Memorandum from the Export Group for Aerospace
& Defence
If we may, we would like to submit to the Committee,
for their consideration, the following comments:
1. The past year has seen very many welcome
developments in both the UK and international export control arena:
(a) The International Arms Trade Treaty (ATT)
has now successfully negotiated its way closer towards the possibility
of becoming fact—HMG is to be warmly congratulated for this,
and their on-going efforts in this regard;
(b) HM Revenue & Customs' "Clearance
Hub" has been bedding down, and UK Industry has been getting
used to how it works, and how to work with it;
(c) The ECO has been completing its review of
the Export Control Act 2002, which was undertaken in 2007, and
has been introducing the new regulations which have been deemed
to be necessary, arising from the comments received as a result
of the consultations. We believe that the ECO is to be warmly
commended for the open and transparent way in which it has undertaken
the review—whilst we, in Industry, might not have agreed
with all of the proposed changes and the way that they have been
introduced, the ECO has clearly gone out of its way to try to
frame and implement new regulations which are proportional to
the perceived threat;
(d) The SPIRE system has gone from success to
success, and very few adverse comments about it have been received
from anyone in UK Industry;
(e) Such has been the success of SPIRE that the
Defence Export Services Policy (DESP) branch at UK MoD has been
looking at ways in which companies can use the SPIRE system for
the submission of 680 applications;
(f) The EU has been seeking to identify ways
in which it can simplify the bureaucracy involved in cross-border
transfers between its Member States, which (hopefully) will make
the system more manageable and simpler, and result in less nugatory
effort on the part of both the Governments and the exporters;
(g) The USA has been seeking to enhance the speed
of license processing for its own ITAR system, and been making
small (but welcome) steps to reduce the bureaucracy involved.
2. We believe that Her Majesty's Government's
stated commitment to non-proliferation efforts is highly laudable,
and, indeed, is utterly essential, especially at this time with
a growing perception of increased threat to us all, mostly from
non-state actors. However, conversely, Industry continues to experience
(sometimes extreme) practical difficulties in getting signed End-User
Undertakings (EUUs) out of our own UK MoD, to satisfy the export
control authorities of other sovereign nation states.
Amongst the many comments from Members that
we have received on this issue have been:
"Whilst I was at a previous company we
frequently had issues on this. The standard position from UK MoD
was that they do not sign end-user certificates. Our standard
position was "Ok, we will sell it to someone else who will.
We will, of course, let the Daily Telegraph and the Guardian know."
They usually got it signed, but it was a little like pulling molars
out!!"
and
"As others have commented we too have come
across issues with EUU's and also varying degrees of what HMG
will sign and not. We have also encountered a situation where
we requested an EUU from our overseas customer who refused to
sign on the basis that they had spoken to a contact in the IPT
(UK MoD) who advised they did not need to sign!! We have stuck
to our guns on this and consequently have stopped shipments. After
a long battle with the customer, we now think we have convinced
them to complete the EUU!! So nice and helpful of UK MoD to re-enforce
the position on EUU requirements in the UK!"
Therefore, our own (less well informed) Government
officials are setting a highly hypocritical example to other sovereign
nations, and it would be nice if those at UK MoD were as happy
to be prepared to sign EUUs as those employed within the Export
Control Organisation (and elsewhere) are thorough and diligent
in scrutinizing the EUUs that are presented to them! Whilst we
understand the arguments of principle adduced by the UK MoD, the
fact is that this does not offer a very good example to others.
3. The tragic humanitarian crisis arising
from the currently on-going Israeli military activity against
Gaza has resulted in totally understandable calls (yet again)
for the imposition of some form of "arms" embargo, either
unilaterally by the UK, or in co-operation with our EU Member
States.
Perusal of information that is in the public
domain (see: http://www.fco.gov.uk/en/about-the-fco/publications/publications/annual-reports/export-controls1),
reveals that the British Government already very often refuses
export licence applications for Israel (see below), and does not
seem to need to have a formal "arms" embargo in place
to be able to do so:
1997—1 SIEL was refused
1998—2 SIELs were refused
2000—3 SIELs were refused, 3 more
were revoked, and 1 OIEL was refused with another 2 being
revoked
2001—31 SIELs were refused, and 2 OIELs
were refused, with a further 12 being revoked
2002—84 SIELs were refused, and 1 OIEL
was refused, with a further 6 being revoked
2003—26 SIELs were refused
2004—15 SIELs were refused, and 1 more
was revoked
2005—11 SIELs were refused
2006—22 SIELs were refused
2007—25 SIELs were refused
Thus, the UK Government actually has the power
to refuse export licences for Israel, even without a formal "arms"
embargo being in place, and has never demonstrated any reluctance
to do so in the past. Indeed, UK export licence applications for
Israel (certainly since 2001) have seen a VERY high rate of refusal,
which we strongly believe must be at least comparable to those
of other EU Member States.
If HMG has followed and replicated past practice
(which we are certain will be the case), we can be totally confident
that, even without formally announcing an "arms" embargo,
the British Government will currently be subjecting all export
licence applications for the supply of controlled items/technology
to Israel to such close, careful and detailed scrutiny that the
practical result will be that no export or trade control licences
will be being approved for the country for the foreseeable future,
and certainly not until well after current operations in Gaza
have ceased.
One complication, of course, to the current
debate, is that the published figures from the British Government are,
in fact, somewhat misleading for the average layman, and it must
be pointed out that the UK is NOT a major supplier of military
materiel to the Israeli Defence Forces.
Whilst the official figures do, indeed, show
that a steady number of UK export licences have been
approved for the export of materiel to Israel, not all
of these will be for items for use by the Israelis themselves,
and a very considerable proportion of these export licences (after
very robust end-use assessment by British Government officials) undoubtedly
cover controlled goods going for incorporation into items that
Israeli companies supply on to customers elsewhere, including
back here to the UK, and the actual values of UK exports
to Israel of items for use by the Israeli Defence Forces
will be much lower than might be perceived to be the case.
Israeli companies are significant exporters
of defence and security materiel, in their own right, and
are, indeed, at the cutting edge of certain key technological
capabilities, such as in the area of Unmanned Aerial Vehicles
(UAVs), which are required by Armed Forces around the
World, including our own.
A British embargo could, therefore, achieve
very little, and could, conceivably, see a similar approach applied
by Israel to the UK, in retaliation. As Israel supplies the UK
Armed Forces with some cutting-edge equipment, such as the UAV
technology for Watchkeeper, the potential repercussions arising
from the adoption of such proposals for the introduction of a
formal embargo need to be VERY carefully thought through by UK
politicians. We are certain that anything which might impede
the UK MoD's ability to acquire World-leading technology, simply
because it comes from Israel, but, instead, to have to purchase
alternative (and potentially inferior) equipment from elsewhere,
as has been proposed by some, would not go down well with
our own Armed Forces out in the field! Anything which might impede
on our own Armed Forces' ability to be able to access world-leading
war-fighting capabilities/technology is to be avoided, we believe.
4. Prima facie, it remains worrying that
the Defence Industry, which accounts for approximately 2% of UK
GDP, continues to account for over 60% of export licences. At
the very least, this lends strong support to the (very considerable)
anecdotal evidence that there is significant non-compliance in
the dual-use sector.
5. In this regard, it must be understood
that the constituent elements of a so-called "dirty bomb"
are, for the most part, more likely to be found on the dual-use
control list than on the military list. Therefore, at present
the greatest enforcement effort does not appear to be focused
on the greatest perceived threat. Enforcement is, though, not
the first stage in the export control process; more significant
is the need to ensure that exporters of licensable items are actually
working within the export control system, in the first instance.
6. This non-compliance is not that which
is often encountered by the relevant agencies, that of a mostly
law-abiding and compliant exporter making an honest mistake or
a technical breach of licence conditions; rather it is a sector
of what should be a regulated Industry operating wholly outside
of the regulatory regime.
7. The difficulties of bringing these companies
into the compliant community are well recognized, both by Government
and Industry; however, the risk of not doing so is that an easy
market for proliferators is created, in addition to an "uneven
playing field" commercially, where compliant companies alone
carry the overhead of the Regulations, and the non-compliant compete
at a commercial advantage, at a time of acute financial stress.
8. For the foregoing reasons, we believe
that HMG must put in much greater effort (and resource) into enhancing
the effectiveness of the UK's export controls relating to the
dual-use sector, as this is clearly the area of greatest potential
concern in this arena; if only HMG could be clearly perceived
to be doing this just as vigorously as it is in the conventional
sector (eg the Military List), then there would be far fewer concerns.
9. We were delighted to read recently about
the fact that Mr Colin Stott and Mr Simon Knowles, directors of
Organic Intermediates Limited, based near Liverpool (which went
into liquidation in August 2004), have become the first people
to be prosecuted under the Chemical Weapons Act, and been fined
for breaching rules designed to halt the spread of weapons of
mass destruction (WMD). We look forward eagerly to hearing and
reading more about other similar successful prosecutions that
HMG may pursue in the future.
10. Currently, global efforts at counter-proliferation
just do not work, as they cannot actually prevent proliferation,
but, at best, can merely delay it and mildly inconvenience the
potential customers, whilst they scour around the World for an
alternative source of supply. Business has gone global, whilst
regulatory regimes are still implemented at the national level;
this basic fact must be seen to be what it is: a fundamental weakness
in the global counter-proliferation system. Therefore, on this
basis, it really does not matter how much more effective we make
our own system, unless these efforts and systems are replicated
by other nations. With that in mind, we applaud HMG for its outreach
activities in other countries, but believe that much more of this
needs to be done in this regard.
11. Again, we believe that HMG is to be
congratulated for its efforts to promote the proposed International
Arms Trade Treaty, which does offer considerable potential benefits,
although, contrary to the overly-enthusiastic pronouncements of
some in the NGO lobby, we do not perceive this, alone, as being
a panacea, in itself. Under the ATT, we would want to see total
transparency on what has been approved for export by other nations.
For a truly effective ATT to be introduced, there must be provision
of capacity-building outreach assistance to other signatories,
by HMG, and other nations who have effective and robust export
control systems of their own. For the ATT to succeed, there needs
to be greater clarity on definitional issues, to minimise the
burden on legitimate Industry and to make the systems and procedures
more robust. These are the views which we will be feeding into
HMG, as the international discussions on an ATT continue.
12. We acknowledge the comments of the Committee
in its latest report, about their own perceptions on the arguments
in favour of giving full extraterritoriality across the board
for all Military List goods. However, we would ask the Committee
to consider this issue very carefully: the potential impact for
UK nationals employed by perfectly legitimate and responsible
overseas firms (such as Boeing, EADS, Lockheed Martin, Raytheon
and Thales, etc, etc, etc) could be very great, despite the fact
that they must undoubtedly very greatly outnumber those (potentially
globally very few) UK traffickers and brokers whose irresponsible
activities we all want to catch and curtail. Without a clear and
concise definition of what HMG regards as being "trade"
which is licensable, many perfectly responsible activities undertaken
on behalf of these legitimate companies would be caught.
This proposed universal coverage would require
the establishment of a vetting system within a global company
that would require it to establish and maintain a system/process
to review the citizenship data of all employees (in Boeing's case,
alone, that would equate to some 150,000+ employees in more than
70 countries) globally in order to identify any UK nationals
who are conducting covered activities for covered products. Apart
from issues relative to potential violations of human rights (ie
equal opportunity, etc.) as such may exist in the more than 90 countries
where such companies conduct business operations, the process/system
would have to have the capability to monitor continually the activities
of these persons over the life of their employment as a special
class of employee. These people and their management would have
to be made aware of the requirements, training would have to be
developed and deployed for this specific purpose and administered
on an on-going basis. There would need to be persons assigned
the responsibility for administering and monitoring this activity
and for obtaining and administering the required licenses and
record-keeping functions, etc.
Avoiding for the moment any discussion of cost
of legal bills to address the various issues in setting this up
globally, all in all the annual cost of administering this one
requirement could run easily into the millions each for companies
such as Boeing, EADS, Lockheed Martin, Raytheon and Thales. Now,
from an entirely pragmatic point of view, what would likely happen
in this circumstance is that these companies (and many others)
would examine the risk itself, ie violation of UK trafficking
and brokering regulations, and would then examine the alternative
mitigation strategies and take the least cost/best solution. To
our thinking there is really only one acceptable solution available
to the non-UK based company (like Boeing), and that is to ensure
that no UK national is ever in a position to violate the regulations.
This would have very serious potential implications for the future
employment of UK nationals. Now if the object of the proposed
regulation is to capture illicit activities, this approach does
nothing…it merely means that UK nationals would not participate
in any legal transactions: illegal transactions, however, would
be likely to continue in view of the well known difficulties of
successfully pursuing extraterritorial prosecutions.
In a similar vein, British transport companies
operating overseas and, perhaps more especially, British employees
of foreign transport companies will become liable to extra-territorial
trade controls on certain military list categories under impending
legislative changes. Not only does this endanger the employment
of UK nationals overseas, but it also threatens to have the
effect of removing the willingness of UK carriers to undertake
the carriage of any such military articles.
UK transport companies already have a first
rate reputation worldwide for both security and compliance under other
regulatory regimes, so it would be a disproportionate and
counter-productive move to burden them with further controls,
at least when considering their operations outside the
UK.
We need to bear in mind that the introduction
of a new law takes up enormous amounts of civil service and ministerial
time and cost to establish new statutory regulations. It can also
impact legitimate Industry both in UK, and elsewhere, with huge
compliance time and costs and resource needs by introducing yet
another audit compliance scheme to world Industry. Extension of
the law would also place an additional burden on an already under-resourced
HM Revenue & Customs, which cannot seemingly adequately police
the existing structure, and introduces a potential burden on the
UK prosecution services and the UK court system, who will, no
doubt, have significant difficulty in securing substantive evidence
guaranteed to effect successful prosecutions. Failure to bring
successful targeted prosecutions will bring public contempt on
both the new and existing export/trade control law—and make
ongoing compliance even more difficult than it already is.
Therefore, reflecting these concerns, we (EGAD)
have been involved in on-going, constructive, in-depth discussions
with a number of Non-Governmental Organisations (NGOs) about ways
in which the UK could frame, adopt and effectively implement an
all-embracing, fully extraterritorial trade control system across
the whole range of the Military List, which would have a lesser
(or even negligible) impact on the commercial activities of responsible
overseas firms, whilst being more effectively targeted at those
whose activities we all want to catch and curtail.
We hope that the above comments may be of interest
to the Committee.
16 January 2009
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