Select Committee on Defence Minutes of Evidence

Examination of Witnesses (Questions 20-39)


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.

previous page contents next page

House of Commons home page Parliament home page House of Lords home page search page enquiries index

© Parliamentary copyright 2007
Prepared 11 December 2007