House of Commons - Defence

Select Committee on Defence First Report

10 EU REGULATIONS AND GUIDELINES

313. The EU Code of Conduct on Arms Exports adopted on 8 June 1998 forms the basis of the UK's decision-making process for licence applications. The Code contains political commitments, but is not legally binding. It represents minimum standards which all Member States have agreed to apply to exports of controlled goods. These standards are defined through a common set of criteria to be used in deciding whether proposed exports should be allowed. The Government has published consolidated EU and National Criteria which explain how it interprets the terms of the Code.[421] The EU, like the Government, publishes an Annual Report on strategic exports.[422] It includes data on the value of licences issued and actual exports for all EU governments, broken down by Military List category. The report should also include data on the application of the EU Code of Conduct on Arms Exports to dual-use items related to munitions items as they fall under the Code. In December 2006 the EU adopted the Stability Instrument, which during 2007-13 makes €270 million available to reduce weapons of mass destruction (WMD) proliferation risks, which includes measures to strengthen dual-use export controls in third countries, and measures to combat illicit trafficking.

314. As we noted in our Report last year, the implementation of EU Council Regulation 1334/2000 on the control of dual-use items in an enlarged EU was reviewed in 2004. The review revealed discrepancies in implementing legislation, in industrial awareness programmes, in the technical capacities available to national authorities to evaluate licence applications and classify items and as regards the intelligence infrastructure. The review also found that the application of the dual-use regulations differed with regard to, inter alia, the use of the catch-all clause, the implementation of denial exchanges, intangible technology transfer controls and transit and trans-shipment controls.[423] In our view the EU review's conclusions reached on these issues might have a bearing on the 2007 Review of Export Control Legislation. In responding to our Report the Government said that the review's recommendations were being assessed by Member States and the Commission.[424] We recommend that in responding to this Report the Government set out the progress that has been made in carrying out the recommendations arising from the 2004 review of the implementation of EU Council Regulation 1334/2000 on the control of dual-use items in an enlarged EU. We further recommend that the Government consider whether the EU review's conclusions have implications for its own 2007 Review of Export Control Legislation.

315. As our predecessor Committees stated in their last two Reports[425] and as we noted in our last Report,[426] the EU Code on Arms Exports has been subject to a fundamental review. It was originally believed that the review was drawing to a close in March 2005. Since then, although the revised code has been agreed at a technical level, its implementation has been blocked by primarily one Member State. We put on record our frustration with this state of affairs but recognise that there is little the UK Government can do to move the matter on.

Transfers of military goods with the EU

316. Article 296 of the Treaty of Amsterdam makes it clear that security and defence are the responsibility of Member States and not within the competence of the European Union. The European Commission has, however, estimated that intra-European export controls cost defence companies in the EU in the region of €3 billion a year on internal trading and it has been examining ways to streamline intra-EU exports.[427] When we asked the then Foreign Secretary about the UK Government's view of these proposals she replied:

428

317. In his letter of 6 March 2007 the Minister for Defence Procurement and Support at the Ministry of Defence, Lord Drayson, informed the European Scrutiny Committee that the Commission was planning to issue a three part package of proposals related to European defence equipment procurement:

a Communication on the context of the European defence equipment market and the challenges foreseen by the Commission;

a proposal for a Defence Procurement Directive; and

a draft Regulation on intra-Community transfers.[429]

318. From press reports it appears to us that there is a groundswell for change. It was reported in April that European Union defence ministers had agreed on the need to break down national barriers in the EU arms market, to open up cross-border investment and to reduce Europe's reliance on U.S. military imports. The ministers were reported as saying

430

319. Having examined the Government's previous statements in the light of the more recent correspondence the European Scrutiny Committee formed the view that the Government's position had shifted, from not supporting the development of a new Directive, to seeking to identify what benefits to defence procurement might be derived from one; that alternative interpretation might be that, with the Commission intent on pursuing this matter, the Government had concluded that damage limitation was the right approach; and that though the Government had said that UK involvement was without commitment to supporting the adoption of a Directive, it seemed to the Committee unlikely that, once produced, it would not in due course become law.[431] The European Scrutiny Committee concluded:

432

320. If the EU were to acquire a competence in defence manufacturing and to remove the barriers to the free movement of military goods and technology that currently exist within the EU, it would have a profound effect on the UK's system of strategic export controls, potentially such a development could be cause for serious concern, given that EU Member States' export control policies and practice vary. In our view the Government needs to formulate a policy to respond to any proposals emerging from the European Commission to remove the barriers to the free movement of military goods and technology that currently exist within the EU. The Government's policy needs to address the effect that any changes would have on export controls and to ensure that UK and EU export controls are not weakened. We recommend that the Government set out its policy in responding to our Report.

New dual-use EU Regulations

321. On 18 December 2006 the European Commission brought forward a proposal to revise the Council Regulation on the control of exports of dual-use items and technology.[433] It takes into account the conclusions of the 2004 Peer Review of Member States implementation of the Regulation and the results of a subsequent 2005-2006 impact assessment study, as well as the EU's obligations under UNSCR 1540.[434] The Commission now is involved in the ongoing discussions in the Council and has collected comments from exporters on its proposals. Proposals currently discussed also involve the creation of new community general export authorisations and they would cover export of low value shipments, export for repair, export for exhibition, computers, telecom and information security and chemicals.[435] In a memorandum EGAD said that European industry viewed the proposed new regulation as a "missed opportunity to pursue real reform and amounts to little more than tinkering with the current status quo".[436] In its view the real prize would have been the acceptance of the "certified company" concept in which multi-national corporations with a proven record of compliance were treated as a single entity for export control purposes, regardless of geographic location, and only when goods/data left that global corporate entity would a licensable act occur. EGAD said that this proposal had been dismissed out of hand by the Commission.[437]

322. EGAD said that the new proposed controls centred on brokering dual-use goods, but only in the context of WMD, so the impact would be limited for the vast majority of industry. EGAD's greatest potential concern was the proposed introduction in the new draft regulation of controls on "intermediation" in the supply of dual-use items, i.e. where one party in the EU was an intermediary for the export by another EU party of dual-use items. There was no definition of "intermediation", which left the position of transport companies and insurers unclear. EGAD said that a "clear and concise harmonised definition across the EU of what actually constitutes an act of 'intermediation' is absolutely essential".[438]

323. We consider that some changes are required and necessary and that this is a good opportunity to examine revising the regulation while the UK is conducting its Review of the legislation. It is a good opportunity to ensure that UK best practice and proposals are adopted across the EU. We share EGAD's concerns about the European Commission's proposals for changes to the dual-use regulations and recommend that the Government in its response to this Report explain its policy to the changes proposed by the Commission to the regulations.

Human rights

324. Criterion 2 of the EU Code on Arms Exports requires:

The respect of human rights and fundamental freedoms in the country of final destination

"Having assessed the recipient country's attitude towards relevant principles established by international human rights instruments, the Government will:

a) not issue an export licence if there is a clear risk that the proposed export might be used for internal repression;

b) exercise special caution and vigilance in issuing licences, on a case-by-case basis and taking account of the nature of the equipment, to countries where serious violations of human rights have been established by the competent bodies of the UN, the Council of Europe or by the EU.

inter alia

The nature of the equipment will be considered carefully, particularly if it is intended for internal security purposes. Internal repression includes, inter alia, torture and other cruel, inhuman and degrading treatment or punishment; summary, arbitrary or extra-judicial executions; disappearances; arbitrary detentions; and other major suppression or violations of human rights and fundamental freedoms as set out in relevant international human rights instruments, including the Universal Declaration on Human Rights and the International Covenant on Civil and Political Rights. […][

439

325. In its written evidence to us Saferworld argued that the Government should introduce a "presumption of denial" for arms exports to an agreed list of countries which raised prima facie concerns against the Consolidated Criteria.[440]

326. When she gave evidence we asked the then Foreign Secretary how explicit the link had to be between an export and the risk of its use for internal repression before an export licence was refused. She replied:

441

The Foreign Secretary added that "in 2006 there were 54 submissions that went to ministers and, of those 54, 47 of them were on the basis of human rights concerns".[442]

327. When we pressed on the question of a presumption of denial of exports to countries of concern, Mariot Leslie, Director for Defence and Strategic Threats, Foreign and Commonwealth Office (FCO), said that the "Government considers that in some cases the use of force by a government within its own borders, for example, to preserve law and order against terrorists or other criminals, is legitimate and does not constitute internal repression". Ms Leslie continued:

443

328. The FCO told us subsequently that in 2006 there had been 631 licences, where there was a concern on the grounds of Criterion 2, which were sent to the FCO's Human Rights Group. The FCO asserted that this was "one way we try to ensure consistency".[444]

329. We can see the strength of both Saferworld's position and that of the Government. We have also had the advantage to request additional information when we identify an export that appears questionable in an Annual or Quarterly Report on Strategic Export Controls. We are pleased to be able to say that in nearly all the cases the Government has produced a satisfactory answer—often along the lines of that given by Ms Leslie. In our view a significant part of the problem is the opaque manner in which these exports are presented and the obfuscating and frustrating terms in which the Government seeks to justify its decision to grant, or withhold, licences. When an interested party notes, for example, the export of armoured vehicles to a government with a poor human rights record it is entirely understandable that he or she is concerned that the export may be used for internal repression. When a question is put to the Government the habitual reply is: all applications are considered on a case by case basis against the Consolidated EU and National Export Licensing Criteria. Any licence which we assess is inconsistent with the Criteria will be refused. The answer provides no information and asks the questioner to take the Government's decision to export (or withhold) arms on trust. We remind the Government of one of the conclusions of the Scott Report:

445

330. We note that Criterion 2 requires the exercise of "special caution and vigilance in issuing licences, on a case-by-case basis". In our view this means the Government must examine each application for an export licence on its merits. It is not a cloak to throw over every decision to prevent scrutiny of the Government's reasons for issuing or withholding an export licence. We recommend that the Government provide firm and explicit answers to questions about its decisions to grant, or withhold, export licences for goods or technology which could be used for internal repression in countries where human rights are abused.

Transparency

331. Exports to a group of countries which include Israel, Saudi Arabia and China show the lack of transparency in the interpretation of the EU Code of Conduct on Arms Exports at its most stark. The reasons for refusal are not published and so may encompass some or all of the Criteria in the EU Code of Conduct on Arms Exports. This of itself is an indication of lack of transparency.

332. We start with a general proposition: whether export controls on goods or technology should be used as an instrument of foreign policy. In written evidence EGAD commented that there "has always been an innate link between foreign policy and sales of defence and other strategic goods, and always will be […] this is unavoidable". EGAD pointed out that arms embargoes were imposed on countries for which no UK defence companies had any commercial interests or perceptions of prospective business—such as Cote d'Ivoire—for political and foreign policy reasons, rather than to prevent potential exports from taking place. EGAD believed, however, that the UK was generally less inclined towards using its export licensing system as an instrument of foreign policy than many other nations.[446]

333. From our work and from that of our predecessor Committees we endorse the central point of EGAD's analysis: strategic export controls cannot be divorced from foreign policy. We conclude that it is entirely reasonable for a government to have a policy of refusing to license exports to a particular country for a stated reason or a foreign policy objective. A clear statement of policy ensures that everyone—exporter, the licensing authority, the public, etc.—knows where he or she stands. Problems arise, however, where the policy is unclear or where there is a relaxation or tightening in the licensing of exports without an announcement of a change in policy.

EXPORTS TO ISRAEL AND JORDAN

334. In our report last year we recommended that the Government explain its policy on exports to Israel. The policy is that no weapons, equipment or components which could be deployed aggressively in the Occupied Territories will be licensed for export from the UK to Israel.[447] The Government replied:

448

335. As we found the Government's reply unenlightening we have pursued the matter further this year. We start with the statistics for applications for Standard Individual Export Licences (SIELs) which we compare with Jordan for the same period. We selected Jordan because it is a neighbour of Israel, exports to Jordan came under scrutiny during the Scott Inquiry and the value of SIELs since 1997 was not dissimilar to those for Israel in the same period.

Table 6

Israel: standard individual exports licences[449]
	Issued		Refused
Year	Number	Value £	Number	Refused
1997	109	-	1	1%
1998	221	-	2	1%
1999	190	11,500,000	0	0%
2000	191	12,500,000	3	2%
2001	277	22,500,000	31	10%
2002	161	10,000,000	84	34%
2003	136	9,000,000	25	16%
2004	90	10,500,000	13	13%
2005	96	22,500,000	8	8%
2006	120	14,500,000	23	16%
Total	1,591	113,000,000	190	11%

Table 7

Jordan: standard individual exports licences[450]
	Issued		Refused
Year	Number	Value £	Number	Refused
1997	51	-	1	2%
1998	65	-	0	0%
1999	78	3,500,000	0	0%
2000	65	12,000,000	0	0%
2001	85	55,000,000	0[451]	0%
2002	69	7,500,000	0	0%
2003	46	25,000,000	0	0%
2004	61	8,500,000	1	2%
2005	46	9,000,000	0	0%
2006	87	16,000,000	0	0%
Total	626	136,500,000	2	0%

336. The statistics for Israel show significant movement compared to those for its neighbour Jordan. The pattern of the two countries was broadly similar until 2000 when the percentage of refusals of applications to Israel increased dramatically: from 2% in 2000 to 10% in 2001. The rise continued into 2002 when 34% of applications were refused. After a fall in 2003 to 2005 it rose to 16% in 2006.

337. Saferworld pointed out that, despite an escalation in violence in the Middle East in the summer of 2006, the UK Government continued to authorise licences to Israel: SIELs to the value of £15.5 million were granted for inter alia armoured all wheel drive vehicles, components for military utility helicopters, components for military training aircraft, components for submarines, components for unmanned air vehicle control equipment, components for air-to-surface missiles, components for airborne electronic warfare equipment and technology for use of combat aircraft; and OIELs were granted for inter alia components for combat helicopters and components for electronic warfare equipment.[452] The UK's Human Rights Annual Report for 2006 states: "Progress on improving the human rights situation in Israel and the Occupied Territories has been limited […] the UK remains concerned about Israel's failure to respect the human rights of Palestinians in the Occupied Territories."[453]

338. When we raised exports to Israel the Foreign Secretary said that she believed that "something like 0.1% of Israel's total arms imports comes from the United Kingdom and we have not sold main equipment like tanks or artillery or warships to Israel since 1997, so it seems to me we are visibly taking Criterion 4 into account"[454] and that "we do not sell them anything major […] precisely because we do take account of Criterion 4, as you would wish us to do".[455]

339. We accept that the percentage of refusals of applications to particular countries depends on the content of the applications made by exporters. But it can also fluctuate as other factors are taken into account by the Government. We conclude that on the basis of the statistics there is evidence that the licensing policy to Israel may have been tightened up. We conclude that the Government's "case by case" response in explaining decisions to grant or refuse licences is unclear. While the "case by case" approach gives the Government flexibility this appears to allow latitude to adjust policy without the need for public explanation, which is neither transparent nor accountable.

340. We recommend again this year that the Government explain its policy on licensing exports to Israel, Jordan or other countries in the Middle East and that it explain whether it has adjusted its policy since 1997 as events in the Occupied Territories and Middle East have unfolded. We further recommend that Government explain how it assesses whether there is a "clear risk" that a proposed export to Israel might be used for internal repression (for the purposes of Criterion 2).

SAUDI ARABIA

341. We have previously received memoranda alleging that bribes were paid by the Defence Sales Organisation (DSO, the predecessor of Defence Export Services Organisation, DESO) to senior Saudi Arabian officials to obtain defence contracts.[456] We put these allegations to the Ministry of Defence (MoD) and attached weight to its responses. In particular, in a memorandum in June 2003 the MoD stated it was a principle that officials "should not engage in, or encourage, illegal or improper actions whether in their relations with UK or overseas firms" and "MoD no longer employs agents nor pays commissions in its Government-to-Government defence export programmes". We asked the Government how the payment of commissions and DESO's activities more generally had been affected by the coming into force of Part 12 of the Anti-Terrorism, Crime and Security Act and the Government replied:

457

342. Following the announcement on 14 December 2006 of the decision to call off the Serious Fraud Office's (SFO) investigation into allegations of corruption in relation to the 1980s al-Yamamah arms sales contract with Saudi Arabia on public interest grounds and because of "the need to safeguard national and international security"[458] further allegations were made by the BBC that MoD officials processed quarterly "invoices" from a Saudi prince, who was seeking payment for "support services" for his role in the al-Yamamah arms deal. It was alleged the officials involved in handling any such payments were based at DESO and that BAE Systems have said it made the payments with the "express approval" of the MoD.[459]

343. We wrote to the MoD seeking a further memorandum.[460] Rt Hon Des Browne MP, the Secretary of State for Defence, replied that he had nothing further to add to the memoranda already provided to us and our predecessor Committees. He agreed that any allegations of corruption should be taken seriously and he confirmed that the MoD had cooperated fully with the SFO investigation.[461]

Arms embargo on China

344. The EU Arms Embargo on China remains in place. The Government explained, however, that as the Embargo was politically binding, this placed the responsibility on Member States individually to define the precise scope of the embargo as they saw fit. The UK Government interpreted the scope of the embargo as follows: lethal weapons such as machine guns, large calibre weapons, bombs, torpedoes, rockets and missiles; specially designed components of the above, and ammunition; military aircraft and helicopters, vessels of war, armoured fighting vehicles and other such weapons platforms; any equipment which might be used for internal repression.[462]

345. The Foreign Secretary said that there were no particular signs that China was changing its way as far as arms exports were concerned.[463] Paul Arkwright, Head of the Counter Proliferation Department, FCO, added:

464

346. We understand that there is an EU pilot project which aims to assist non-EU countries strengthen their export control systems for dual-use items. We are unclear why the UK delegation appeared to use the visit to discuss a different issue, the improvement of the UK's own export controls. We recommend that in responding to this Report that the Government explain what was the purpose of the Foreign and Commonwealth Office's recent visit to China to discuss export controls and what was the outcome.

347. The FCO assured us that: "The China arms embargo was also raised in the context of an Arms Trade Treaty. There is no read-across between the embargo and encouraging China to engage positively on the ATT initiative. A cross-Whitehall team are proposing to travel to China in the near future to have formal discussions with Chinese Government officials to explain the case for the ATT, and encourage them to engage."[465]

348. We note what the Foreign Secretary and the FCO have said and see no prospect of immediate change by the Chinese Government either in respect of its arms exports or human rights. We reaffirm the recommendation we made in our last Report that the Government work within the EU to maintain the arms embargo on the People's Republic of China.

421 European Union Code of Conduct on Arms Exports, Council Document 8675/2/98 See also HC Deb, 26 October 2000, col 203W and http://www.fco.gov.uk/servlet/Front?pagename=OpenMarket/Xcelerate/ShowPage&c=Page&cid=1014918697565. Back

422 For example, Eighth Annual Report According to Operative Provision 8 of the European Union Code of Conduct on Arms Exports, Official Journal of the European Union, C250 (16 October 2006) at http://eur-lex.europa.eu/LexUriServ/site/en/oj/2006/c_250/c_25020061016en00010346.pdf Back

423 Council of the European Union, Progress Report on the implementation of Chapter III of the EU Strategy against the Proliferation of Weapons of Mass Destruction, document 15246/04, Brussels, 3 December 2004, and Implementation of the recommendations of the peer review of member states' export control systems for dual use goods, Document 15826/05, Brussels, 15 December 2005 - http:// register.consilium.eu.int/pdf/en/05/st15/st15826.en05.pdf. See also Stockholm International Peace Research Institute, SIPRI Yearbook 2005: Armaments, Disarmament and International Security, Oxford University Press, 2005, pp. 699-719 ("Transfer controls" by Ian Anthony and Sibylle Bauer), and SIPRI Yearbook 2006: Armaments, Disarmament and International Security, Oxford University Press, 2006, pp 775-97 ("Transfer controls" by Ian Anthony and Sibylle Bauer), and Council of the European Union, 2630th Council Meeting General Affairs and External Relations, Brussels, General Affairs, Press Release no. 15460/04 (Presse 343), 13 Dec. 2004, p 17 - http://www.consilium.europa.eu/ueDocs/cms_Data/docs/pressData/en/gena/83083.pdf. Back

424 Cm 6954, p 20 Back

425 HC (2003-04) 390, paras 108-14; HC (2004-05) 145, paras 83-86 Back

426 HC (2005-06) 873, paras 139-41 Back

427 Commission Interpretative Communication on the application of Article 296 of the Treaty in the field of defence procurement (28212) 6223/07 COM(06) 779 + ADDs 1-2 The background is set out in the Twentieth Report of the European Scrutiny Committee, Documents considered by the Committee on 2 May 2007, Including: Fisheries: by-catches and discards The European Research Area Simplification of legislation on transport rates and food hygiene HC (2006-07) 41-xx, pp27-32 Back

428 Q 370 Back

429 European Scrutiny Committee, Documents considered by the Committee on 14 March 2007, Fourteenth Report of Session 2006-07, HC HC 41-xiv Back

430 A Strategy for the European Defence Technological and Industrial Base, European Defence Agency, 14 May 2007 Back

431 HC (2006-07) 41-xx, para 6.14 Back

432 HC (2006-07) 41-xx, para 6.21 Back