Select Committee on Defence Minutes of Evidence

Examination of Witnesses (Questions 1-19)


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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