Memorandum from the Export Group for Aerospace and Defence (EGAD)

 

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 (e.g. 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 (i.e. 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, i.e. 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.

 

January 2009