Examination of Witnesses (Questions 20-39)
MR IAN
GODDEN, MR
DAVID HAYES,
DR JERRY
MCGINN,
DR SANDY
WILSON AND
MS ALISON
WOOD
21 NOVEMBER 2007
Q20 Mr Hancock: Have they told you
much about the implementation negotiations?
Mr Godden: There have been informal
discussions about what the issues are on the implementation but
obviously they have not—
Q21 Mr Hancock: But from your point
of view, from what you have been told, do you have reservations
that they are not going far enough or they are hitting a brick
wall on some of the possible problems that would arise through
implementation?
Mr Godden: That is not the impression
they have given. The impression they have given is that there
may be more issues in Washington than there are here.
Q22 Chairman: Sandy Wilson, is that
your view as well?
Dr Wilson: I think we have a broad
outline of what will happen. It does come down to who will be
on the list of approved companies and the like. I guess if that
is not terribly restrictive then this will be a very, very effective
mechanism. A question I have in my mind is whether we will get
a large number of SMEs onto that list, and I think that is something
that should be encouraged because otherwise the supply chain will
suddenly stop at the top level and the TAAs will apply to the
top level but in reality for implementation they have to apply
right down through the supply chain to the SME level. I have no
knowledge as to where people think that is going to stop but I
would encourage it to go right the way down to the real shop floor
deliverers of capability.
Q23 Mr Hancock: And that is very
important for the UK. Have the Government been receptive to that
point when you have made it?
Dr Wilson: Yes, absolutely.
Ms Wood: Yes.
Mr Godden: They have been making
it as much as we have.
Ms Wood: We obviously do not have
visibility yet on the implementing arrangements. This has been
a process going on for a long while. There has always been a dialogue
and they are very clear about where industry sees some of the
issues on the implementing arrangements, particularly when you
get into potential exclusion areas, and whilst we may not get
visibility of the implementing arrangements before the Treaty
is ratified, we have been very clear from our company's perspective
that the MoD have understood exactly where our issues are. We
have also been very clear in sharing some of the challenges we
have had under the current arrangements and how that has impacted
things like main programme delivery and urgent operational requirements,
so I think they know what it is we are trying to tackle here.
I would endorse Dr Wilson's point about the need for it to go
through at the supply chain level.
Chairman: Moving on to the approved community
issue; Adam Holloway?
Q24 Mr Holloway: What do you think
about the criteria for people going on to the list and do you
think everybody will want to join? If they do not, why not?
Mr Godden: The existing mechanism,
namely List X, is well-known and understood. The ambition clearly
in the UK is for that to be as inclusive a list as possible. Therefore
as a minimum, because it is an existing process and existing mechanism
for approval, we are satisfied that again it is not a step backwards
in any way. On the question of whether it is a step forward the
proof is in the pudding.
Q25 Mr Holloway: It is in the what,
sorry?
Mr Godden: The proof is in the
implementation itself. In terms of the actual criteria themselves
we are satisfied that these are good criteria and will not be
a step back in any way and will be a step forward in our view,
with the right attitude.
Q26 Mr Holloway: Might there be some
people who would not wish to join and, if so, why?
Mr Godden: Yes, they might not
wish to join in the sense that they still might feel that it is
another process to go through. It is difficult to imagine why
they would think that but they may.
Q27 Mr Holloway: Moving it on then,
is there a concern that perhaps smaller companies might not want
to do it because it was too onerous or whatever? Is there any
sense in which they would lose out?
Mr Hayes: There are overheads
to becoming a List X company in the current circumstances and
in relation to the approved community, and it will be a commercial
decision for each company as to whether or not the benefits of
becoming a member of the approved community are sufficient to
justify those overheads. In the current context, there are SME
companies who are members of List X which have clearly decided
that it is of benefit to them. Equally there are others who will
decide that the benefit is insufficient, but that has to be a
matter for the companies concerned.
Q28 Mr Havard: What is the nature
of these overheads? Is it just that it is difficult to do and
therefore you have to put a lot of time and effort into it? There
is not a standard fee, is there? The overhead is the pain and
suffering of getting in the process, presumably, is it?
Mr Hayes: And meeting the necessary
physical and personal security requirements and having the on-going
ability to satisfy those requirements.
Q29 Mr Havard: The individuals?
Mr Godden: IT, security and management
costs are the three big things.
Q30 Mr Havard: And the individual
bodies.
Mr Godden: Yes.
Ms Wood: If you are an SME, to
get to List X, IT standards would be the biggest issue. It is
a scale issue. Again, that is something which we as prime contractors
would need to work with the SMEs to help enable them to achieve
that status.
Mr Havard: Thank you.
Q31 Willie Rennie: Are these not
standards that we would hope to strive to achieve in the defence
industry in the UK anyway?
Mr Godden: Yes.
Q32 Willie Rennie: So what is the
problem?
Mr Godden: I do not think we are
saying there is a problem except that it is the normal inertia
of companies making commercial decisions about overheads and equipment.
Q33 Mr Holloway: Could this be a
barrier to enterprise for small companies?
Mr Godden: The Treaty itself is
not a barrier.
Q34 Mr Holloway: No, the list?
Mr Godden: Yes, but that exists
at the moment, that is a given. Today that is the case in terms
of --
Q35 Mr Holloway: Sure, but is it
going to make it harder for small, enterprising companies?
Mr Hayes: I would not necessarily
think so because if they are currently handling ITAR-controlled
data and handling it correctly, then their IT systems should already
be at or close to the necessary standard for membership of the
approved community.
Ms Wood: And also if they are
doing secure work for the MoD—and most SMEs provide us with
high technology and high innovation—they would be at List
X status anyway.
Q36 Mr Hancock: Could they do it
on the back of a prime contractor?
Ms Wood: I believe they have to
have their own listing, but somebody needs to check that.
Chairman: Moving on to a different subject,
foreign ownership of shares in defence companies in the UK; Kevan
Jones?
Q37 Mr Jones: Can I ask a question
with regard to foreign companies in the UK. I am thinking particularly
of companies like MBDA and Thales, to name two, who have got major
holdings in the UK and major jobs in the UK. How will they be
part of this community and if they are excluded in some way will
that make the Treaty worth pursuing?
Mr Godden: Again, I am going to
sound a little bit like a record going round in that there is
nothing that is going to be worse than today. For them they have
the option of going back to ITAR etc. and operating in exactly
the same way they are, so in that sense there is no extra issue
for them, so nobody will be worse off, but we believe the new
arrangements for this are still underway and it is difficult for
us to fully judge what this process will be like. That is one
of the issues.
Q38 Mr Jones: Yes, and perhaps I
am being unfair in asking Dr McGinn a political question; are
there going to be problems in terms of the ratification of this
Treaty to include the likes of Thales and others which although
they are foreign owned have large footprints in the UK and actually
produce a lot of equipment which will actually be beneficial under
this?
Mr Hayes: The way this is approached
is where a US company has foreign ownership, control or interest
then arrangements are agreed with the Defense Security Service
to mitigate that foreign ownership, control or interest. I do
not know this for a fact obviously, but I would envisage a similar
sort of system operating here whereby if there are concerns over
foreign ownership, control and interest of a company in the UK,
then a means is found to address those concerns which would satisfy
both Governments and enable the company to participate within
the constraints of that agreement.
Q39 Chairman: That sounds a bit vague.
I am not entirely sure that I understand what this Treaty actually
says about it.
Mr Godden: We have to say we do
not know because we have not been party to what the clauses will
say and are saying, so we have to fall back and say it is going
to be no worse.
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