Memorandum from NBC UK
THE HISTORY AND CONTEXT
EXPORT CONTROL
IN GENERAL
1. NBC UK has been asked to respond to questions
posed by the Quadripartite Committee on Export Controls of the
House of Commons. NBCUK is a vociferous supporter of the ideals
and aims of export control regulation. As a responsible industry
body dealing with this difficult and dangerous subject area, critical
to National Security, NBCUK recognises restraint has to prevail,
however so to does common sense. However, frequently NBCUK's views
have been ignored to the detriment of all. We seek to change this
for the good of all.
EXPORT CONTROL
AS IT
APPLIES TO
THE AREA
2. NBCUK has held discussions with many
of the experts who provided input to the legislation. They are
unanimous that the restrictions UK's CBRN Industry now labours
under were neither contemplated nor intended. It seems to NBCUK,
and many others, that the heart of the problem is that in drafting
a "catch all clause" to prevent proliferation the authorities
failed to take into account the impact it would have on the industry
involved in defence against the threat. This "Relevant Use"
clause[39]
seems to be at the heart of the problem. (Key words are highlighted
in the footnote) NBCUK has always put forward balanced and reasoned
arguments for changes in the legislation, pointing out some of
the absurdities, contained within it, including this provision.
The warnings NBCUK gave were not heeded. The result of this has
caused confusion, bureaucratic issues and unnecessary additional
work.
THE QUESTIONS
3. This paper attempts to answer the questions
as posed. It also makes a number of related points. It is important
to examine the subject in the round and therefore security restrictions
that play a part in the general export licence regulations need
to be considered at the same time. A detailed isolated discussion
of specific items is neither sensible nor profitable. Where commercial
confidentiality will not be breached examples will be cited. However
NBCUK is prepared to cite specific examples in confidence to ECO
authorities to illustrate its points. NBCUK has enthusiastically
entered the recent joint activity with ECO and DESO on reviewing
specific parts of the legislation and regulations. It welcomes
the progress made in certain specific areas but there remain many
issues to resolve. NBCUK welcomes the questions the QUAD has raised
as they address some of the fundamental issues still unresolved.
The questions as posed were.
(a) How does Export Licence Control impact
National Security in the CBRN world?
(b) What impact are the current regulations
having on:
(3) Loss of opportunities.
THE CURRENT NATURE OF THE CBRN ENVIRONMENT
THE ROLE
OF THE
UK, UK INDUSTRY AND
THE RELATIONSHIP
BETWEEN GOVERNMENT
AND THE
NEED TO
EXPORT
4. Before answering the questions in detail
it is important to understand the current international multi-faceted
nature of the CBRN (Chemical, Biological, Radiological and Nuclear)
environment in which companies, and UK Companies, in particular,
now operate. CBRN is important because it encompasses substances
not traditionally thought of as warfare agents in NBC terms. The
UK is arguably the World's leading nation at providing an integrated
CBRN response and capability from either a defence or counter
terrorism standpoint, although the distinction is now so blurred
as to be meaningless. This response and capability is the result
of years of dedicated co-operation at all levels between UK Government
and Industry. This co-operation is maintained from the policy
level, through research, to doctrine and tactics, to manufacture,
deployment and support in the field. However, the UK market (even
including the civil sector) is simply not strong or large enough
to support and sustain the work of UK Industry. This is particularly
true of the research and development field where UK companies
are pre-eminent worldwide. This work is an important adjunct to
HMG work and the R&D and Manufacturing bases, and the high
quality jobs that go with them, in Industry, of all sizes, and
Academia can only be sustained by funding from export revenue.
If lost, this capability and these jobs will not be regained;
a fact recognised by both the Defence Industrial Strategy and
the Defence Technology Strategy. Many world-leading and innovative
products and capabilities have resulted from UK companies and
joint Government and Industry activity. If this industrial effort
was removed from the equation the Government would have to fund
the shortfalls, currently estimated at £300 million in Defence
CBRN R and D alone, or drop the capability and protection levels
of the Armed Forces. The additional impact on the civil community
has not been calculated but it would be considerable if we wish
to protect the civil community. To sustain this effort export
is therefore in the best interests of all concerned.
THE WORLD
MARKET
5. In the Defence arena UK Industry "owns"
somewhere in excess of 50% of the international market to which
they are allowed to export. However, coincidental with the rise
of the perceived international terrorist threat has been the rise
in the CBRN terrorist threat. It is worth pointing out that there
is also a rise in crank threats, acts and hoaxes, which can be
as disruptive, and even a move into the CBRN area by criminals.
At the same time there has been a perceptible reduction in the
Defence market (although the size of the US market in which UK
companies are heavily involved swamps all others and makes comparisons
difficult.). This public change in perception started to occur
at the same time as the framing of the new Export Control Regulations,
in 2000, although counter terrorist experts had been predicting
it as far back as 1985.
IMPACT OF
CBRN
6. Some believe that the Tokyo subway Sarin
chemical attack incident in 1995 had the potential to kill, and
indeed did injure, more people than the attacks in the US on 11
September 2001. Recent cases before the UK courts would indicate
that CBRN terrorism is a rising threat. The new market is unpredictable
and fragmented. It is not just government centric. People who
thought they had no NBC (or CBRN) equipment and training requirements
now feel they have urgent need for these. These new customers
include but are not confined to defence forces that had not previously
paid the subject any attention, police and civil defence agencies,
Critical National and Transport Infrastructure and Legislatures.[40]
Also included in this new customer mix are the financial, transportation,
leisure and sports sectors, to name but a few. In these sectors
even a simple hoax or a relatively minor real incident can end
up costing millions of pounds and severely undermine confidence
and well being.[41]
Predicting these new customers and their order of arrival is near
to impossible.
THE LICENSING REGIME
THE LICENSING
REGIME AND
THE NEW
ENVIRONMENT
7. Given the heightened perceived threat,
these new potential customers in the market naturally turn to
the UK and British companies, because of their world-renowned
operational and technical pre-eminence in the field. However,
these new markets, unlike governments, frequently do not recognise
the strictures of dealing with export regulations—they just
want to get on and deal with the issue and then return to doing
their day jobs. It is a similar attitude to fire prevention and
protection. NBCUK companies have to deal with the licences and
watch with growing frustration as, because of bureaucratic issues,
more and more business is turned away or going elsewhere.
KEY FACTORS
FOR THE
FAILURE OF
THE EXISTING
REGIME IN
THE NEW
ENVIRONMENT
8. This background provides the backdrop
against which UK companies now operate. The current export licence
regulations are inhibiting UK companies from competing in this
legitimate new market. The fundamental flaws within it, as they
apply to CBRN, fail to recognise a number of factors, the most
important of which are:
(a) People involved in proliferation of CBRN
material do not apply for export licences.
(b) People that do try to comply with the
system are those that are law abiding and even then for those
that fail it is more by omission than commission.
(c) The attempt to draft a "catch all"
clause, The Relevant Use Definition referred to earlier, that
prevented proliferation also caught all the defensive equipment
and associated industry. Despite NBC UK raising this issue numerous
times over the years, our basic position has been rejected time
after time.
(d) The definitions of transfer and technical
assistance are all embracing, dangerous and catch many innocent
users and manufacturers.
(e) Given the pace of the new market companies
are simply not able to submit applications, either licences or
680s, fast enough and guarantee responses from the ECO and DESP
with sufficient speed to deal with the enquiries in the time frame
the market demands.
FAILURES IMPACTING NATIONAL SECURITY
MOD
9. Members will recall our Chairman briefed
the Quad during the Iraq War in 2003 about not being able to provide
product support to UK forces on operations had the new licensing
regime been in force, which they were less than 60 days latter.
This is a very good example of the unintended consequences referred
to previously. The QUAD's intervention in this issue was the only
factor that led to Government negotiating with industry the OGEL[42]
that has allowed UK companies to enter into technical discussions
on CBRN matters with MoD(UK) without obtaining a licence for every
occurrence. Even now there are several issues, such as dealing
with overseas contractors working for the UK MOD, to do with this
subject that require resolution. NBCUK had previously raised it
formally four times, at every stage of consultation, and it was
still not accepted despite repeated assurances that it would be
addressed in the legislation. It was only accepted when it failed
in reality. It took a war and the QUAD's intervention to start
to impose the beginnings of common sense in this one instance.
NBCUK thanks the QUAD for its clear advice and comment.
BLUE LIGHT
SERVICES (AND
OTHER EMERGENCY
ACTIVITIES)
10. However, as yet no such solution has
been created for similar discussions and activities with the UK
Blue Light Emergency Services or other similar bodies. This is
a fundamental issue with a direct bearing on national security.
Under Section 2 (2)c of the Regulations[43]
entities may not discuss technology, use or operation of CBRN
equipment with people in the UK who might then subsequently take
that technology outside the EU. In the same way that the MoD (UK)
is expected to operate overseas, the Prague and Istanbul undertakings
mean the Blue Light Services are increasingly expected to advise
and operate overseas when their help is requested either planning
for or responding to an incident, eg the Athens Olympics. Companies,
therefore, have to get export licences to discuss these issues
with the UK's Blue Light Services, who, themselves, are, according
to the DTI, not covered by "Crown Exemption" and would
in turn need export licences to deploy the goods, technology and
technical assistance overseas. This can not be right.
IMPACT OF
THE ORGANISATION
OF THE
EMERGENCY
11. However, since the Blue Light Services
operate on a regional or local basis a simple OGEL to cover all
forces and services has been deemed inappropriate by the ECO for
dealing with them. Given the number of products some companies
would have to apply for, applying for full export licence clearances
for every police and fire service and every NHS Ambulance Trust
and Trusts with A&E facilities is a massive undertaking. Even
the larger companies have shied away from this- again this has
a direct bearing on National Security.
LACK OF
CROWN EXEMPTION
12. NBC UK's contention is that given there
is no "Crown Exemption" in the new regulations, these
UK Blue Light Services should, strictly, not go overseas to discuss
CBRN issues without a licence. This has been confirmed to NBCUK
by the DTI.[44]
The same is true of security officials from airlines, shipping
companies, railways hotels, banks, restaurants or any of the other
myriad potential other sectors and groups that feel they may be
under threat or have been contaminated. This basic position which
NBC UK have outlined in respect of the "Any Relevant Use"
and "Technology Transfer" and "Technical Assistance"
clauses is now seriously inhibiting UK Industry. NBC UK understands
the rationale of the regulations but the fact is that the wording
is so poor that it is impossible to operate in the real new market
(World) situation. It is to be hoped that another real incident
will not have to be the touch stone for common sense prevailing.
MAJOR COMMERCIAL
FACTORS
13. Companies involved in this Industry
have now had nearly three years' experience of operating these
new regulations in the new security environment. Apart from the
inhibition in their approach to the new market, which is having
a severe effect on the UK's reputation, there are a number of
major issues that are having an adverse effect on companies. These
include:
(c) Loss of opportunities.
LOSS OF
REPUTATION—UK AND
UK INDUSTRY
14. Loss of Reputation is perhaps the most
important issue. Whilst direct calculation of the costs is very
difficult, all members have reported that their reputation had
been adversely effected by the new legislation and regulations.
This not only reduces UK's standing; it also opens up the civil
population to attack. This is perhaps best illustrated by the
recent PASR.[45]
A major study in PASR called IMPACT looked into the protection
of the European population against CBRN attack and tried to work
out some ways of countering weaknesses. This study was run by
TNO of the Netherlands and involved several major European Governments'
research institutes, academic institutions and CBRN companies.
Given UK pre-eminence in the field there was a heavy reliance
on the UK's expertise. At the public presentation of its results
in Brussels on 25 October 2006 a major conclusion of its work
was stated as "Export Licence Controls, particularly those
of the British, may well be the Achilles Heal of the defence of
the Citizens of Europe against CBRN attack". This came about
for three reasons;
(a) Because the bureaucratic issues in obtaining
export licence to make software changes (to detect chemical simulant
not real agent) took so long that the project nearly failed. In
part this was due to security concerns or rather length of time
clearing the security concerns.
(b) Because passing information about technologies
involved with defeating biological terrorism was so constrained
that the study concluded it would not be possible to respond adequately
to a real incident because not enough people would know what measures
and capabilities were available.
(c) The constraints on technology are so
broad that the passage of meaningful information between the people
on the study was so great that the study concluded that there
needed to be common test protocols across Europe to overcome the
licensing issue. (Even though they deal with export licence issues
on a daily basis the study members are not export licence experts.
They therefore failed to realise that setting up these protocols
would need a licence and then passing information between the
laboratories would require licences every time information needed
to be passed!) Although not reported on per se the discussion
within the study team concluded that the WHO virtual laboratory
set up to deal with recent SARS outbreaks would have been illegal
if it were dealing with a CBRN incident.
15. These conclusions are covered specifically
in work packages 300 and 400 of the study but the problems permeated
every facet of the programme. Relevant extracts of the study can
be obtained from the EU Commission. [DG Enterprise]. The study
members realising the sensitivity of the work have placed an embargo
on public dissemination of large parts of it. An example of a
responsible industry at work. The IMPACT study was the first time
that there has in effect been a direct real time comparison of
the different EU Export Licence regimes. The international study
team as referred to above regarded the UK situation as being far
worse than any other nation of the 10 or 11 taking part.
INCREASED COSTS,
LOSS OF
TIME
16. Costs associated with export licensing
have been a frequent complaint of NBC UK Members. The regulatory
impact assessment estimated them to be negligible. Two of the
larger companies, Smiths Detection and Avon Technical Products,
initially estimated that the direct costs were 1% of fixed costs.
This is a considerable rise in any company's costs especially
when the company has no control over them. As time has gone on
practical experience has revealed that the true figure is in excess
of 3%, a common figure from many members. Companies with a larger
number of products and technologies reported much higher percentages.
17. However the indirect costs, which are
more difficult to calculate, seem even greater, again a common
theme from members. Every time a person within the company wishes
to communicate with anyone new they first have to discover whether
there is export licence/680 cover in place (680 cover often being
a mandatory condition of the licence) and whether it covers the
subject under consideration. This applies to both customers and
suppliers. With suppliers, all too often companies not familiar
with export control at all, it then entails ensuring they have
sufficient controls in place to ensure compliance in their own
company and down their own supply chain. Putting a new licence
or 680 in place is time-consuming. This has a huge impact on a
company's speed of action in getting new products to market, costs,
competitiveness and reputation. The costs for the supply base
are hidden and are considerable, but are not quantified here.
These supply base costs are not quantified but inevitably have
to be passed on to OEMs and therefore form another indirect cost-often
hidden and virtually impossible to calculate.
18. An example of how the export licence
system can adversely impact UK companies' costs and time has been
illustrated in the last week. A long planned trip to the Middle
East by one company was suddenly expanded in scope by the government
of the country concerned who wanted to include a different mix
in the audience and wanted to discuss an additional item of equipment
and application of the equipments' use. In the time frame available
to expand the existing licence cover to include the additional
audience and obtain a new licence to cover the additional equipment
was impossible. The only alternative was to cover the issue generically
and now return to the country concerned.
LOSS OF
OPPORTUNITY
19. Loss of Time and Reputation directly
lead to loss of opportunity. It is to be hoped that the opportunity
cited above still exists once the licences are granted. One member,
there are others, specifically cited an example of a new product
specifically designed as an item of safety or escape equipment
for civilians. It was designed so as not to be in any way military
and not to include any military grade components or technologies.
The company got to market first with this type of product and,
thus, obtained a world lead. However, the loss of impetus arising
from the need to wait for the export licensing system to "catch
up" has allowed overseas competitors, apparently unfettered
by similar such restrictions, to capture parts of the market that
the UK firm would rightfully feel were ones it should have captured.
20. This catching up appears to come from
a lack of decisiveness as to whether the product was military
or dual use and therefore licensable under either UK or EU regulations
or not licensable at all. Similarly officials offered contradictory
and changing advice on the need for 680s. It seems there is not
a rapid, effective system to decide which products are licensable
or not and even where such decisions do occur there seems to be
no consistency. We would strongly recommend the establishment
of such a system so companies could deal with this before development
and marketing starts. When an item is deemed dual use, other exactly
comparable items seem to go unchecked both in the UK and Europe;
however, our European industrial colleagues seem far less restricted
than those in UK.
NEW TECHNOLOGY
NOT COMING
TO MARKET
21. Similarly examples exist where member
companies have quite deliberately not brought a new technology
to the CBRN field. This is because they regard the bureaucratic
and emotional effort of obtaining an export licence every time
they want to talk to someone just too great to justify the effort,
especially when there are markets for the technology elsewhere.
This too touches on issues of national security since if the technology
has not been exposed to the armed and security services they in
turn can hardly be expected to know about it.
LOSS OF
BUSINESS
22. Loss of business is a persistent cause
of complaint. A simple example is recently a major City of London
based bank chose to purchase and install a German CBRN protection
system where the technical discussions could be held face-to-face
and electronically immediately, without apparently having to apply
for an export licence. An export licence would not normally be
required for this application because it could not reasonably
be expected that the technology would leave the City of London.
An export licence was required because the security branch involved
operated from outside the UK, there was a technology transfer
issue, and once installation had been achieved in UK they wished
to duplicate the system overseas. They wanted guarantees that
they would be able to do this and within the timeframe of the
discussions—15 days. No UK based company could offer such
a guarantee given the current regulations. This is a far from
exceptional case. Examples exist across the whole spectrum of
CBRN defence. Speed of response is critical in the new market.
The licensing system prevents it.
LATE DELIVERY
23. Late delivery caused by the time-consuming
processing of export licences, or companies having to undertake
major efforts to achieve on time delivery when all that is holding
things up is an export licence, is the cause of the largest number
of complaints. There are numerous examples of this. These complaints
have become more numerous since the closure of the telephone help
line and reliance on e-mail based system by the ECO during 2006.
Apart from simply not getting the licences out in time the complaints
range from:
(a) Questions from the licensing authorities,
the answers to which are already actually contained within the
completed and submitted application forms.
(b) Asking questions to which officials either
must already know, or ought to, the answer to.
(c) Setting impossible deadlines for small
and medium companies to respond to queries to and then, when they
don't receive the answer within the stated very tight timeframe,
arbitrarily lapsing the application. This being done by e-mail
which can not always be accessed or dealt with in the timeframe
given.
(d) E-mails simply not arriving within the
government system or being transmitted by it or e-mails simply
not being answered.
(e) In short, a source of endless frustration,
and, too often, embarrassment and cost.
THE FUTURE AND SOME RECOMMENDATIONS
24. NBC UK fully subscribes to the ideals
and aims of the Export Control Act 2002. However, we would point
out that compliance with it is a conspiracy of the willing. NBC
UK Members comply, at great expense, but it is detrimental to
the UK's reputation, leadership in the CBRN protection technology
sector and, in its current form, does little to deter or, even
less, prevent actual CBRN weapons proliferation. One is tempted
to ask if any of the CBRN capability acquired by India, Pakistan,
Libya, Iran or North Korea passed through the export licence process.
There are sensible ways to deal with this situation and we are
sure that there are better forms of legislation and regulation
to address this which are possible. NBC UK welcomes the recent
initiative by the DTI ECO to examine the situation. We remain
committed to it but maintain these changes do not go far enough
or deep enough and would welcome the chance to revisit the issue
which is presented by the planned 2007 review of the Export Control
Act 2002.
25. Our thoughts currently run along the
following lines;
(a) The formal process of deciding whether
a product is licensable should be regularised, speeded up, and
made more easily accessible and should seek to achieve more uniform
decisions across common products. It should be available earlier
in the industrial process. Similarly if an industrial or non military
product of broadly similar capability to another unlicensed industrial
product is put forward for assessment then without extreme good
cause the new product should not require a licence.
(b) The suggestion put forward by NBCUK on
two previous occasions involving licensed companies and approved
end users/sectors should be accepted. This would allow faster
decision making to be undertaken on key issues by officials, rather
than wasting time on bureaucratic process.
(c) The Relevant Use clause should be rewritten
omitting the highlighted words.
(d) The rules on transfer of technology should
be rewritten to allow transfer to individuals and entities involved
in emergency response and civil protection (including commercial
entities). A possibility is that the recipient should show good
cause to the supplier to allow such a transfer.
(e) The technical assistance rules should
reflect a similar approach
(f) If the above is not possible then an
OGEL for the Blue Light Services and users perceived to be under
threat should be brought into operation. Thus a generic sector
could be included eg the Rail Operating Companies rather than
listing each one.
February 2007
39 ...for use in connection with the development,
production handling, operation, maintenance, storage, detection,
identification or dissemination of chemical, biological or nuclear
weapons... Back
40
Committee Members may remember that during the "Purple Powder"
incident, (a hoax by a crank?) on 19 May 2004 they took precisely
the wrong action, despite clear instructions issued by the police
to the contrary. The results of which, had the agent been real,
could have resulted in preventable deaths and illnesses and clean
up cost of several million pounds or at its most dire the loss
of the parts of the Palace of Westminster as a venue forever. Back
41
The recent Polonium 210 incidents in London and Hamburg illustrate
the situation well, however, this was a relatively small incident,
albeit with considerable financial and personal costs. Back
42
Directive 2004/18/EC on the deliberate release into the environment
of genetically modified organisms and Regulation (EC) 1829/2003
on genetically modified food and feed. Back
43
Section 2 (2) c "by a person or from a place within the
United Kingdom to a person who, or a place which, is also within
the United Kingdom (but only where there is reason to believe
that the technology may be used outside the United Kingdom);" Back
44
DTI Letter dated 22 September 2005. Back
45
Preparatory Action on Security Research Launched by the EU Commission
in Preparation for FP 7. Back
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