Examination of Witnesses (Questions 1-19)
MR IAN
GODDEN, MR
DAVID HAYES,
DR JERRY
MCGINN,
DR SANDY
WILSON AND
MS ALISON
WOOD
21 NOVEMBER 2007
Q1 Chairman: Welcome to this session
on the UK/US Defence Co-operation Treaty. We are extremely grateful
to all of you representatives from industry for coming to give
us evidence about it. Dr McGinn, you have come from a long way
away and we are particularly grateful to you, but we are grateful
to all of you, as I say. We hope to produce a Report following
this evidence session before the Treaty is ratified by the Government.
At 10.30 we will be having the Minister and officials in and we
have got a lot of stuff to get through. We have got lots of questions
to ask you, so please do not feel that you need to answer every
question that comes up because if you do we will only get through
about two questions and we have got something like 12, each of
them with sub-questions. The topics we are going to cover are:
first, what are the current problems industry face; second, what
the Treaty is and how it is going to help; third, what the implementing
arrangements are and whether you know enough about them; fourth,
stuff about the British "approved" community; then foreign-owned
companies; dependency on the US and the impact on European collaboration;
what the power of the US is over UK exports; enforcement reciprocity;
prospects for ratification in the United States; and then on a
completely separate issue, we will ask a question or two about
DESO and its abolition. Can I ask you first please to introduce
yourselves.
Dr Wilson: Sandy
Wilson, Managing Director of General Dynamics UK.
Dr McGinn: Jerry McGinn,
I am Corporate Director for US/UK ITAR policy for Northrop Grumman
Corporation in Washington DC but I am here also as the Chair of
the US/UK Defence Treaty Working Group for the US Aerospace Industries
Association which is our trade association in the US.
Mr Hayes: David Hayes, I am an
export control consultant and I am Chairman of the Export Group
for Aerospace & Defence.
Mr Godden: Ian Godden, Chief Executive
of the SBAC and Secretary to the Defence Industries Council.
Ms Wood: Alison Wood, Group Strategic
Development Director for BAE Systems plc.
Q2 Chairman: Thank you very much.
Can I ask you to summarise the sorts of problems that British
defence manufacturers face in working with the US defence industry
in obtaining goods and technology from the US giving concrete
examples. Alison Wood, can we start with you perhaps.
Ms Wood: Yes. I think the area
that we would highlight is the level of difficulty in the process
if you are working on collaborative programmes. A programme that
obviously comes to mind is the Joint Strike Fighter programme
where you have to go through some very bureaucratic and often
challenging processes to work collaboratively with parts of your
own company as well as other colleagues in the industry, so you
get the agreements in place that allow you to have shared technology.
We have to go through several levels of clearance in order to
be able to get what is put in place—technology assistance
agreements—that then become the basis on which we can share
data and technology. The problems are really threefold. One is
the timescales that it takes to put these in place, which can
go over years. Then there is the fact that they are very restrictive
in the sense that they are very narrowly focused. When you do
get TAAs in place or restrictions to shared technology they are
about very specific topics, and that sometimes can constrain the
innovation you need to put in place as a company, particularly
if you are working for example on an urgent operational requirement
for the Armed Forces, and you have to be very focused about then,
if you build that technology into your product or into your programme,
how you then subsequently take that product or programme through
into the export market. There is obviously the whole separate
set of UK rules and regulations around it, but you then get a
similar set of filters that you have to apply for the US. The
example I would best give on the Joint Striker Fighter programme
is the years it has now taken us to try and establish just the
basic technology assistance agreements to work with Lockheed Martin
and our partners Northrop. One of the reasons that we feel it
is important that we get this new regime is place is that when
the UK procures weapons systems and military platforms from the
US we need to make sure that we have the industrial capability,
whether it be in BAE Systems, Lockheed Martin UK, Northrop UK
or GD UK, to actually do the through-life support of those aircraft
and weapons in this country, and to do that you need to have transferred
the technology so that the skills and the individuals and the
resources are here to then support the Armed Services. That requires
a different way of trying to tackle the technology transfer regime
and that is why over the last few years we have been putting considerable
effort in through the DIC and the SBAC to support this initiative.
Mr Godden: Just to summarise,
the combination of requiring significant company resource—a
slow process—and then the result being 99.9% approval. In
an industry that prides itself on compliance this feels long and
slow for the results that come out, and in that sense it is an
attempt in the compliance industry to shorten the whole process
on behalf of company resource and also for the Governments. In
summary that is the benefit.
Q3 Chairman: We are not getting on
to the benefit of the Treaty, we are still on the problems of
the current arrangements.
Mr Godden: The current arrangement
is slow and difficult. It ties up huge amounts of resource every
time an application is made, it can be multiple applications in
sequence for a single set of activities, and therefore there is
no way of bypassing a sequential 30 to 45 delay each time to get
permission to do a set of tasks which combined together would
be much shorter.
Q4 Chairman: To what extent is that
a function of the rules and to what extent is it a function of
the number of personnel in the United States applied to the licensing
system? Would any of you like to comment on that?
Mr Hayes: The number of personnel
in the United States applied to the licensing system is a matter
for the State Department, but I think fundamentally it is a function
of the rules rather than the number of people applied to the licensing
system. There does not appear to be any risk assessment approach
to the licensing process. I would contrast the UK system which
is essentially a risk-assessed, open system. In most cases, exports
of either goods or technology to the United States would go under
open licensing. In cases where they did not then the licences
would be processed very quickly, typically within a week or so,
by our Government, with almost total reliance then on the export
control system of the United States for onward control. The US
system is the antithesis of that. There is no risk assessment.
Despite the fact there is a 99% plus approval rate every application
goes through this lengthy process. Even after the licence has
gone through the process the licence is very, very narrow and
prescriptive. If you want to step outside of those bounds you
have to go through the whole process again, and the United States
still retains control over the goods or technology even after
they arrive in the UK.
Q5 Willie Rennie: Has Britain not
received priority status in recent years and has that not improved
the situation dramatically?
Mr Hayes: Yes and no, respectively.
Q6 Willie Rennie: Could you explain
a bit more?
Mr Hayes: Yes, after the previous
negotiations Britain did receive what was referred to as expedited
licensing but "expedited" is a relative term. The export
licensing process in the United States is still nowhere near as
rapid as the export licensing process in the UK, and even if you
get the licences faster that does not remove the problem of them
being too prescriptive when you do get them.
Ms Wood: That is the point. We
have seen some improvement in the rate at which TAAs, the licences,
are being approved but, again, it is relative. I think one of
the key constraints is the fact that the licences are so narrow,
for reasons we understand, and if you are looking at what we have
to do now to be able to provide the innovation and the research
and development that is actually going to get better products
and better services out to the Armed Forces, you are actually
restricting our ability to provide that support because often
when you start a programme you cannot really think and know that
it is just that specific piece of technology. Often you want to
be able to move and look at other areas within the space and then
bring that to bear on the problem, so it is that restriction that
causes the difficulty because then you would have to go back and
apply for the next licence, and that is really what we are trying
to unpack here.
Q7 Chairman: Sandy Wilson, can you
give any concrete examples of the sorts of problems that are created
here?
Dr Wilson: Yes indeed. I think
a particular case in point is the UORs that have been going on
in the UK over the past year or so. They are very short programmes,
sometimes four months, sometimes nine months, and that is almost
outwith the timescale for getting TAA approval for new people
to come on to an existing TAA. That has manifested itself several
times, for example on the Bowman programme where we have seen
new platforms appear and they need to put Bowman on them, and
in order to get the person delivering that platform within the
UK on to the TAA there is a rather long rigmarole in order to
get that. We adopted a very proactive approach to that, if I might
just explain how we tried to go round it, by going with the MoD
to the State Department and trying to get a waiver on that particular
programme, and that was pretty successful, and so we managed to
cut the time down substantially so that we could service UORs,
but that was a long effort and is a one-off and the next time
a programme appears with the same kind of timescales that process
will not apply to the next programme.
Q8 Chairman: Okay, thank you. Dr
McGinn, would you like to make your own comment on this? Could
you also comment on how it affects United States industry and,
if possible, therefore United States Forces, although I recognise
that is beyond your brief.
Dr McGinn: Right, I have to say
I am not going to speak for the US State Department but we have
worked very closely with the State Department in the licensing
arena over the past two years. As was alluded to, the United Kingdom
has priority for licences within the State Department as well
as those programmes that are in support of the war fighters in
Afghanistan and Iraq. Those kinds of programmes have the highest
support but, as was evidenced by the Treaty that was signed between
our two countries, this was not enough to meet the operational
demands for our soldiers abroad. That is the stated intent of
the Governments and the reason for the Treaty. Industry is very
much in support of that effort because the collaboration that
we have had with the US Government has been focused on trying
to make the system more transparent and predictable and prompt
to meet the needs of the war fighter. The frustrations that we
have had on the US side are similar to those in the UK industry
in that trying to meet the operational demands for the war fighter
to combat things like improvised explosive devices and, speaking
for my company, we do directed infrared counter-measures with
the United Kingdom, we have had challenges of getting those systems'
TAAs or licences through fast enough to meet the needs of UK forces
in the field. Thus the intent of this is to help improve inter-operability
and get the equipment needed to war fighters faster in the field.
Mr Holloway: Have any of you got any
experience of a UOR being turned down by this rather long-winded
system?
Chairman: Apparently not? It becomes
less urgent presumably?
Q9 Mr Hancock: Why is there a long-winded
system? I am interested to know if we are such close allies and
we have got troops on the line who need equipment which is being
tried and tested in both countries being put together, and yet
there is a difficulty and there is a time delay, why is that?
Who is the blocking force in the United States that prevents this
happening quickly? That is the bottom line here. We keep being
told there is a blockage; I want to know why.
Mr Hayes: I do not necessarily
think it is a "who"; I think it is a "what".
The current licensing system has grown up over time. It is an
awkward mixture of legislation and what I would call regulatory
practice. The regulatory practice is variable and sometimes not
particularly well communicated to industry. Changes happen that
people are not aware of. As set out at the moment it is a very,
very long-winded process, as we have already heard, but that is
the process which exists, and it is because of the existence of
that process that we actually need something else. The existing
process is not capable of responding in the time required by modern
business and modern defence requirements.
Chairman: Moving on to the "something
else"; Kevan Jones on the Treaty.
Q10 Mr Jones: I think the Treaty
has been welcomed both from this side of the Atlantic and also
from the United States. Dr McGinn, could you say something about
US industry's approach to the Treaty because I understand it has
changed certainly since I have been going to the United States
over the last couple of years in terms of welcoming this type
of Treaty approach? Is the Treaty the answer to all your problems
or are there problems that it does not actually cover?
Dr McGinn: I think industry very
much welcomes the Treaty. This was first and foremost an initiative
by our Governments for national security reasons and that was
to get the operational systems and services to the war fighters
more expeditiously by getting rid of some of the regulatory burdens
that had grown up over time. In that sense for industry it just
allows us to better support our mutual national interests and
so we are very much in support of it. As an industry we have taken
an approach that this is not an industry initiative, this is not
about supporting US or UK industry; it is about supporting our
mutual forces on the ground. We want to help in any way that we
can. We see tremendous benefits for this as industry. As Ms Wood
mentioned, this will allow US companies to work with our UK branches
to do collaborative research and development for both US and UK
forces and likewise for UK companies and their US subsidiaries,
so the collaboration potentials from this are really substantial.
Mr Godden: Can I add that obviously
the Treaty does not take any step backwards so it is a forward
step. However, the extent to which it is a forward step is a function
of the way in which the Treaty is implemented.
Q11 Chairman: We will come on to
that, Mr Godden.
Mr Godden: In that sense is it
a step forward? Yes, it is a definite step forward but the restraints
to that could be in the process of the exclusions and the approved
lists etc. and therefore the benefits to that will come out in
that process itself.
Q12 Mr Jones: So the problems will
not actually be recognised until we have got the Treaty in place;
is that what you are saying?
Mr Godden: How much of a benefit
will not come out until the Treaty is in place. In that sense
it is only speculation, but the aim of course in our opinion is
absolutely fundamental.
Q13 Mr Havard: Can I ask you a basic
question because when I visited the States and talked to people
about this, people in industry in the States were complaining
about how smart the operation in the States is in dealing with
it, basic things like the number of people involved in actually
dealing with these issues. Are these mechanical problems or are
they political problems in the sense that people do not want to
do these things for reasons other than inefficiency in processing
the paper and doing the work?
Mr Godden: My feeling is that
it is a mechanical problem, as David alluded to, which is structural,
but behind it somewhere there is a realisation of the benefit
of speeding up the process of collaboration with companies that
are elsewhere and that is in a sense—
Mr Havard: The scales have fallen from
one or two eyes. I got the name of a donkey a boy fell off at
one point!
Chairman: I do not think that was a question!
Bernard Jenkin?
Mr Jenkin: In your view does this Treaty
actually treat the two parties equally, is it a strictly reciprocal
treaty? Or am I asking that question too early?
Chairman: We will come on to that later.
I would like to take this in sequence if you do not mind. Implementing
arrangements; Mike Hancock?
Q14 Mr Hancock: Can I just ask one
question, from what you have said it would appear that this Treaty
affords us the opportunity of unlocking certain stumbling blocks
that there have been up to now but it also might be a more effective
blocking mechanism because the Treaty, as you said, will say this
can happen but it will also be a far more effective block because
America will simply say, "No, that was not part of the Treaty."
Are you happy that this Treaty embraces enough of the problems
that have been highlighted time and time again over the last ten
years to the effect that it will not be seen as a very effective
blocking mechanism?
Mr Hayes: The Treaty is not an
either/or vis-a"-vis the existing licensing system. Where
items are excluded from the Treaty then the existing licensing
system will continue to apply, so nothing will be blocked by the
Treaty in an absolute sense. If it is not allowable by the Treaty
we can revert to the old system and apply for a technical assistance
agreement or a licence.
Q15 Mr Hancock: So that is still
available?
Mr Godden: That is what we mean
by it is not a step back, there is nothing—
Q16 Mr Hancock: It is "as well
as"?
Mr Godden: As well as.
Q17 Mr Hancock: The Government claimed
that through the Defence Industries Council they would consult
pretty thoroughly on this and they would take on board issues
raised by industry. Are you all satisfied that they did deliver
on that commitment that this Treaty would be something that they
would take to industry and then work with industry in putting
the British side of it effectively into place, recognising all
of the issues that you have raised with them? Is there anything
they have not taken on board?
Mr Godden: My observation is that
in as much as they can share—and obviously these treaties
have to be negotiated in secret and this is a government-to-government
issue—they have shared with industry and consulted. I am
certainly satisfied from what I hear from our 260 members that
they feel consulted and they feel they understand what is going
on, but clearly they have not seen sight of implementation issues
and paragraphs.
Q18 Chairman: Ms Wood, you are nodding.
Ms Wood: I would endorse that.
Within the restrictions obviously of the confidentiality of the
government-to-government process, I think we have had a good and
constructive dialogue and it has been a two-way dialogue in terms
of understanding what would be needed to come out of the Treaty
that would enable more effectiveness of the whole of British industry
in the supply chain to be able to engage and get the improvements
out of the Treaty, so from a company perspective we have been
very content with that dialogue.
Q19 Mr Hancock: But that would depend
on the outcome of the negotiations going on about the implementation
arrangements. Are you happy from the UK's side there is a very
positive view that those things need to be properly sorted before
the Treaty is signed and that the implementation arrangements
are clearly known to industry before the Secretary of State ratifies
this?
Mr Godden: It is very positive
but I do not know to what extent it can be shared before that
process. They have consulted as much as they can, I believe.
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