Select Committee on Defence Minutes of Evidence

Examination of Witnesses (Quesitons 100-119)


21 NOVEMBER 2007

  Q100  Mr Hancock: That is not an answer, is it, to the question?

  Mr Lincoln: I am sorry. There was one question in particular, which you spoke about earlier with industry, relating, for example, to a list of exclusions which would apply, which is clearly a key issue to both government and industry, which is one of the outstanding areas we need to discuss with the US. Our intention, as was the position when the Treaty was signed, was that that list of exclusions would be as small as possible, such that the benefits which can be derived from both governments' Armed Forces on operations and industry, both on the UK and US side, can be maximised as far as possible. We will have continuing discussions with the US on that.

  Q101  Chairman: Minister, you said you could not see any reason why the implementation agreement should not come back to this Committee before ratification, but you would take advice on that.

  Baroness Taylor of Bolton: Yes.

  Q102  Chairman: One issue that you will need to be aware of is that the Leader of the House has told us that she is happy to extend the period of ratification of this Treaty to allow our Committee to conduct an inquiry, but that she wants any report from this Committee to be received by 12 December. Now, that would mean, if you were to come back with the implementation arrangements, that it would need to be very quick, or it would mean that the ratification of the Treaty would need to be delayed, which might not matter if the ratification of the Treaty in the United States was also likely to be significantly later than that. I would ask you to consider that with your officials when considering whether to bring the implementation agreement back.

  Baroness Taylor of Bolton: Yes. I do not think that there is any opportunity for ratification in the United States this side of Christmas. So in terms of getting out of line, I do not think a marginal delay would cause difficulties, but I would not wish to pre-empt the right of the Leader of the House to make recommendations on the timing of Government business, and therefore I will look at that. I do not think that that will cause a problem.

  Chairman: Indeed not. However, what you have just said about the ratification in the United States will be a disappointment to us, but we will come back to that. Moving on to the British approved community.

  Q103  Mr Holloway: One of the criteria for getting into that is this business about foreign ownership. At what level of foreign ownership will a company in the UK be ineligible within the British approved community?

  Baroness Taylor of Bolton: As I understand it, it is not simply a question of the percentage of ownership or control, it is far more complex than that, and because I want to be very precise I am going to ask Paul to answer because we do already have that provision within this system that we operate, and it is that similar system with additional requirements which will operate under this Treaty. It is not just a simple issue of the percentage of foreign control.

  Mr Lincoln: We have discussed with industry before that the baseline standard for becoming part of the approved community would be the current arrangements for the List X communities and facilities, which are currently operated by the MoD's Industrial Security Service, and the arrangements which fall underneath that. Those already take account of a level of foreign ownership, control and influence within companies, including the percentage of UK nationals at board levels overseeing the security-cleared facilities. That will be our baseline point for departure for discussions on a case-by-case basis with any company.

  Q104  Mr Holloway: Have the US put in any sort of nationality restrictions in terms of the people who work on these programmes here? For example, people with a joint registered Iranian or Chinese past?

  Mr Lincoln: Again, our baseline standard, which we have discussed with the US, is that they must have the appropriate UK security clearance and need to know, which is the current method, of course, of reserving access to security-controlled material within our existing arrangements. However, it would be wrong to say there are still some issues to be worked through on access to third-party nationals where the UK has a difference in approach for its risk management at the individual level compared with that for the US, which tends to do that in a more blanket level of denying access. Rather than, perhaps, rehearsing the arguments here, that is one of the outstanding issues which we want to come to close with the US next week.

  Q105  Mr Holloway: Again, if there was, perhaps, something that could only be handled by UK citizens, could that put us up against EU law?

  Mr Lincoln: We have been very careful in all our negotiations to make sure that we do not discriminate against any commitments we have with the EU, and the Treaty itself says that we will maintain our international obligations and commitments to any international body. Similarly, the Americans have other international commitments which they will not be in a position of breaking either.

  Q106  Mr Holloway: Finally, would university research departments, or whatever, be approved communities?

  Mr Lincoln: There is a potential for that to be the case. There are currently some existing university facilities (I think we need to be careful to say "there are facilities within universities" rather than "universities" as a whole) who currently carry out defence work, who are cleared through the appropriate security regime in order to meet the List X status, and subject to them applying and meeting the criteria we are prepared to put that case forward.

  Q107  Mr Havard: If I could ask you about what is involved and what is not involved. We are being told in a memo from the Ministry of Defence that: "Some of the most sensitive technologies are expected to be excluded from the Treaty as well as technologies specifically controlled under existing international arrangements". What are these "sensitive technologies"? What is this exception process? What is not in the Treaty as far as sensitive technologies are concerned?

  Baroness Taylor of Bolton: The things that are covered by national treaties anyway are not going to be altered at all in terms of the excluded list. That is one of the issues still under discussion. Do you want to update on that again?

  Mr Lincoln: Certainly. From the outset we realised that there are some defence articles which the US for sensitive reasons would not be prepared to transfer without a licence. Our expectation is that they fall into a small number of categories, which would include stealth and sensitive communications technology. That is not to say that they cannot still be transferred without a licence to the UK, as they are done currently. Similarly, both countries have international obligations under things such as the Missile Technology Control regime, which limit our ability to transfer goods without a licence, and then there are the EU treaty regulations which, of course, exclude certain goods for the UK, and we would not be able to enter into a negotiation of those because that comes under European competence.

  Q108  Mr Havard: It also references something called the US Foreign Military Sales Programme, which I am afraid I am not familiar with, but apparently does not apply. Perhaps you could enlighten me about that? How significant is that, if at all?

  Mr French: It is a mechanism whereby the UK when buying equipment that is used by the US forces buys direct from the US Government, who have an arrangement with the commercial companies. Therefore, there are a number of things that we buy through FMS, as it is called, at the moment. They come through on a route which effectively bypasses the licensing system and would continue like that. So it is a direct sale from the US Government to the UK Government.

  Q109  Mr Havard: Thank you very much. There are press reports that, however, there are going to be another set of qualifications, which is that equipment worth more than $25 million and spare parts and services worth more than $100 million would be outside the scope of the Treaty and still require Congressional approval. Is that the case—that there is this monetary qualification?

  Baroness Taylor of Bolton: That is not because of this Treaty; that is existing US law, and that will stay the same.

  Q110  Mr Havard: I will ask you some questions in a moment about Joint Strike Fighter in relation to this. I think it is getting clearer in my head, but what is involved in the Treaty and what is not involved in the Treaty is becoming quite a complex thing for people to understand, I think. That is why I ask the question about whether there are these exceptions. Can I just ask you about Joint Strike Fighter, because quite clearly from the Committee's point of view and others, we have asked questions in the past about the significance of technology transfer, and it has been vested in this debate about ITAR waiver and, also, now the Treaty. However, we appreciate it is more complicated than that. This seems to be only part of the thing that deals with the problem that we are really concerned about, which is having operational sovereignty over the fleet of JSF aircraft if we are going to have them. This is an issue that the previous Minister dealt with, and said that they had come to a Memorandum of Understanding. So what I want to be clear about is which technologies, in relation to the F35 Joint Strike Fighter, are now going to be vested in this Treaty process, or is this Treaty process actually irrelevant as far as that is concerned? Are all those issues covered by the Memorandum of Understanding that was specifically struck about the F35?

  Baroness Taylor of Bolton: The Joint Strike Fighter is a multinational programme and, therefore, as such, as a whole, it is not covered by this Treaty. However, aspects of the Joint Strike Fighter are actually where we have bilateral projects with the Americans. If it is a UK/US aspect of the Joint Strike Fighter programme, in terms of any development, then it can come in with this Treaty—it does not have to but there is potential for that—but it is not, as a multilateral project, one that automatically all comes within this Treaty.

  Q111  Mr Havard: Do we think that the US Government will seek to exclude the Joint Strike Fighter from the provisions of this Treaty?

  Baroness Taylor of Bolton: If you are talking about all these aspects, because it is a multilateral programme involving a number of other countries, then the project per se is not in total covered by the Treaty. However, some aspects of the development could be, if the companies involved choose it. Do you want to elaborate?

  Mr French: The JSF project itself, being multilateral, is not covered under the Treaty. There may be some bilateral UK/US projects within that which would come under the Treaty, but on your major point, all the details of securing operational sovereignty were done through that separate MoU that we agreed before, and those are unaffected. So the Treaty has the potential to add more benefits to a subset of the Joint Strike Fighter project but because it is a multilateral project it is not covered under the basic criteria of the Treaty which is a joint US/UK collaborative project.

  Q112  Mr Havard: Is there a list of defence equipment covered by the Treaty and a list that is not, then?

  Mr Lincoln: There is a two-stage argument to that. The list within the Treaty states the type of programme and projects which must be covered in order to fall within the scope—so those are things which are for joint operational use, those which are collaborative US/UK programmes, mutually agreed HMG only and those which fall for US-only end use. Those are the four areas which are covered by the scope of the Treaty. Within that you then have to look at what would be the exclusions in terms of the list which we have just discussed, which would then be a subset of that area, in terms of defence material which could be transferred between the two countries.

  Q113  Mr Havard: As I understand it, parts of this were covered by something called the Global Projects Licence, as far as JSF is concerned. There is a whole architecture of different things here that relate to one another, of which the Treaty is quite clearly only part. There has certainly been confusion in my mind. I have been trying to sort of list this structure of agreements and what is in them and what is not in them, and it is quite a difficult exercise to do. If I am having difficulty with it then Joe Public is having difficulty with it in understanding where we are on this question about JSF, in relation to all these things. That is why I asked the question, and I asked the question about the Memorandum of Understanding because you talked about a Memorandum of Understanding, Mr Lincoln, earlier on, in relation to the Treaty as well. So there is a Memorandum of Understanding about the F35 and we have a different and separate Memorandum of Understanding about the Treaty, as I understand it. Is that correct?

  Baroness Taylor of Bolton: That is correct.

  Mr Havard: Then, underneath that, there is a highly classified supplement to the Memorandum of Understanding about the F35 which actual deals with the issues of operational sovereignty. Is that right? Thank you.

  Q114  Mr Jones: Can I ask, in terms of a component that goes into JSF programmes, if I say to you a UK component, call it "widget X', goes into the programme under this Treaty, once it is actually part of the JSF programme what happens to the ability of the company in the UK that produces widget X to export that outside of the JSF? Is it confined to what it can actually do or does it get authorisation for what it has to do with it from the US?

  Baroness Taylor of Bolton: As I understand it, it is still subject to export controls were it to be exported to another third party.

  Q115  Mr Jones: That is not the answer then.

  Mr Lincoln: I am sorry—you are talking about a UK widget?

  Q116  Mr Jones: It goes into JSF, and if it comes to be part of, obviously, JSF, it is done under this Treaty. Does it then put any restrictions on the UK company being able to export that widget to another third country?

  Baroness Taylor of Bolton: That is not American technology that you are talking about; you are talking about a British widget?

  Mr Lincoln: The difference here, Mr Jones, is that if it is a British widget it is not something which is coming under this Treaty, because it relates to material which must have been exported from the US originally into the UK.

  Mr Jones: No, no, no.

  Q117  Chairman: Can you expand on that? So this Treaty applies only to material which is exported from the US into the UK?

  Baroness Taylor of Bolton: Technology.

  Mr Lincoln: A material technology. The terms there are that the material technology must have come from the US into the UK and we have then done something with that, but if it is just a pure UK widget that has been developed in the UK without US technology then this would not apply to any restrictions on UK technology in that respect.

  Q118  Mr Jones: What happens if it becomes part of a bigger widget? Let us say you have widget A and widget B, and widget A is British and widget B is US, and it comes together under this Treaty into a vital piece of JSF. Does that then restrict what the manufacturer in the UK can do with widget A?

  Baroness Taylor of Bolton: I do not think it restricts widget A but it might restrict widget B.

  Mr Lincoln: It might restrict widget B. We can give you some quite detailed examples—

  Chairman: Before we disappear up extraordinary places, Willie Rennie.

  Q119  Willie Rennie: Just returning to the Congressional approval for the $25 million or $100 million on parts—technology and so on—on sales of goods out of the US, what limitation is that going to place on this Treaty? How many goods come under that kind of value? Is it going to prolong the process?

  Baroness Taylor of Bolton: This is not a new limit, remember; this is what the present—

  Mr French: This is the current Congressional notification and agreement under the ITAR. A number of these notifications happen each year, but it is a handful. We envisage that most of the technology that will be covered will not get that high. The $25 million is almost for a single item. It is the $100 million which is the broader material. So it is a high threshold which might cover that.

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