun', you would get no matches found because in the military list a shotgun is defined as a smooth-bored weapon, not as a shotgun, so it is a useful tool, but you need to be mindful that you have to be educated enough to use it which unfortunately in some cases a lot of export clerks are not. They are given paperwork to deal with and they get that out the door. The difficulty with beryllium is that it could come back, if you are using the DTI tool, as 'no licence required' because it says 'no matches found'. It then does tell you to look further, but if you are an export clerk who has just been told to get something out of the door, you would not know where to look. It could come back though as military because there is an entry in the military list for beryllium, but there is also an entry in the dual-use list for beryllium, so now you are going into deeper territory of what exactly is the classification of this mix of beryllium. Then if you decided that the definition in the dual-use list and the military list does not match the quantity or item of beryllium that you have, then you are fairly confident in saying that there is no licence required. However, you then have to consider, "Well, it is not licensable in its own aspect, but does it come under the catch-all? Where is it going? Who is it going to? What is its end-use application going to be and, therefore, could it be caught by the catch-all and be brought back into licensability?" Therefore, just to stress, the rating of a product, if you have not manufactured it, could be extremely difficult for most export control practitioners

Mr Salzmann: The issue of rating is much more complex than some people might believe. For instance, David Hayes and I went to a conference once where somebody mentioned a case of a particular client they had who had applied for the rating for the export of a chemical process flow chart to China. The chemicals which went in at one end were not licensable and the chemicals which came out at the other end were not licensable, but for a few milliseconds in the course of the process something licensable was produced which could then be extracted, so they applied for a rating with the DTI to see whether they needed a licence or not and after seven months the answer came back, "We don't know. What do you think?". It can be very complicated. In terms of the licences which are available, there are of course various licences. The standard individual export licence application is the most stringent form of licence and it is value-specific, quantity-specific and consignee-specific. You have to provide a raft of supporting information, including a valid end-user undertaking to support it. Certainly in the UK system, end-user undertakings are scrutinised extremely carefully. I believe that something like 25 per cent of all end-user undertakings submitted by companies are actually rejected by the DTI as being inadequate and they can be rejected for all types of reasons. I heard a few years ago of an end-user undertaking from the Norwegian Air Force which was written on a double-sided sheet of paper and the DTI came back and said, "No, do it again. It has to be on two single-sided sheets of paper", so 25 per cent of end-user undertakings are rejected. Also lots of queries are raised when they are looking at the licence applications and I believe that something like 50 per cent of all SIEL applications result in queries being raised against them and those queries sometimes can be of great technical depth with more technical information being required, something which was not clear, inadequately completed paperwork submitted by the company, or it can on occasion be incredibly banal and somehow get through the filter back to the company. For instance, I know of a company a few years ago which had submitted its licence application for the export of some machine guns and the question came back, "These machine guns you want to export, what are they for?", and there are only a set number of purposes that a machine gun has. One of my favourites was a licence application a few years ago for the export of some bird-scarers to an airport overseas and the query came back, "These bird-scarers you want to export, what are they for?". Of course when queries get raised, it delays the processing of the licence because the clock stops while the query has to be dealt with.

Q212 Judy Mallaber: It raises the question as to, from your experience, how knowledgeable are the people that are looking at the applications and what technical expertise do they have? It is clearly hard for them to cover the whole range.

Mr Wilson: I speak from experience having once upon a time been one of those advisers. Generally the Foreign Office has no technical personnel at all. The DTI has the Technical Unit, but the majority of the processing is done by administrators and, similarly, with most of the processing in DFID. Quite a lot of the processing advisers within the Ministry of Defence have a technical understanding and are capable of passing that kind of advice and information back to the other government departments, so in general a sharp adviser within the Foreign Office will pick up an application for, say, a bird-scarer and ring up one of the other advisers and say, "'Ere, what does this bird-scarer thing do?", and they say, "Well, actually it is a small thing that makes a bang", and they go, "Okay, fine", but if there is somebody new or somebody not terribly switched on or they are having a bad day, it may just get rejected with requests for further information.

Mr Salzmann: There was another case a few years ago of a company which applied for an export licence for the supply of some Hawk jet spares to Indonesia and the query came back, "What's a Hawk jet?" I would bet anyone in the FCO knew what a Hawk jet was and the Indonesian country desk officer would have known.

Q213 Peter Luff: Chairman, this is actually a very serious point because such a fundamental question should not need to be asked. It suggests that there is not the expertise there to deal with much more complex and difficult questions. The reason we are laughing is because it is so bizarre, but it is really very worrying.

Mr Wilson: We do actually wonder if it is the same sort of thing as the judicial question of "What are the Beatles?", going back some time, but is it just asking the question for the record?

Q214 Judy Mallaber: In your judgment, would they be more likely to ask questions when it is ludicrous? Are they more likely to query things which should not be queried or more likely to miss things which could be used for export purposes that we do not want?

Mr Wilson: In my opinion, they are more likely to ask questions on things which were not a problem.

Ms Peers: What has to be remembered here as well, I believe, is that there are targets that the DTI like to meet and they want to turn licence applications around in 21 working days in 70 per cent of the cases. Now, what happens is that when they send the application back to the exporter with a question, the clock stops, so, with all the staff cuts and if they are inundated with work, it could be quite an easy situation to stop the clock, send it back to the exporter and then they are not harming their targets. That could be the case or it could be that maybe the advisers have asked a question, they have sent it back to the company, the company answers that question and then when it gets processed again, it goes to a different adviser who will then ask a different question and it then goes back to the exporter, all of which is not harming the target time, but it is delaying the licence application for the exporter, so these are other issues which could be going on in the background also.

Mr Salzmann: In terms of the silly questions which get raised, they only come back to the company occasionally because most of the time they get filtered through the process by MoD or DTI. Also, in their defence, I would have to say that with the reorganisational changes which have been taking place within the Foreign and Commonwealth Office and having dedicated staff, I think there are far fewer queries now coming out. Whereas in the past it used to be fielded to all country desk officers across the FCO who are very highly intelligent people, but they had a lot of work on and, therefore, they did not have the technical expertise, now there is a corps within the Department who deal with all the licences and, therefore, they are building up a bedrock of knowledge which is extremely valuable and is helping to avoid these mistakes happening nowadays.

Q215 Mike Gapes: My question actually follows on very nicely from what you have just said. How much continuity of staff is there in terms of dealing with these matters or is this the kind of job which is the graveyard job that nobody wants to do and they will do it on sufferance and get out of it as quickly as possible and, therefore, there is an enormous churn of people?

Mr Salzmann: There is of course in the FCO a certain turnover of staff. I remember in 1996 in response to the Green Paper that we did actually in our original draft submission put together a proposal for there to be an interdepartmental department which just dealt with export licences, but one of our executive committee members, who was an ex-civil servant, begged me to take that out because he said he would not wish that job on his worst enemy.

Q216 Chairman: At which point, shall we move on with the presentation. You have given us lots of helpful information and thank you.

Mr Salzmann: The open individual export licences are in many ways the gold card for companies which give them the flexibility they need to respond to urgent requirements, so what they do for that is they submit a matrix of goods which they might want to export to set consignees in particular markets. The OIELs get considered and the processing time is a matter of many months for these to come through. They are considered very carefully by government officials and if there are any doubts or any queries at all, they will be rejected for that very particular market, so if you were to apply for seven items for six countries, if there are any doubts at all, it will be rejected and you would be told that you need to apply for SIELs for those particular destinations or those particular goods. One of the problems which exists with OIELs is that, in my experience in the past, some companies have received the OIEL, having applied for it and it having taken many months to be processed, and they do not bother looking at it. They put it away in the safe, cover it in cotton wool to safeguard it, but by not looking at it they have not realised that in fact the OIEL which has been issued to them does not actually have the coverage that they applied for. There have been a number of instances like that where people have not read the OIELs which they have actually received. Then there are the open general export licences which basically cover the least contentious goods going to the least contentious destinations where, in essence, the licences would be issued in any case. For instance, the OGELs which exist in support of government MoD contracts, those licences were applied for by companies who supply equipment to our own Armed Forces overseas and they would invariably be issued and it is almost inconceivable the scenario where such a licence would ever be refused and, therefore, instead of going through the bureaucratic process of having to apply for licences, SIELs or whatever, to do this, they have got the open general export licence to cover that. OGELs, as I say, cover the least contentious goods going to the least contentious destinations where approval is inevitable, but there are, in terms of using OGELs, considerable inconsistencies and a few problems. We have to encourage companies all the time to read the terms and conditions of the OGEL to make sure that it is applicable to them and there have been a number of instances where people have not read the OGELs properly which they have wanted to use. There are a number of inconsistencies, but one of them is the fact that in one of the annexes, there is always a list of countries and sometimes it is a list of countries which are covered by the OGEL and sometimes it is a list of countries which are excluded from coverage by the OGEL and this can cause confusion for people who do not read the OGELs properly.

Q217 Richard Burden: This question is in relation to the OIELs and it goes back to what Mr Hayes said at the start about maximum scrutiny being on the area of minimum risk in relation to military equipment and dual-use goods. The period for an OIEL for military goods is two years and it is three years for dual-use goods. Is there a logic to that or is that another example of what you are saying?

Mr Hayes: I think a logic to that is perhaps slightly in the mists of time, unless you are aware of it.

Mr Wilson: Frankly it is bound to change again. We complained that there was no particular reason for it, apart from it being policy, and the DTI has seen sense and is going to standardise the process.

Q218 Richard Burden: Which way? Is it going to come down?

Mr Wilson: I think they are going to three years.

Q219 Richard Burden: Three years for all of them? Would that be reasonable, in your view?

Mr Wilson: It would, yes.

Mr Hayes: They are also looking at the argument for making the duration of a licence for a different period, possibly a longer period, say, for the known duration of a particular contract, and then they will make the licence for the known duration of that contract rather than relicensing for the sake of relicensing.

Mr Salzmann: Finally, there is the trade control registration for the general trade control licence which exists which again acts like an open general export licence for companies to have to register against. In the notes which I have sent to you, there is a decision-making tree, which is a copy of a simple tree to illustrate how companies try to go through the process of deciding which type of licence they need to apply for in any particular instance.

Mr Wilson: Going back to the record-keeping part of this, it is a fairly considerable administrative burden on a company that exports. It is not simply a matter of keeping a shipping register. Traditionally, companies that exported tangible goods, things you could stick a label on, made a shipping register and made a note alongside it, saying, "This is what we have exported and this is the licence we are exporting it under". When the law changed with the new Export Control Act, the other things that companies were required to keep track of were intangible transfers, and there has been a lot of discussion over how they were to be recorded, but the principle now is that you record the first intangible transfer of a series. If you set up a technical discussion with a company in, say, France, on military goods and you are transferring technology backwards and forwards, you are required to record the first transfer between your company and that foreign company and you record when that series of transfers ends, so that is the record-keeping part of it. The next part is that for standard individual licences, you are required to present those to Revenue and Customs so that the licence can be decremented because the licence says that you are allowed to export 100 widgets to Afghanistan, say, and you send your first 50 widgets in a container to Afghanistan and you send with the freight forwarder said licence and Customs send the licence to Afghanistan, so then the company has to apply for another licence for the remaining 50. What is supposed to happen is that you present the licence to Customs, Customs cross off 50 and write in "50 left", send it back to the company and the company then use it for the next consignment. What, however, happens is that there is an over-recording of exports both in terms of value and quantity and that makes your reports perhaps inaccurate, shall we say, because if the company has applied for a licence for 100 widgets, exports 50 and then has to apply for another licence for the remaining 50, the company is recorded as having exported 150 widgets, whereas they were actually only exporting 100, so there is an administrative snag there.

Q220 Judy Mallaber: Are you saying that always happens or it occasionally happens?

Mr Wilson: No, it happens a lot. It is a major problem for companies, but probably Bernadette could give you a better example.

Ms Peers: I am trying to defend Customs here just briefly.

Mr Wilson: Not for long!

Q221 Chairman: Just tell us the truth please as that would be very helpful.

Ms Peers: It is not always the case that Customs lose the SIEL. The exporter gives it to the freight forwarder who should then in the case of, say, Heathrow take it to Custom House where the licence is then decremented and there is a set procedure which Customs like to see, certain envelopes and colours and bits of paper so that they can see that it needs to go back to the exporter. What sometimes happens is that the freight forwarder does not do the right thing and sends the licence with the goods so that actually it is the freight forwarder who loses the licence and not always Customs.

Mr Wilson: From a company point of view, your licence does not come back. You cannot get a duplicate, so you then have to apply for a new one which (a) delays the process and (b) confuses the figures.

Chairman: We will pursue this with Customs when we take evidence from them.

Q222 Mr Keetch: Presumably if you are exporting these widgets not to a different company in Afghanistan, but to a subsidiary company of your own company or, in the French case, to a subsidiary of the parent company you are in, presumably the same rules apply when they are inter-company transfers?

Mr Wilson: Yes.

Q223 Mike Gapes: This question is about how do you describe what you are exporting. If you are wanting to avoid the control system and given this loss of documentation because the freight forwarders have sent it on, presumably if you define something as something minor even though it has actually got some significance, you could carry on doing that for quite a long time because there would be no evidence in your company at any time because you have sent the documentation abroad?

Mr Hayes: In all probability, people who are seeking to circumvent the export control system are not doing it by misusing licences, but by operating entirely outside of the system, by describing goods in such a way that they do not require a licence at all.

Mr Wilson: It would actually require Customs to open the box and discover that the box marked 'machine tools' actually contains machine guns instead, as a simplistic example, because Customs do not have enough people to open every box.

Mr Hayes: Tell me if you disagree, David, but I do not think it would be too much of a generalisation to say that, by and large, the misuse of export licences is unintentional, whereas avoidance of export controls is deliberate.

Q224 Mike Gapes: Do you have any estimate, given what you have just said about the lack of people to open up containers, because the potential could be absolutely enormous for avoidance of export controls?

Mr Hayes: Absolutely.

Mr Wilson: How many containers go through Felixstowe in a day? Fifty thousand, something of that sort? How many do Customs actually open? One? Usually, in my experience, that is because the police have gone down there because somebody's tracker has tracked a car to a container at Felixstowe and they open the container and there are four or five stolen cars in it. There are not many Customs officials at Felixstowe, a big container port.

Q225 Chairman: We will pursue these issues with Customs. Perhaps you would like to proceed.

Mr Wilson: OIELs and OGELs, the reference licence use, each of those licences comes with a number of conditions on it and Brinley mentioned that briefly in passing. You do have to read very carefully to make sure that what you intend to do is actually covered by the licence and that the country you want to send it to has been covered by the licence. I got caught about a year and a half ago because I was away, somebody had looked at a consignment which was going to Bahrain, it was a relatively uncontentious consignment, but it was going under licence, and they had applied for military goods with a government/NATO end use to it because that seemed like a good title for a licence. The fact that the military goods, government/NATO end use OGEL does not cover Bahrain had whizzed past his ear and he had missed it. Customs did actually find that one. End-user undertakings, I think we have mentioned. Some licences require the company exporter to keep with the records set for the DTI a copy of the contract or a copy of the relevant part of the contract and for goods that are military and in which the Ministry of Defence has a finger in the pie, as perhaps one way of putting it, whether they are classified, protectively marked, restricted, confidential, secret goods or whether it is a project or something that the Ministry of Defence has some handle on the intellectual property rights of, a company is required to go through the Form 680 procedure which is applying for permission to go through this exporting process, using Ministry of Defence goods. It is a whole bunch of administrative procedures which are not of themselves difficult, but it is an administrative hurdle that companies have to climb over and, unless you are thinking all the time, it is fairly easy to make a mistake and that mistake is then picked up by the DTI audit, so it is a nailing of the willing to the wall.

Ms Peers: Moving on to slide nine, the difficulties with record-keeping continue. As we have already discussed, with a standard individual export licence, that needs to be decremented, so a copy of that has to get to a Customs office in order for it to be decremented. That is not the case with the OIELs and the OGELs. In those, the title or the number of the licence is referenced on the paperwork which then the agent should convert into the NES, the new export system, in order to declare to Customs that these are licensable goods. A difficulty arises in that if you are shipping shotguns, for example, ML1, that is the classification of a shotgun, a firearm, ML1, but it is not, it is the commodity code. The commodity code is another number altogether which has also to be entered into the NES, so firearms are 93-00-whatever. If the NES entry could have more flags put into the system, perhaps there could be more cases where 93 is picked up if it is going to, for example, Iran. Firearms to Iran - "I think we need to have a look at this shipment". The NES can, therefore, have flags entered into it and what we would plead is that perhaps some more flags could be put into the system to pick up on some of the tariff headings, the commodity code headings, which may match the classifications in the military and dual-use lists. It is very difficult because certain types of steel are controlled under the dual-use list, but under the commodity codes there are numerous headings for steel and it is finding which tariff heading matches the actual controlled piece of steel that is going out which could be used for something serious, so it is a difficult issue. The NES entry, for example, if it is going to somewhere in Europe, if you type in the controlled item to go to Europe, it will come back and tell you that there is no need to enter this because of the free movement of goods within the EU, but within that you could have firearms or Annex 4 dual-use goods which are deemed to be so sensitive that they cannot have free movement, but if you do not know your stuff, you are then sent away and are being told by this Customs system that you do not need to enter these goods when in fact you do in order to comply with export control. Once you have typed in, hopefully correctly, all the information that you need to the NES, you then have a couple of minutes when the system bounces back at you and either tells you that your goods are going to go route one, and hopefully in the case of a SIEL, a standard individual export licence, it will go route one which means it will be looked at and examined, or, if it is an open general export licence, it tends to go route six which means it is not looked at. However, recently we have had occasions where goods that have always gone route six are now coming back as route one which means they are being looked at, so things seem to be happening either with more flags or Customs are doing things differently and they are stopping more shipments from our perspective, the freight forwarding perspective, and looking at them, so the documentation does not necessarily stop inside the exporter's area. If they are doing their job correctly, they are getting their freight forwarder to continue that correct record-keeping and give copies back in order to demonstrate the whole process correctly.

Mr Hayes: An area that will be of particular interest, I think, is what happens to companies on compliance audits. Any company which is registered to use open licences with the DTI is subject to compliance visits and compliance audits. The compliance officer will visit either alone or accompanied by advisers from the MoD or other government departments and the first thing they will want to do, assuming it is a first visit, is a full-company brief as to the structure of the company, the branches, whereabouts they are located, what business activities they undertake, what markets they operate in, who the competitors are, what the projects are. It is actually quite a good intelligence-gathering opportunity. How effectively that intelligence is used is another question. For example, if they were to visit company A and say, "Oh, you're selling military aircraft parts to Portugal. Who is your main competitor in this market?", and they say, "It's company B down the road", it would be quite an interesting exercise to have a look and see if company B has got any export licences because an answer in the negative to that would be quite revealing, but how effectively that is used, I do not know. They want to look at responsibility within the company for export controls. Legally obviously the directors of the company are responsible for compliance with the law, but the DTI is interested in operational responsibility, who looks after on a day-to-day basis export controls within the company, who has day-to-day oversight of them, how good their knowledge is of the controls, who deputises for them in their absence, cover for holidays, et cetera, et cetera. With knowledge of export controls, they are looking for a broader knowledge of export controls than is strictly necessary for what the company does, so a wider awareness than the narrow focus of the company, particularly in areas like end-use catch-all controls because it is no good the company focusing on widget A which they make which is the only thing they make which is controlled when actually they are exporting thousands of Citroen hydraulic pumps to a WMD project in India because their view of the controls is insufficiently wide. On process and procedure check, they want to make sure that export controls are woven through the business processes. It used to be possible in the pre-intangible days to view export controls as a funnel and, provided that you had got control at the bottom of the funnel in the shipping department, then you have got a compliant company. As a business process, it was atrocious because I have actually been aware of cases where companies have gone out marketing, taken an order, manufactured the goods, crated them up, put them on to the shipping dock and then somebody in the shipping department has said, "You need an export licence for those", and when they have applied they have not got one, so you need to be considering this at the front end of the business process, not at the back. One major impact of intangible export controls is if you actually turn the funnel upside down, and most companies now have to look at it from the point of view that anyone in their company who has access to export licensable technology and the means to transmit that technology to someone else needs at least a basic level of awareness training on export controls, so they are looking at all of the procedures right the way through from initial marketing. Let us not forget that when you get beyond the stage of publicly available information that you would put on to a stand at somewhere like Farnborough, you begin to get into the area where, before you have actually manufactured anything, you are exchanging controlled technology, so there will be a licensable export in most cases before anything is manufactured.

Q226 Judy Mallaber: Can I ask, as an example in Rolls-Royce, what range of people would have this knowledge and who would you be training up in how many departments or do you centralise it? I have no real sense as to how widely within a major company, such as yours, or a smaller company, for that matter, you would expect that knowledge to be spread or specialised?

Mr Hayes: It does vary. Within Rolls-Royce the export control structure is that export controls globally are overseen by a Board Exports Committee that is chaired by our chief operating officer. I head up the export control function for Rolls-Royce globally, except for North America where, in order to fulfil my role, you must be an American, so we have a director of international trade compliance in the US, and we have an international trade compliance team in the US. We have compliance managers in our business in Germany, in our defence aerospace business in the UK and in our marine business in the UK, and we are looking at engaging more export compliance managers to deal with areas like procurement and supporting the supply chain where we have got a number of SMEs who do not have their own abilities to focus on this area. We have trained several thousand people in basic awareness of export controls and several hundred at a higher level.

Q227 Judy Mallaber: So, for example, companies in my constituency which supply to Rolls-Royce and are in your supply chain in Derby, you would be providing them with the expertise or how much knowledge would you expect them to have there? I have no real sense as to how many people we are talking about needing to be involved and having that knowledge in order for us to have an effective system.

Mr Hayes: We would hope that they would have some. It depends. If a company in the supply chain of a major prime has been involved in exporting before, then we would expect them to have some knowledge of export controls themselves because at the end of the day they are the exporter, not Rolls-Royce or whoever the prime may be. If, on the other hand, we have a company, an SME, who have previously supplied something into Filton(?) and we take them on to another project, but this time, instead of supplying it into Filton, we need them to supply it into Rolls-Royce Deutschland and we are asking them to become an exporter, we would expect to need to provide them with more support than a company with previous experience. It is a judgment call, depending on the circumstances of the case. As to physical audit, obviously the DTI compliance officer will want to go through examples of the shipping paperwork and, by and large, these are experienced people, so they will look at the physical shipping mark and in most cases be able to pick out something that looks like it might be odd, so the sort of thing would be a shipment under the OGEL for government or NATO end use going to Bahrain which would leap out of the page at anyone who knew the first thing about export controls. End users that they might know about through intelligence sources which they might not be in a position to reveal to the company, but they are concerned about, they will take a look at any shipments to those people. They will also want to look at procedures for controlling intangible transfers and make sure that what the DTI calls functional record-keeping they would describe as recording the first of a series of transfers and the last, so they will want to look at those procedures. They will also now want to look at standard individual export licences where those have been used to cover the intangible export of technology because in certain circumstances you need a standard individual export licence for the export because there is no other form of licence available, but it will never go to Customs because there is never a physical export. The thing is sent intangibly by email and the only people who can decrement the licence are the company concerned and the only people who can audit it are the compliance officers on the visit. They will also want to undertake a site inspection and a tour where they will wander around the manufacturing facilities, talk to people on the shop floor, talk to people in the offices and if they are nosy, like I used to be, have a look at labels on crates and look at bits of paper that are left lying on tables and see whether they can see anything inconsistent with what they are being told by the company. It usually lasts most of a day. I have known compliance visits go on longer than that where major problems have been found and compliance officers have decided to go back and continue beyond that, but it is actually quite a thorough exercise.

Ms Peers: Moving on to slide 11, once the compliances take place, the compliance officer goes back to DTI and then compiles a report that will be circulated if there are problems in the company. If there are no problems in the company, it is put to one side and it is there for the next compliance officer or the next audit. If it is found there are failings and shortcomings, Customs will get a copy of the report and then it is their decision what action to take. The company will get a letter saying, "Thank you for the visit. These are the shortcomings we found", or, "It was a very good visit", whichever, but Customs then have the decision whether to go back into that company and do their own audit or whether to take no further action, whether to fine the company straight off or to bear in mind that there could be a prosecution if it is serious enough. Government and Customs in particular are joining up more and more and Customs have formed a large business group; so instead of having a Customs officer who looks at one thing and another Customs officer who looks at something else and then the VAT man, they are now talking to each other. If there are shortcomings on export control, then, being a cynic, if they are doing that wrong they could be doing VAT or tax or other things wrong; so Customs are now talking to each other and could take action, starting with export control but maybe in other areas also. Moving on to prosecution, the DTI have published three prosecutions that have taken place recently. It is interesting that all three cases are for military goods; there are none there for dual-use goods or weapons of mass destruction or catch-all because catch-all is so problematic. The prosecutions were lengthy in one particular case and the sentence at the end of it, in my opinion, was quite minimal for the actual offences that took place, but at least there are some prosecutions. That is not the answer, to prosecute people. It needs awareness at the start, enforcement at the start and, if there is deliberate evasion, then prosecution.

Q228 Mr Keetch: Could you tell us what the fine was?

Ms Peers: In the case of Multicore he received a suspended sentence of two years and a £70,000 fine and, if he had not paid that by Christmas Eve, his suspended sentence would be extended by a further 18 months; so if he did not commit anything else he is still free to walk around - it is a suspended sentence. In effect, he made numerous attempts to export military parts to, I believe, Iran and he got a sentenced suspended sentence. That goes beyond just Customs; that goes beyond educating a court and a judge about how serious export control can be. It does cost lives, and I think people forget that. As regards other prosecutions: it was an administrative error, I believe. Part of using one of the open generals is that you have to have permission before you use the licence from the MoD, and the company had not got permission before they used the licence and they were fined 10,000. The goods that they would have exported would have been 128,000. It is quite a small percentage of what they would have made, but they were fined 10,000. I cannot remember the third case, but it was not, in my opinion, a huge fine for the circumstances of the case.

Q229 Mike Gapes: Can I get some clarification. You refer to the report to Her Majesty's Revenue and Customs, a decision as to whether there is no further action or a fine. Does that mean that there is a power to impose a fine without any reference to a court or any due process?

Ms Peers: Yes.

Q230 Mike Gapes: What is the maximum level of fine that can be imposed without due process?

Mr Hayes: Customs has the power to impose what it calls a compound penalty. I think there are rules saying that they must have enough evidence to mount a prosecution before they can offer a compound penalty, but then they can offer a compound penalty, which essentially is the company paying the fine. I think the maximum fine is five times the value of the goods being exported, but there is a limit on that. It is five times the value of the goods or----

Q231 Mike Gapes: Presumably if you reject that, then you will be taken to court? Is it like a motoring offence that you have got the option?

Mr Hayes: To be honest, I do not know the answer to that. I have never come across a case where anyone has been offered a compound penalty and declined.

Mr Wilson: The alternative is to have your exporting privileges removed. Your ability to use open licenses is removed by the DTI and what you are actually doing is paying Customs for the privilege of getting your ability back. The same principle works on the American system. It was something I was going to come to later, but perhaps now is a good time to take it. The Americans charge at the moment $1 million per offence, and that is about to rise to $5 million per offence. Ratheon were charged $25 million for passing military technology to their Canadian subsidiary in 2004, and the alternative was: "Either you do not export or you pay us $25 million." Ratheon paid up. That concentrated their minds and that concentrated the American exporting business's mind to a much greater extent.

Q232 Malcolm Bruce: What you have just illustrated is economic protection. It has got nothing to do with arms getting into the wrong hands.

Mr Wilson: It is perhaps not entirely an intended consequence of the way the regulations are framed. It is possible to breach the regulations without actually doing anybody any great harm. Nevertheless, it is the breaches of the regulations that are punished, not the intention to do harm.

Q233 Chairman: The contrast with the example that Bernadette gave about the unlawful export of arms to Iran and you get to war and you pay a fine - I have no idea what profits were made on those transactions, but the fine does not strike me as being a particularly high order of magnitude - is worrying, I would have thought, a matter, no doubt, the Committee will pursue with the appropriate people.

Ms Peers: I am not sure if he still has the goods or not.

Mr Salzmann: Under the Export Control Act the maximum penalty if they were to pursue it through the court is an unlimited fine and up to ten years in prison; so an option exists but it is very rarely, if ever, exercised.

Q234 Chairman: Thank you for drawing our attention to that. We had better move on; I am conscious of the time.

Mr Salzmann: In terms of licence production, which, of course, is a very hot topic, in our submission of 28 March to the Committee I did try to expand on what David Wilson said in our oral evidence on 31 January about licence production and the need for licences to set up those licence production facilities overseas. Certainly to supply the technology to an overseas production facility you would need a licence and also, potentially, for the supply of production machinery, for that production facility to come on-line, you would need licence coverage and the criteria would be used to assess all new licence applications before the setting up of such production facilities. I am aware that in many cases these are scrutinised with extreme care by the Government, depending, of course, on the nature of the goods and the nature of the technology which is involved. It is not necessarily quite such an open door as many people often seem to perceive. The whole risk of potential diversion re exports from that production facility elsewhere is taken into account in the criteria when they consider the licence applications which are made.

Q235 Chairman: When we questioned the Minister about the Land Rover flat packs going to Turkey, was that a case of licence production? It may not have been? Yes, it was, because these were converted into motor vehicles, then exported to Uzbekistan and used in ways that the British Government would not approve of, i.e. against civilians last year. The response we got from the Minister was that the issue for the Government was whether or not the export to Turkey of the Land Rover flat packs was a matter of concern because of a potential onward export to Uzbekistan. We had very ambiguous answer which we will be pursuing further, but your understanding would be that the Government does take into account, in a situation like that, their perception of the ultimate end use?

Mr Salzmann: For a licence for the goods, yes, but with flat packs for Land Rover they are not licensable.

Q236 Chairman: They are not licensable because they are not----

Mr Salzmann: They are bits and pieces of components rather than anything licensable.

Q237 Chairman: Even if there is a massive component in the final product?

Mr Salzmann: Yes, if it is not licensable it is not licensable.

Chairman: Thank you.

Q238 Mike Gapes: The same point. It is a question I asked the Minister and he could barely answer, so perhaps you can tell me. Given that Turkey is in NATO, is the membership of Turkey in NATO in any way relevant to the point that you have just made or does it change things in any way? Would it be easier to send such things to Turkey because it is in NATO rather than to a non-NATO country?

Mr Wilson: It would probably be looked at by the advisers, and they would say: "If it were for use by Turkey we would look at it in a more relaxed fashion than if it were to be looked at for another country", say, but, unless it is made clear that Turkey is going to manufacture these things locally and then sell them on, the advisers would never know.

Mr Hayes: And, of course, it would only be considered at all if the goods were licensable, which in this case they were not.

Q239 Chairman: If Land Rover were seeking to export the technology to convert the flat pack into a military vehicle, then that technology would be licensable?

Mr Hayes: Yes.

Q240 Chairman: But to export a flat pack that amounts to 80 per cent of the final product (i.e. a military vehicle) is not licensable?

Mr Salzmann: If all the components which are in it are NLR (no licence required), then yes.

Q241 Chairman: Exactly, yes. That is a contrast, for the record, which is of some interest to many of us, I am sure. I have taken over your point. Forgive me.

Mr Wilson: I said I would cover some of the other issues that an export compliance person needs to consider. I work for a company that is a subsidiary of a US company, and the US, of course, has export control laws that are super-national and extraterritorial; so if I wish to export from the UK something that has itself come from the US or that contains a significant proportion of technology or material that has itself come from the US under licence, not only do I need to apply for a UK export licence, if that is necessary, but I also need to apply for an American one. If a company does not have a US parent, the only way they can get a US re-export licence is by going back to their original supplier and saying, "You sold us this piece of kit. What I now want to do is sell that on to someone else. Can you please go and apply to the appropriate US authority for a licence to do so?" The other slight difference with America - there are two things there - International Trafficking Arms Regulations and Export Administration Regulations. Trafficking Arms Regulations are controlled by the State Department, i.e. defence, and they broadly equate to the UK military list. The Export Administration Regulations broadly apply to the EU dual-use list, and in fact the lists in those cases are identical because they both came out of the Wassenaar Arrangement. The application and interpretation of them is slightly different. One of the big differences is re-exporting of cryptographic material. You are probably aware that something as simple as Windows XP contains cryptography - bits of it are encoded. Microsoft makes Windows, they put a certain level of encryption in it and they sell it off to the UK. If I wished to re-export that from the UK, I need to ascertain what that level of encryption buried in that commercial off-the-shelf product is, and we are back then to David Hayes' earlier comment. How do I find that out? I go to Microsoft in the US and get by way of answer a raspberry. The DTI, to be fair, have been extremely good about this. They have now come out and said, "Okay, if the Americans have accepted a given classification which allows it to be exported with minimal limitations, even though it is classified as dual-use goods, then we, the UK, will allow you to accept an American classification; so thank you to the DTI for that particular one. There is one other US re-export issue which leaps out and bites the unwary. The American export system is based on people, not places, primarily. If I import something from the US - technology, for example, for designing military aviation, military aero engines - that will come across from America with a licence from the US State Department that says, "Yes, you may export this from the US to the United Kingdom." If I give access to that technology to anybody who is not a United Kingdom citizen, I have perpetrated a US export. It is called a "deemed export" and causes me considerable grief. It means that I have to know the nationality of who is being given access to US-sourced technology, which does not sit easily with the EU employment and transferability of employment legislation. It is an unresolved question, I do not think it is going to be resolved and we try to get round it whenever we can. Those are the American issues. Each EU country has its idiosyncrasies. Germany, for example, has a war weapons licence. If you want to transit war weapons - guns, tanks, what the man in the street would know as arms - you would need to apply for a war weapons licence in addition to all the standard EU licences, which comes from a different part of the German bureaucracy. You need to know about that, otherwise it gets held up. In Italy the standard individual licence needs to go to the Customs office, which is probably in Rome, some considerable distance from where your exporter may be. Going back to Bernadette's comment earlier about the new export system and it being primarily a revenue-raising system rather than an export control assister, Annex four goods are those that are on the dual-use list but are deemed by the EU to be particularly sensitive dual-use equipment. If you export them, you do need a licence to export them within the EU, unlike the majority of dual-use goods which are free circulation within the EU, and you need a licence to do so. So you take your licence and the freight forwarder types the commodity code, or whatever, into the new export system and the new export system comes back and says, "No licence required", because it is free circulation within the EU. It is just another little hiccup that the system needs to be aware of.

Chairman: Thank you very much indeed. Are there any quick final questions?

Sir John Stanley: We have had, I thought, a most useful briefing on a great deal of the all-important detail, and this is another area where the devil really is in the detail as well as in the wider policy, but, Chairman, I wonder whether it might be possible for the EGAD to let us have a paper, before we see HM Revenue and Customs, in which they just list the particular improvements that they would like to see, in the present system, fall firmly within the parameters of not doing anything that is going to damage the tightness, such as it is, of the existing export control system. I think it would be very helpful to have your specific proposals in front of us before we have that next session.

Q242 Chairman: I appreciate that we are asking for even more work, but if that were possible it would be very helpful. Clearly the transcript of today's proceedings will no doubt suggest a few obvious errors, but if you could do that we would be really appreciative.

Mr Salzmann: We have an ancient Revenue/Customs Sub-Committee.

Chairman: I thought you would have a long list already, but thank you, John, I think that is important. David, can I thank you and your colleagues very much indeed. I think it has been an incredibly helpful session, as John has said. We have learnt, I think for the first time in such detail, the way you interface with the control regime and that is very helpful to us. There are a number of issues you have raised today which we will have pleasure in pursuing with either Ministers or Revenue and Customs or whoever the appropriate authority might be happen to be. Thank you very much indeed.