House of Commons - Defence

Select Committee on Defence Twelfth Report

5 ORGANISATIONAL AND OPERATIONAL ISSUES

65. Exporters are the main users of licensing services provided by the Export Control Organisation (ECO). In line with the practice we adopted in previous years, we asked the Export Group on Aerospace and Defence (EGAD) for its opinion of ECO's performance over the past year. EGAD was "very happy in most regards"[152] with the ECO's performance. EGAD singled out the outreach that ECO was conducting which it described as "very good and very productive".[153] EGAD's main concerns focussed on ECO's new IT system, SPIRE.[154] While EGAD noted that SPIRE had been "introduced on time and to budget […] remarkably for a government IT system", it considered that there had been a loss "of the personal touch".[155] Contrary to earlier indications those using SPIRE had not been given a named licensing officer as a contact.[156] In addition, EGAD had concerns about the interface between SPIRE and CHIEF,[157] HM Revenue and Customs' (HMRC's) electronic system. Ms Peers from EGAD explained:

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66. We raised these concerns with HMRC when we visited Southampton in April 2008. HMRC did not recognise the problems raised.[159] Subsequently, HMRC told us that "customs export declaration information submitted electronically to the customs processing system [CHIEF] is captured and can be interrogated through a management reporting system" and that "HMRC and ECO can legally exchange information where necessary through the appropriate gateway".[160] The ECO confirmed that the interface between SPIRE and CHIEF was "now operating fully".[161] We note that EGAD said that the Hub appeared "to be working quite well in general" and that EGAD has regular meetings with HMRC.[162]

67. The UK Working Group on Arms said that in July 2007 the ECO had stated on its website that goods could be shipped "before an exporter's OGEL [Open General Export Licence] registration had been checked and acknowledged by ECO, effectively removing any prior scrutiny over users".[163] The change had arisen because of the illness of a member of staff.[164] We have concerns about ECO's action: either the process provides a safeguard against the evasion of export control in which case the waiving of the requirement may have allowed exports in breach of export control; or the registration process and the requirement to wait until the ECO has carried out checks serves no purpose and is an otiose burden on business. In responding to this Report we recommend that the Government provide an assessment of the effects on the integrity of the UK's export control system of waiving the requirement on exporters applying for OGELs to wait for an acknowledgment of their applications from the Export Control Organisation before exporting goods under the licence. We further recommend that the Government take steps to ensure that the integrity of no part of the UK's export control system is jeopardised by the illness or unavailability of staff.

Export enforcement agency

68. Last year David Hayes, Chairman of EGAD, submitted evidence (on his own behalf, not from EGAD) proposing that there should be a single export compliance agency which would focus exclusively on implementing export controls.[165] This year the UK Working Group took up the idea to suggest that the Government:

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EGAD endorsed the UK Working Group's call for a viability study.[167]

69. The Minister, Malcolm Wicks MP, did not see a case for a study. He considered that there could be "considerable extra overheads associated with [an agency]".[168] He explained:

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70. We share the Minister's misgivings and identify no pressing reason to depart from the conclusions we reached last year on this matter.[170] We could not see that the creation of a single enforcement agency was going to overcome the operational difficulties that were currently faced such as the difficulty in obtaining evidence from overseas to put before a UK court. Having reviewed the evidence on enforcement in the previous chapter which shows an increase in the number of seizures by HMRC, more resources being devoted to compliance and that Government is examining the possible use of civil penalties, we consider the case for a single enforcement agency is weakened. Any reorganisation is likely to lead to considerable uncertainty and a diversion of resources to carrying out the changes required to set up the agency rather than building on the progress which appears to be underway. We conclude that there is no overwhelming case in favour of creating an export enforcement agency in the short term.

Defence Export Sales Organisation (DESO)

71. On 25 July 2007 the Prime Minister announced a machinery of government change moving responsibility for defence trade promotion from the Defence Export Services Organisation (DESO) at the Ministry of Defence (MoD) to UK Trade and Investment (UKTI) to "provide much greater institutional alignment across Government and build on the success of UK Trade and Investment".[171] The Prime Minister explained that:

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72. On 11 December 2007 the Secretary of State for Business, Enterprise and Regulatory Reform announced the arrangements under which the transfer on 1 April 2008 would take place. The Secretary of State noted that "Defence equipment manufacture is highly important to the United Kingdom" and he stated that the "combination of expertise within both and UKTI offers a major opportunity to enhance the way HM Government offer support to this successful industry".[173] The Government told us that the transfer "was to enable the defence industry to take more advantage of the very wide network that UKTI has available right across the world, including the expert staff in overseas posts who have a good knowledge of the local market conditions which make this whole infrastructure available to the defence sector as well".[174] Following discussion with industry, the Government published in December 2007 an implementation plan, "Creating UK Trade & Investment Defence & Security Group—Implementation Plan".[175] The Government said that further dialogue with the defence industry would take place up until the UKTI Defence and Security Group was launched in April 2008 to "help scope out how best to build on existing work to further promote strong standards of business conduct and governance of the sector".[176]

73. The Minister, Malcolm Wicks MP, considered that the transfer of DESO from MoD to the Department for Business, Enterprise and Regulatory Reform (BERR) would "bed down very well".[177] We received several submissions[178] on the transfer but, given that the transfer only took place on 1 April 2008, we consider that it is premature to reach any conclusions or to make recommendations until the new arrangements have bedded in.

74. On licensing, the Secretary of State said that current export licensing function within the DESO would be retained within the MoD and "so be separate from export support activities. And within BERR the separation between BERR export licence functions and trade promotion in UKTI will continue".[179] Tony Pawson, Head of Defence Export Services, MoD, explained that "the government-to-government arrangements, including between Saudi Arabia and the British Government [would] remain with the Ministry of Defence, which in turn have detailed back-to-back contracts from the Ministry of Defence to defence suppliers and only the Ministry of Defence can operate those contracts" and that "future ones are going to be considered on a case-by-case basis but there are not any anticipated in the near future".[180] We conclude that the transfer of some functions of the Defence Export Sales Organisation (DESO) from the Ministry of Defence to the Department for Business, Enterprise and Regulatory Reform provides an opportunity to separate the functions of promoting defence sales from that of licensing exports in both departments.

F680 process

75. Where an exporter plans to sell, demonstrate, promote or export certain equipment, goods or information which is classified, he or she needs MoD clearance to do so. To get this clearance the exporter has to complete a form known as the F680, "the main purpose of which is to help prevent unauthorised disclosure of classified goods or equipment".[181] We asked why the F680 process was remaining with the MoD and not transferring with DESO to BERR, which has responsibility for export licences. The Secretary of State for Defence explained that the F680 process derived from the Official Secrets Act and not from the export control legislation and he considered it entirely appropriate that "we are the people who can ensure that we do not lead to the UK revealing more than we would wish to about our defence capabilities in the early stages of the negotiations of potential contracts".[182] He added that the F680 process also had the "advantage […] that people get a degree of comfort […] being able to get through that process successfully, about the later stages of export licensing […] that is encouraging and it is a kind of tester".[183]

Defence attachés

76. In our Report last year, we recommended that the Government did not cut defence attaché posts in countries where the export of goods and technology from the UK required careful consideration to ensure that they met the EU Code of Conduct on Arms Exports and the National Export Licensing Criteria.[184] The Secretary of State for Defence reassured us that "there will be no reduction in the level of scrutiny that is necessary from posts abroad in relation to the licensing process by the process that we have gone through with defence attachés".[185] We conclude that all of the departments concerned with the scrutiny of export licences need to keep under review whether the cutbacks in defence attaché posts is having a detrimental effect on the UK's export controls.

Monitoring of imports

77. In our Report last year we also recommended that the Government improve the arrangements for monitoring and controlling large volumes of weapons that enter the UK for destruction or re-export. In addition, we recommended that the Government provide a full account of the 200,000 assault rifles that were imported into the UK from the former Yugoslavia between 2003 and 2005, explaining how many were made unusable and how many were re-exported.[186] In its response to the Report the Government said that the first part of the recommendation:

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78. We regret to record that, despite reminders,[188] we have not had any additional information from the Home Office. We recommend that within six weeks of the publication of this Report the Home Office supply a memorandum responding to the matters we raised on the import of arms in our Report last year.

The UK Annual Report on strategic export controls

79. We consider that the publication of current, precise, and comprehensive information is essential for the effective operation and scrutiny of the system of strategic export controls.

THE DATE OF PUBLICATION OF THE ANNUAL REPORT ON STRATEGIC EXPORT CONTROLS

80. Since we, and our predecessor Committees, started scrutinising the Government's annual reports on strategic export controls nearly a decade ago we have been in the position of appearing to be one year behind in our scrutiny. Typically, as was the case for 2006, the UK Strategic Export Controls Annual Report 2006[189] was published on 24 July 2007, just before the House adjourned for the summer and after we had completed work on our last Report. We began scrutiny of the 2006 Annual Report in the autumn of 2007, taking written and oral evidence through to spring 2008, and we shall complete the process of scrutiny with the publication of this report in July 2008, that is 19 months after the end of the period we are scrutinising. This is unsatisfactory as we are reporting on strategic export controls reports which appear out-of-date and to have been superseded with the publication of the following year's annual report. In our last Report we therefore recommended that the Government publish future annual reports on strategic export controls by the end of April each year.[190] We are pleased that the Government agreed to "look very carefully at whether the publication date can be brought forward".[191] The Government told us that it hoped to publish the UK Strategic Export Controls Annual Report 2007 in May 2008.[192] In the event it was not published when we completed our deliberations on this Report. It would be of considerable assistance if publication of the 2008 Annual Report could be brought forward to March 2009. We recommend that the Government publish future annual reports on strategic export controls by the end of March of the following calendar each year.

FORM AND CONTENT OF ANNUAL REPORTS ON STRATEGIC EXPORT CONTROLS

81. The Ministers in their foreword to Strategic Export Controls Annual Report 2006 state that the format has changed considerably since the first annual report and that "the way in which the information is presented is reviewed every year, and where possible, further information is included, or the data is presented more clearly".[193] We concur with the ministers' assessment that there has been a progressive improvement since the first annual report.[194] We are pleased to report that further improvements have been made but this is a dynamic process and we expect improvements to continue to be made over the years. We should put on record that we found the compact disc produced, and enclosed, with the 2006 Report to be useful, particularly the consolidation of the information in the four quarterly reports.

82. In our Report last year we made a number of recommendations about the form and content of future annual reports. As explained above, these were published after the 2006 annual report was published, although some of the changes made in the 2006 report went with the grain of our recommendations—for example, the section on policy analysis of exports to embargoed destinations and case studies.[195]

83. There is one area where we continue to have concerns. We recommended that future annual reports on strategic export controls set out in a consistent and systematic manner the resources made available by the Government to implement and enforce strategic export controls with details of enforcement actions.[196] In response, the Government indicated that it would "endeavour to provide new material that will add value to interested parties".[197] Subsequently, the Government explained that "information on resourcing […] will be in terms of overall resourcing and not monetary value".[198] We are grateful for any extra information but we cannot scrutinise the management and enforcement of export controls without monetary information. We need to know what resources are going into export control and whether resources are increasing or decreasing year on year. We recommend that that the Government include monetary information on the management and enforcement of export controls in future annual reports on strategic export controls.

Quarterly reports

84. Last year we made a number of recommendations about the form and contents of quarterly reports.[199] We are pleased that the Government was able to adopt some of our recommendations, in particular (i) the division of information on financial values and descriptions between Military List items and "Other"; (ii) to combine the information on financial values, number of licences issued and descriptions to give a better indication of the volume of each type of goods licensed for export; and (iii) to provide information in aggregate form on the final destination of goods covered by "incorporation licences".[200] In its response the Government placed two items in the pending tray:

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We recommend that the Government in responding to this Report set out any conclusions it has reached arising from its examination of the practices followed in annual reports issued by other EU Member States and provide an indication of the timetable for the completion of the work.

85. We noted last year that the Government was evaluating the production and maintenance of a fully searchable and regularly updated database of all licensable decisions with a search facility that would allow the user to sort licences by country and by goods.[202] The Government told us that it would consider the value and practicality of continuing the quarterly reports on strategic export controls in their current format. We took the Government's point that a database might supersede and replace the quarterly reports and we recommended that the Government bring forward a proposal for a fully searchable and regularly updated database of all licensing decisions and that, if the Government propose that the database replace quarterly reports, it must demonstrate that there would be no loss of functionality or data.[203] The Government accepted our recommendation[204] that it bring forward a fully searchable and regularly updated database of all licensing decisions.[205] We recommend that the Government in responding to this Report set out the timetable for bringing a fully searchable and regularly updated database of all licensing decisions into operation and publish details of its functionality and operating arrangements.

Specific cases raised with Government

86. As we have done previously, we have explored issues raised by particular licences set out in the quarterly reports—both refusals and cases where licences have been granted[206]—and we have also followed up concerns brought to our attention by interested parties or in the media.[207] This process is detailed and, necessarily in many cases, confidential, though we encourage the Government to classify responses only where strictly necessary and we have challenged decisions where we consider the restriction is unjustified. That said, we wish to put on record that this year the Government has supplied a significant number of responses without any restriction, which we have published. We also want to record the Government's readiness to explain the rationale for its decisions.

LIBYA

87. One decision on which we sought more information was the Government's issue of Standard Individual Export Licences (SIELs) for armoured personnel carriers and water cannons to Libya.[208] While the Government was concerned with many aspects of Libya's human rights record,[209] it explained that it had:

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88. We note that the Government was aware of the risk that the exports could be used for repression and took steps through a proviso to prevent any abuse. We continued to have concerns about Libya's human rights record. Human Rights Watch reported on Libya in January 2008:

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We therefore took the matter up again with the Government in May 2008 and the Government provided us with further information in June 2008.[212] It said that the "package surrounding these exports trained the Libyan police in appropriate, human rights compliant, behaviour and gave them the equipment to respond to threats in an appropriate, non-lethal manner".[213]

89. While we welcome any improvement in human rights in Libya and measures to curb the excesses of the Libyan authorities, we have misgivings about these exports to Libya. In this case with Libya's poor record on human rights there is a risk that the exports could be misused. Previously when we raised the question of risk that exports would used in a manner that was inconsistent with the EU Code of Conduct on Arms Exports and raised end-use monitoring, the Government told us that it believed:

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90. This appears to be a case for which at the least the considerations were finely balanced and where in deciding to issue export licences to Libya the Government has attached weight to the steps which the Libyan authorities have taken to mitigate the risk that the exports could be used for the abuse human rights. In responding to this Report we recommend that the Government explain whether in issuing export licences for armoured personnel carriers and water cannons to Libya it made an exception to its policy to refuse an export licence if the issue of a licence is assessed to be inconsistent with the Consolidated Criteria and whether it will carry out end-use monitoring in the case of these exports to Libya.

CRITERION 8: SUSTAINABLE DEVELOPMENT

91. Last year we took detailed evidence on the application of Criterion 8 of the EU Code of Conduct on Arms Exports, which requires exports to be compatible with the technical and economic capacity of the recipient country. Where it appears from the quarterly reports that an application for an export licence may—or should—have been subject to an assessment by the Department for International Development (DfID) for the purposes of Criterion 8 we have sought additional information from the Government.[215] The Government explained that where "the end user was a private company DFID did not carry out a Criterion 8 evaluation".[216] We are concerned that, where an application for an export licence to a country on DfID's list of countries where sustainable development is most likely to be an important factor,[217] scrutiny may be side-stepped by an application from a private company that is supported, or controlled, by the recipient country's government. We are concerned that applications for licences by private companies on DfID's list are not subject to consideration against Criterion 8. In responding to this Report we recommend that the Government explain whether it carries out any Criterion 8 assessment of the impact of exports to private companies in countries on the Department for International Development's list of countries where sustainable development is most likely to be an important factor and whether it checks that an application made by a private company from a country on the list is unconnected with the government of the country.

OPEN INDIVIDUAL TRADE CONTROL LICENCE: IVORY COAST

92. We also asked about an Open Individual Trade Control Licence (OITCL) issued in 2006 for trade between a large number of destinations in components for equipment ranging from submarines to heavy machine guns.[218] One of the countries included as a destination was Ivory Coast, which has been under UN and EU embargo since 2004.[219] In its response the Government said:

The licence was granted to the UK office of an overseas government, and the end-user is the navy of that government.

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93. We found the Government's reply unsatisfactory as we have received as a matter of course information that is commercially restricted and we have always taken care to respect the classification of the information. We took the matter up with the Government which replied that:

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We have concluded that in the case we raised about the Open Individual Trade Control Licence which appeared to cover exports to Ivory Coast we should accept the Government's offer of a confidential briefing.

Outreach report

94. Finally, there are two items of unfinished business from 2007. First, we welcomed the Government's offer of a "Restricted" report on outreach and recommended that the Government provided such a report at the same time that it published its annual reports on strategic export controls.[222] We asked about the report and the FCO said in January 2008 that it would "provide a 'restricted' summary of HMG outreach activities in 2007 once the details have been finalised".[223] We recommend that the Government send us a "Restricted" report on outreach no later than its response to this Report and clarify the timetable for the production of future reports.

152 Q 53 [Mr Salzmann] Back

153 Q 53 [Ms Peers] Back

154 Shared Primary Information Resource Environment, SPIRE, is the ECO's fully electronic system for processing licence applications. Back

155 Q 53 [Mr Salzmann]; see also Ev 47. Back

156 Q 53 [Ms Peers] Back

157 Customs Handling of Import Export Freight, CHIEF, is HMRC's declaration processing system, recording the UK's international trade movements by land, sea, or air and links with several thousand businesses; see also Annex 2, section 4. Back

158 Q 54 Back

159 Annex 2, section 4 Back

160 Ev 96-97 Back

161 Q 168 Back