House of Commons - Defence

Select Committee on Defence First Report

5 SUSTAINABLE DEVELOPMENT

Legislative treatment of sustainable development

92. Criterion 8 of the Consolidated EU and National Arms Export Licensing Criteria requires exports to be compatible with the technical and economic capacity of the recipient country. Section 9 of the Export Control Act 2002 requires the Secretary of State to give guidance on the general principles to be followed when exercising licensing powers, which must include guidance on sustainable development. In its representations the UK Working Group pointed out that Criterion 8 was omitted from the table of "Relevant consequences" contained in the Schedule to the Export Control Act, thereby giving the sense it was "of secondary importance". Second, the inclusion of the bracketed phrase "if any" in the reference to sustainable development in section 9 of the Act, whereby the "guidance required … must include guidance about the consideration (if any) to be given, when exercising such powers, to … issues relating to sustainable development" was, in the view of the Working Group, unwelcome because it allowed the Secretary of State "excessive discretion to remove sustainable development from the licence decision-making process, and consigns the issue to second-class status, thus further undermining the importance of this issue". The UK Working Group contended that sustainable development should be included in the table of Relevant Consequences contained in the Schedule to the Act in order that this Criterion would have "equivalence with other consequences, and is treated in a way that is commensurate with the damaging affects of transfers that undermine development".[132]

93. The treatment of sustainable development was debated when the legislation was before Parliament. In arguing against amendments that would have added Criterion 8 to the Schedule of Relevant Consequences and removed "if any" from section 9 the Government said that making these changes "would oblige the Government to have regard to sustainable development […] in all cases" and that it needed "to be able to take common-sense decisions and to reach a judgment when taking export licensing decisions that particular considerations are simply not relevant in certain cases and situations".[133]

ROLE OF DEPARTMENT FOR INTERNATIONAL DEVELOPMENT

94. The Department for International Development (DFID) leads on the assessment of applications for export licences against Criterion 8. In carrying out the assessment it has to measure the compatibility of the arms exports with the technical and economic capacity of the recipient country, taking into account the desirability that states should achieve their legitimate needs of security and defence with the least diversion for armaments of human and economic resources.[134]

IMPACT OF IRRESPONSIBLE AND ILLEGAL ARMS TRANSFERS ON DEVELOPING COUNTRIES

95. Although DFID acknowledged that calculating the impact of irresponsible and illegal arms transfers on developing countries was "extremely difficult" and that the available information was "not comprehensive", it believed that the data available could be used to make an estimate of the impact of the global arms trade on development and was working to improve its understanding in this area.[135] In 2004, it had commissioned research from Bradford University on the impact of armed violence on poverty,[136] which looked in part at the impact of the international arms trade. The research showed that responsible transfers of conventional weapons could create space for development by helping governments to provide security for their populations. DFID also reminded us that developed and developing countries alike had the right to provide for their own legitimate defence and security needs and that this principle was enshrined in the UN Charter. Few developing countries, however, had their own indigenous arms industries, so they were often dependent on arms imports. On the other hand, DFID pointed out that irresponsible transfers, and the costs of maintaining and using these weapons, could divert resources from development spending on areas such as education or health.[137]

96. DFID explained how the weapons that were misused could also have a significant impact on development. Weapons could play a significant part in tipping conflict into violence or in facilitating the abuse of human rights with the damage caused compounded by the negative impact on development.[138] This was the reason DFID also commented on licence applications against the criteria covering human rights and conflict. DFID added that it was also leading work in the OECD's Development Assistance Committee to develop guidance for donor countries on the reduction of armed violence and arms availability in developing countries.[139]

The number of refusals given on grounds of incompatibility with Criterion 8

97. We were surprised to learn that since 2002 only one application to export arms had been refused by the UK Government on the grounds that it was incompatible with the technical and economic capacity of the recipient country.[140] We asked for reasons and whether this statistic was significant.

98. The UK Working Group considered that one of the reasons so few applications were refused on grounds of incompatibility with Criterion 8 was "those applying the criteria are not applying the sustainable development rigorously enough".[141] The Working Group pointed out that "since 2003 there have been 52 refusals [in the EU] based on sustainable development Criterion"[142] compared to one refusal made by the UK Government.

99. DFID acknowledged that more licences were refused under other criteria than under Criterion 8. For example, in 2006, there had been 80 refusals with the vast majority based on Criteria 2 (human rights), 3 (internal tensions), 4 (regional peace and security) and 7 (risk of diversion). DFID did not accept that it was the case that the Government took some criteria more seriously than others. It maintained that clearer procedures for inter-departmental consultation on all the criteria, and guidelines for the application of Criterion 8 in particular, had helped ensure that all criteria were taken into account in the final decision on whether to grant a licence. DFID argued:

143

COMPARISON WITH FRANCE

100. In contrast to the one refusal on grounds of incompatibility with Criterion 8 in the UK, the Working Group pointed out that the French Government had been responsible for 42 refusals on this ground.[144]

101. Although the UK Government would not comment on the detailed processes followed by individual EU Member States, it said that "some interpret Criterion 8 differently" but that its "interpretation, and that of the vast majority of our EU partners, focuses on the impact on the recipient country's economy, rather than on the UK's national security". The UK Government had sought to minimise these differences by leading the identification of best practice on Criterion 8 as part of the EU's Users' Guide to assist with implementation of the Code of Conduct. It pointed out that the UK was one of only two EU Member States routinely to involve its development department or agency in licensing decisions.[145] The Parliamentary Under-Secretary for International Development, Mr Gareth Thomas MP, also pointed out that most other European countries' performances were similar to the UK in terms of the number of licences refused.[146]

102. EGAD commented that under the French export licensing system military exports were prohibited unless a governmental authorisation was granted (Art. 13 of the legislative decree of 18 April 1939), and the French export control system was implemented in several stages:

prior authorisation to negotiate;

authorisation to conclude a sales operation; and

authorisation to export equipment.

103. EGAD commented:

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104. DFID explained that the Defence Export Services Organisation (DESO) in the Ministry of Defence (MoD) referred all F680 applications for proposed exports to international development association (IDA) countries to DFID for a Criterion 8 assessment. DFID used the same analysis as that used for licence applications—see paragraph 108 and following. DFID explained that where Criterion 8 was a possible or probable cause for concern, the MoD would warn exporters of this. DFID suggested that this might deter exporters from submitting applications for licences that would fall foul of the criteria.[148]

Conclusions on the weight given by the legislation to sustainable development

105. We consider that an amendment to the primary legislation to require greater weight to be given to the question of sustainable development would be justified where it was clear that the present arrangements were failing and moreover that the failures were the product of a defect in the legislation. First, the statistics are not, in our view, conclusive that the UK Government is out of step with other European States. Apart from France, there have been ten refusals since 2002 across the EU on grounds of incompatibility with Criterion 8. The French Government with 42 refusals, rather than the British, appears atypical. Because of the restrictions on the information shared by Member States the UK Government was not able to explain to us the reasons for the large number of French refusals.

106. One point, however, which concerns us is the risk of wide disparity in the interpretation of Criterion 8 by Member States, particularly if the pattern were to continue after the publication of the Users' Guide. We consider that the UK Government should request COARM, the EU Council of Ministers' working group on conventional arms, to consider the matter. We recommend that the Government request COARM to examine whether Member States are following a consistent interpretation of Criterion 8.

107. We recognise that the Best Practice Guidance for the Interpretation of Criterion 8 refers to a number of "broad, overarching issues".[149] It follows that judgments have to be made by governments in addressing these issues and that given the scope permitted by Criterion 8 there is going to be disagreement. Moreover, given the latitude of Criterion 8 there is no certainty that changing the legislation to require greater weight to be given to sustainable development, which means greater weight to Criterion 8, would result in the refusal of significantly more licences. It follows that not every application for an export licence raises questions about sustainable development. We therefore concentrated on the filtering process and addressed two questions: whether the filtering and concomitant evaluation processes identified those cases where questions of sustainable development arose and whether the decisions that emerged were comprehensible. We conclude that there is no strong case for amending the primary legislation to require greater weight to be given to sustainable development.

The filtering process for applications

108. An application for a licence is passed to DFID by the Department of Trade and Industry (DTI), now the Department for Business, Enterprise and Regulatory Reform, for an assessment against Criterion 8 when the destination is on a list of countries where sustainable development is most likely to be an important factor, and where the value of the licence is above a certain threshold for that country. This threshold is determined on a country-by-country basis. The list comprises those countries that are eligible for concessional loans from the World Bank's International Development Association (IDA), taken to represent the world's poorest countries.[150] In addition, DFID has the right to comment on any export licence application against any of the other criteria. Because of the inter-relationship between human rights, conflict and development, DFID takes particular interest in Criteria 2 (human rights), 3 (internal tension or conflict), and 4 (regional peace and security). DFID maintains a list of countries for which the country threshold is set very low or at zero, ensuring that most or all licence applications for these countries come to DFID for analysis. DFID keeps this list under regular review.[151]

109. We asked DFID why it used the IDA list and it replied:

The list of countries eligible for IDA loans is the most authoritative, comprehensive, and up-to-date list of the world's poorest countries. Eligibility is based on low income (low GNI per capita), so IDA countries have the least available resources and the greatest need to use those scarce resources in a productive way. The list is produced by the World Bank, and is updated annually. It now includes 82 countries.

152

110. We had specific concerns that the list was not comprehensive—for example, it did not include Morocco, a developing country with significant expenditure on its armed forces and in disputed occupation of the Western Sahara. The Government replied:

153

111. The Minister explained that, while the IDA list was the "most appropriate of those that are available",[154] it was not exhaustive and the Government looked at all licence applications for Iraq, Sudan and Nepal where they went beyond the value threshold using the methodology, and that "we have recently taken a decision to extend still further to Afghanistan, Burma, Burundi, Chad, Cote D'Ivoire, DRC,[155] Ethiopia, Eritrea, Sri Lanka, Somalia and Zimbabwe for which we look at all the licence applications in those circumstances".[156]

112. Since 2002, DTI has referred 858 Standard Individual Export Licences (SIELs) and 767 Open Individual Export Licences (OIELs) to DFID. This constitutes a relatively small proportion of all the export licence applications received by the DTI as the licensing authority. For example, in 2006, 1.5% of SIELs and 27% of OIELs were referred to DFID.[157] We asked why the proportion of applications, particularly for SIELs, was low. The Parliamentary-Under the Secretary of State for International Development told us "that only a relatively small percentage of UK exports are destined for developing countries"[158] and that the number referred was determined by the methodology.[159]

113. In 2006, 6.9% of the value of military list export licences issued by the UK Government was destined for IDA-eligible countries. By value in 2006 this amounted to exports of £113 million.[160] We consider this amount to be significant and that there would be grounds for concern if either the percentage or amount grew substantially.

114. We accept that the list of countries eligible for IDA loans provides a foundation on which to build the first stage of the filtering arrangements for consideration of applications for export licences against Criterion 8. The Government itself has recognised that the IDA list needs to be supplemented with the addition of 14 countries. We conclude that the Government's approach gives the correct degree of flexibility to the system. We recommend that the Government also consider adding countries such as Morocco to the list.

Methodology used by DFID

115. We invited DFID to explain the methodology it used when it received an application from DTI. DFID told us that the assessment of licence applications under Criterion 8 took into account four main areas: economic capacity; levels of military expenditure; technical capacity and the potential diversion of resources; and the legitimate security and defence needs of the recipient country.[161] The initial assessment examined whether the value of the proposed export exceeded the value threshold for the recipient country which was based on the value of the export as a proportion of health and education spending in that country, as well as the other indicators in the methodology.[162] DFID explained that making the assessment for a SIEL was "relatively straightforward" but that making an assessment against Criterion 8 was more complex for an OIEL, as OIELs did not specify a value. DFID said that it would therefore usually ask DTI to obtain an estimate of the cost from the exporter. The estimated cost provided the basis for a Criterion 8 assessment.[163]

116. When the analysis revealed that a proposed export exceeded the value threshold for a recipient country or it triggered any of the indicators, the licence application was passed to the DFID country desk or office for a more detailed examination using the agreed guidance. Country specialists then looked at (a) the extent to which the value of the export licence application exceeded the country threshold; (b) the number of indicators that had been exceeded, and the extent to which they have been exceeded. Country specialists made a judgement, based on their knowledge of the recipient country, on whether and how the proposed export would impact on the indicators for Criterion 8.[164]

117. Other government departments might also offer opinions on Criterion 8. In particular, the Ministry of Defence would consider the proposed export in the light of legitimate defence needs, taking into account any security sector reform programmes or strategic defence reviews. Consideration of this aspect was usually conducted against Criterion 4 (regional peace and security) but could also feed into Criterion 8.[165] As with all export licensing applications DTI, as the licensing authority, assessed whether, in the light of advice from DFID and other departments, issuing or refusing a licence was consistent with the Consolidated Criteria as a whole.[166]

Publication of the methodology

118. We requested a copy of the methodology DFID used for applying Criterion 8; a copy was supplied to us in confidence and is therefore not being published, although we have treated it as evidence. We nevertheless questioned why the methodology could not be made public. The Minister replied that there was a risk as to how the document would be used,[167] in particular by "unscrupulous arms dealers".[168] He asserted that most arms exporters had a good idea of what would constitute a serious threat under the Criterion 8 to the long-term economic prospects of that country.[169]

119. The Minister produced no evidence to support his assertions that publication of the methodology would assist the unscrupulous or that, by implication, respectable dealers understood the rules. With only one application rejected on the grounds of incompatibility with Criterion 8 since 2003 we fail to see how the unscrupulous are deterred. On the contrary the failure to publish could give the impression, erroneous in our view, that the Government may be hiding weaknesses in the system or preventing criticism when it issued licences for applications that appear above the triggers. From the information we obtained during the inquiry we conclude that the system for assessing applications against Criterion 8 appears sound and that it is underpinned by a robust methodology. We recommend that the Government publish the methodology in the Annual Report on Strategic Export Controls along with a list of the countries on the IDA list, as supplemented.

Bribery and corruption

120. The Parliamentary-Under Secretary of State for International Development said that his Department would be reviewing its use and implementation of the methodology to see whether further improvements could be made "to the implementation of that methodology".[170] This review is distinct and separate from the review of export controls which the Department for Business, Enterprise and Regulatory Reform is leading. One matter on which we received evidence was the need to guard against bribery and corruption—see paragraph 357. The Minister did not consider "it would be true to say we have gone quiet on corruption in the arms industry, but we are engaged in some thinking and some work there. Obviously we are happy to keep the Committee informed about the progress of that work."[171] We are grateful for the Minister's offer to keep us informed.

121. It is also pertinent to draw attention to the recent conclusion and recommendation of the Foreign Affairs Committee, one of our participating Committees:

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122. In its response the Government did not agree that the decision to halt the Serious Fraud Office inquiry might have caused severe damage to the reputation of the UK's fight against corruption. The Government detailed the wide-ranging activities it had undertaken since July 2006, when its anti-corruption action plan had been agreed. These activities included "strengthening the UK's capacity to investigate allegations of foreign bribery" and working with the private sector on both specific anti-corruption initiatives, such as the Extractive Industries Transparency Initiative, and on efforts to raise UK business awareness around the world of the damage corruption can cause".[173] In our view an overhaul of the Criterion 8 methodology that included a test to establish whether the contract behind an application for an export licence was free from bribery and corruption would fit well with the Government's anti-corruption action plan and would show that the Government was maintaining momentum on international anti-corruption measures. We recommend that DFID consider including an assessment in the Criterion 8 methodology applied by Government to test whether the contract behind an application for an export licence is free from bribery and corruption.

132 Ev 44, paras 10-11 Back

133 HL Deb, 18 April 2002, col 1101 Back

134 Cm 6882, p 72 Back

135 Ev 71, para 33 Back

136 See http://www.brad.ac.uk/acad/cics/projects/arms/AVPI/ Back

137 Ev 71, paras 34 and 36 Back

138 Shattered Lives: the Case for Tough International Arms Control, Oxfam International and Amnesty International, 2003 Back

139 Ev 71, para 35 Back

140 Ev 71, para 27 The application was turned down in 2003. Back

141 Q 8 Back

142 Ibid. Back

143 Ev 71, paras 15-16 Back