Scrutiny of Arms Export Controls (2011): UK Strategic Export Controls Annual Report 2009, Quarterly Reports for 2010, licensing policy and review of export control legislation - Committees on Arms Export Controls Contents

Examination of Witnesses (Questions 30-65)


13 DECEMBER 2010

  Q30  Chair: Thank you very much Mr Fletcher, Mr Wilson, Mr Salzmann and Mr Hayes for joining us this afternoon. As you know, this is the first oral evidence session of the new Committee on Arms Export Controls, and we are very glad that you are able to join us. We will start on the thorny issue, which we have discussed with you at length many times before, of extraterritorial controls. Jeffrey Donaldson will start.

  Q31  Mr Donaldson: The Committee previously recommended that all extraterritorial controls be extended to all items in category C. However, the coalition Government and the previous Government have both rejected that. On the other hand, in August anti-vehicle landmines were formally added to category B. Have you or the NGOs had any talks with the new Government about extending extraterritorial control to any other specific items and how does the working group propose to take this issue forward?

  Mr Hayes: We have not had any discussions with either the NGOs or the Government on taking this forward.

  Q32  Mr Donaldson: And have you no plans to do so, or any ideas about how it might be addressed?

  Mr Hayes: In terms of the whole concept of extraterritoriality, our position is unchanged. We do not regard extraterritoriality as an efficient way of enforcing export controls. It is interesting that at the present time, even the US Government are looking at relaxing their own extraterritorial controls. It is now perceived that, in a particular respect, those controls are damaging to US national security, because of the deterrent effect they have on other companies becoming involved in dealings with the UN.

  Q33Mr Donaldson: As a working group, have you taken a formal position on the recommendations that were made by the Committee last time round?

  Mr Hayes: Not a formal position as such, but it is fair to say that our position remains unchanged from the evidence that we gave to the International Development Committee.

  Mr Wilson: Our continuing position is that we have been working with Government, and that the changes to the end-use control go a long way. As Oliver Sprague was saying, we are happy with the idea that the controls are being introduced contractually so that if something is supplied to a foreign country, a third party or whatever, and that foreign country then breaches the terms under which the items were supplied, then both the company supplying it from the UK and the UK Government would take a strong view on where that puts the recipient Government or country in terms of their ability or willingness to comply with international contract law and common sense. It is moving in the right direction and far enough to apply extraterritoriality in the way in which the US has hitherto done, which is to make it explicit that if a company or country wishes to re-export a specific item, they go back to the US Government for approval to do so. The Americans realise that that places a huge constraint on US trade, and it is the UK Government position that they do not recognise US statements of extraterritoriality. Where items are purchased from the US and the UK recipient party provides a statement to the US Government, the UK Government do not necessarily underwrite that. If items are provided for the UK Ministry of Defence, for example, the UK Ministry of Defence does not necessarily recognise officially the US statement of extraterritoriality on that issue.

  Chair: We have now an issue that is dear to your heart—delays in the export licence system. Margot James will lead on that one.

  Q34  Margot James: This is clearly a huge problem. In Defence questions this afternoon, we heard of companies experiencing serious delays in obtaining export licences. Even when they have had a licence for a service or a product approved, the follow-up service to that sale of equipment requires its own licence. Everything is delayed. What has caused this huge increase in the number of licensed applications in the first place, and what is your view of the current state of play with these huge delays?

  Mr Wilson: Two-part question, two-part answer. One is that the increase in the number of licences is a problem that we have not been able to get to the bottom of, but there are two possible theories. First, as the UK export controls begin to get better known among those parts of the community who are on, if you like, the soft end of what are controlled military goods but not universally perceived as arms exports—such as military software, a subject dear to my heart, which is an arms export and subject to military controls—and if an open general licence is not applicable to them then an individual licence has to be applied for. There is more understanding among the community, particularly in the dual-use sector, that licences are required, which means, therefore, that people are applying for licences. The open general licences have, hitherto, been a godsend for the export control organisation because they have taken out of the individual licensing process those items being sent to countries that are perceived as low risk. With low-risk items to low-risk countries, the open general export licence happens simply and seamlessly.

  What has started to happen is that the new generation of open general export licences has been made incredibly complicated. I commend to the Committee an examination of the newly-issued Open General Export Licence (Military Goods: Government or NATO End-Use) and Open General Export Licence (Military Goods), which replaced a single, simple licence. A number of companies looked at it and thought, "This is so complicated that we cannot put ourselves at risk by applying to use it, so we will go back to using single, individual export licences." There are some quite large companies who have elected not to use those two new open general export licences, because they are so complicated. Bear in mind that the person who makes the licensing decision in most companies is not the high-powered corporate lawyer; it's the poor soul sat on the export control desk who has to read through this. If the licence is written in terms that can only be understood by somebody with a law degree several times over, it's not going to get used. It's going to be simpler to apply for a single licence and the Export Control Organisation will get swamped.

  Mr Hayes: There is another specific element that we also think has contributed to the build-up of licence applications. It also reflects something said by the NGOs. Most of the companies that were exporting on the Typhoon project, prior to Saudi Arabia becoming a signatory to the contract, were using an open general export licence—the previous Open General Export Licence (Military Goods: Government or NATO End-Use)—at a time when all the end-user countries were covered by that licence. When Saudi signed up, that licence was no longer available, because the terms and conditions couldn't be met. Between then and the issuing of the open general export licence for the Typhoon there was no option open to companies but to use individual licences on that programme, which of course is a large programme. We can't actually substantiate the number of licences that relate to that programme, because we're not Government and we're not in a position to do that, but it's a reasonable supposition that licences on that programme made a significant contribution to the number.

  Q35  Margot James: Could I clarify, Mr Wilson, what you were saying? The open general export licence was a system designed to improve or lessen the bureaucratic burden of, for example, low-risk items going to low-risk countries.

  Mr Wilson: Yes.

  Q36  Margot James: But it has had the reverse effect.

  Mr Wilson: In this particular case, yes. It's a particularly good example. The previous open general export licence allowed low-risk material to be passed to Government and NATO; and it was very simple. It referred to "any of the following persons or entities in a country specified in Schedule 2: (a) its government; (b) a NATO Headquarters; or (c) a contractor"—provided that you met other bits and pieces. The new one starts off that way and then has an exception, and then has exceptions to the exception, so you do actually need to have a fairly legal turn of mind to make head or tail of it. A number of us have spent a considerable amount of time trying to draw up a flowchart, where you could go "Yes. No. Yes"—and you can't do it.

  Q37  Margot James: What has your advice to the Government been?

  Mr Wilson: Write it in plain English, please.

  Mr Hayes: We did ask Government several weeks ago for some guidance to industry in terms of the use of the licence, and for a model undertaking, because of course with the use of these licences the compliance is always audited post-event by compliance officers. We need to standardise what it is that the compliance officers will expect to see in the companies. We asked for a model undertaking that BIS would accept as meeting the requirements of the licence, and I'm afraid we're still waiting.

  Q38  Margot James: How is the co-ordination between different Departments in determining licence applications working?

  Mr Wilson: Within Government?

  Margot James: Yes.

  Mr Wilson: We don't know, because we don't get visibility of that. The Government's licensing system—SPIRE—works in that you apply for a licence and you are allocated a case officer. But individual applying companies have no visibility of where in the process a licence has gone, and having come from the other side of the fence, I can understand why. For example, if a case is passed to the FCO or to the various bits of the Ministry of Defence, the BIS case officer fields the questions and covers for the various bits—he protects their interests quite carefully so that companies don't go and rattle the Foreign Office's cage or the Ministry of Defence's cage. That's probably fair and reasonable, and I don't really have any issues with it. It would be nice, as an applying company, to know exactly which adviser your application had stalled with, but as I said, having come from the other side of the fence, I can understand why people don't want to do things that way, and I don't really have any problem with that.

  Mr Fletcher: I do. The issue I have is that however careful you are in putting in a series of licence applications on SPIRE—let's say that they're all for the same item but to different destinations—and you co-ordinate all the information in those applications, they are each dealt with separately. Again, like Mr Wilson, I used to be an MOD adviser on export controls, and I would have hated it if I had not had all the same applications on my desk in front of me—I know it's done electronically now—so that I could basically look at them all at the same time. There is just no co-ordination, because, I am told, the case officers just get allocated the next application. In my case, I put in 64 applications on behalf of a client one evening, so they had consecutive numbers. Some of them got case officers within a week, some within a month and some within two months, and they all went through the system as individual licences. That is not good for the exporter, it's not good for the advisers and it's just not good for the system.

  Mr Wilson: That, of course, is not about co-operation between the various Government Departments; it is a symptom of the Export Control Organisation itself being—how can I put this?—understaffed and overworked.

  Mr Fletcher: Yes.

  Mr Wilson: It needs to sort out, and perhaps make better use of, its resources.

  Q39  Margot James: I did have a question on staffing, which seemed inappropriate in the current economic circumstances. I was going to ask how you would suggest that staffing and resources increase to handle the increased number of applications efficiently.

  Mr Wilson: My personal view is that the Export Control Organisation's forthcoming review of the open general licensing system will probably have the effect of reducing the number of individual licences and, in the very laudable American phrase, would put a bigger fence round a smaller backyard. In other words, the organisation would be more careful with those things for which a single individual licence is required, giving them greater scrutiny and making better use of the licensing staff who are there already. But it would open up a broader number of things, where, at the moment, a single individual licence goes through because those involved know, and I know as an applicant, that there are no issues with it.

  Mr Hayes: It will be very difficult to have an export-led recovery if the licensable element of that recovery is hampered by the fact that companies can't get licences in a timely and efficient manner. We will just not be competitive enough to sustain the recovery that the Government expect.

  Margot James: I trust that we will give this a great deal of emphasis in our report, Chairman. Thank you.

  Chair: That illuminating exchange provides a very good springboard for our next subject, which is the Government's stated policy on expanding defence exports.

  Q40  Malcolm Bruce: You mentioned export-led recovery. I think it would be fair to say that Defence Ministers are fairly ebullient in their statements. Liam Fox said the Government "will use defence exports as a foreign policy tool and we will seek to increase Britain's share of the world defence market" and "will make it its policy to maximise the UK's share of global defence exports". Peter Luff stated that the Government were not embarrassed to promote defence exports. That's fine, and our non-governmental organisations have made it clear that they have no ideological objection to developing our defence export industry, but the question arises: where are those orders going to come from? It isn't as if we're the only people in the business, and defence budgets are presumably under pressure. I might have a supplementary to that, but where are you looking for export opportunities in this situation? It is fine for Ministers to say "We're all for it," but where are they?

  Mr Wilson: The USA is a big and increasing market, as the USA is reducing its own internal—how can I put this?—protectionism. They are now evidently willing to purchase the most effective material, and in a lot of areas, the UK has a lead. One particular one, for example, is interoperability or joint operations: material that you need to put together, such as software systems or communication systems to allow interoperability between various NATO countries and individual operations, so that you don't get the situation of a policeman being unable to talk to another policeman because he's got a different radio set or whatever. That's one issue, and that takes it across NATO, of course.

  Q41  Malcolm Bruce: We did have a number of debates in the last Parliament about what you've just stated as being what the Pentagon prefer, but Congress taking a rather different view. Congress, obviously, has changed its balance. While the Republicans, I can imagine, would be strong on defence budgets, they're also strong on buying American. Do you anticipate what you've just said finding enough space?

  Mr Wilson: I think the answer to that can only be that we live in hope.

  Mr Fletcher: I sometimes get confused about what people imagine defence exports are. Having negotiated on behalf of the Government as the head of the UK delegation to the Wassenaar export group, we were more inclined to be negotiating on dual-use goods which were used in the military scenario. There's a huge area of potential exports.

  Q42  Malcolm Bruce: That's what drives Silicon Valley, isn't it?

  Mr Fletcher: Yes, exactly. But what worries me in that particular area is that the Export Control Organisation is putting obstacles in the way of UK exports. I will give you two examples. Recently, Mr Hayes and myself were both on a crypto training exercise at the ECO. The technology assessment unit was represented, and it came out with two absolutely startling statements. A laptop computer, if you take it out of the country yourself as an export, won't be considered a crypto item. However, if you take it out with your family and your whole family is going to use it, it might be. I know, as somebody who negotiated the controls, that is not the interpretation.

  Mr Wilson: That wasn't the intention.

  Mr Fletcher: The second one was on routers and modems, which you've all got in your houses, with your computers, to give you your networks. If they're exported for an individual to install, they probably won't require an export licence, but if the IT department is going to install them, they will. That is just utterly ridiculous. As a result, I know that one company in UK—I suspect that there are many others—is placing a £20 million order every year with the US rather than the UK, because US export controls on cryptography are much more relaxed than the UK's . The US is much more relaxed—yes, I did say that—than the UK.

  Q43  Malcolm Bruce: That follows on from Margot James's questions as well. That is an interesting answer, and I am glad that I asked it that way around, because some people might be concerned that some markets might be emerging markets, where controls might be more difficult. Do you see emerging markets in terms of being able to purchase the equipment and pay for it, and it being appropriate, or is that likely to create more trouble than it's worth? Clearly, dealing with the United States is a different proposition from dealing with—but I shall not name any countries.

  Mr Wilson: If you were to treat the new members of the European Community as an emerging market, the answer to your question would be yes, because they are very keen to bring themselves on line and bring themselves up to the standards of, and allow themselves to be interoperable with, the other parts of the European Community—and, indeed, the other parts of NATO. That inevitably means that they are going to have to upgrade their systems, their infrastructure. That, I think, is probably where the biggest spread will be—not in those matters that may be of most concern to the NGOs such as small arms and light weapons but in the high-tech infrastructure, technology systems and support bits. They are still arms and are still subject to arms export controls but, if you like, they are the soft end.

  Q44  Malcolm Bruce: High-tech manufactured goods?

  Mr Wilson: High-tech manufactured goods. There are not only military export controls or dual-use export controls, but companies that wish to maintain careful control over their intellectual property rights, because they have a good piece of kit that they want to sell and do not want to allow it to get overseas.

  Q45  Malcolm Bruce: It is fair to summarise your answers by saying that you believe that there is potential—no doubt it is competitive—and you believe that it is in markets that shouldn't really cause significant concern?

  Mr Wilson: That is my personal view, yes.

  Q46  Malcolm Bruce: Does anyone disagree with that?

  Mr Salzmann: No.

  Mr Hayes: I would add that you may well see licence applications for very sensitive destinations, because of the amount of licensable equipment used by the oil and gas industries.

  Malcolm Bruce: We have been there before.

  Mr Wilson: Yes.

  Mr Hayes: The point about that is having a proper licensing system.

  Q47  Chair: Just before we finish this topic, I put to you the same question that I put to the NGOs. Since the arrival of the new coalition Government, are there any aspects of their policy in the arms export control area that please you or displease you?

  Mr Hayes: Again, I reflect on what the NGOs said. It is early in the new Government to be able to determine whether there have been any substantive changes. We would welcome the continued support of the arms trade treaty. The cutbacks are obviously part of Government policy, but their implementation is an area of concern because it appears to run counter to the expressed desire to have an export-led recovery. Apart from that, there is nothing.

  Chair: I turn now to the UK-US Defence Trade Cooperation Treaty.

  Q48  Mike Gapes: I suppose that it is good news that—after so many years of trying to get the US Senate to ratify that treaty, previous arguments about the ITAR waiver and all the other issues that have been going on for 10 or 12 years-in September, we finally got confirmation by the Senate. I understand that the US State Department is supposed to be undertaking some kind of consultation with regard to implementation.

  My question is in two parts. First, has that happened yet? Secondly, what preparations are being made by our Government? You told us that there will be a series of workshops in 2011. Is that the first information that anybody—any company—will have received about this? In practice, what is being done by the Government to prepare industry and does the UK-US treaty make any difference?

  Mr Hayes: The thing that changed materially was the way in which the treaty was implemented. It was always intended that the treaty would be self-implementing and there would be no need for US regulations to bring the treaty about. Because of the Bill that was proposed by Senator Kerry, there is now a need for regulations to be implemented to bring the treaty into force in the US. Really, until we understand the detail of those regulations, it's difficult. We have the treaty, we have the original implementing arrangements, but we don't know what the regulations will ultimately say.

  It's difficult to brief industry at the moment on something that's still, to a significant extent, an unknown. That said, we at EGAD are working with the Society for International Affairs to prepare some workshops for advising UK industry and helping it when we have the detail on which to give it the advice.

  Mr Salzmann: The SIA has intimated to us that it does not think that it will be in a position to support these joint events until about April/May time, so we stand waiting.

  Mr Wilson: At the earliest.

  Q49  Mike Gapes: Would I be being too cynical in thinking that we might end up with regulations that are difficult and, as a result, all the effort in getting the treaty will not amount to much?

  Mr Fletcher: I don't think you're being cynical enough.

  Q50  Mike Gapes: And that protectionist pressures in the US and people who are against us having the treaty in the first place will get at it another way?

  Mr Wilson: I think you need to remember that the pressure for the treaty in the first place some 11 or 12 years ago was in the face of huge administrative delays in getting any information, technology or exports out of the US. That situation has improved almost beyond recognition. We have here a treaty that is incredibly complicated in its execution and detail but is a solution to a problem that has largely gone away.

  Q51  Mike Gapes: Congressman Hyde and Senator Stevens are no longer there, either.

  Mr Fletcher: I think that a lot of UK companies will be disappointed when they find that it will not do anything like what they were originally told it might do.

  Mr Wilson: It is only going to be of value to—what did we think?—maybe two or three UK companies—[Interruption.] Because material passed under the terms of that treaty will only be usable for a UK Ministry of Defence contract and will not be usable for anything else. And then you've got to go back to the original supplier and get a standard US export licence if you want to use it for anything other than a UK Ministry of Defence contract. For a broader NATO contract it is of no use at all.

  Mr Hayes: Another complication, albeit a welcome one, is the fact that the review instigated by President Obama and led by Secretary Gates is wide-ranging and potentially offers significant benefit to the whole of the UK industry, where the treaty offers a narrow benefit to a narrow population.

  Q52  Mike Gapes: But does that benefit other European countries as well?

    All witnesses: Yes.

  Q53  Mike Gapes: So the difference is that, whereas in the past we were hoping that the special relationship would lead to some special relationship in terms of trade, the reality is that we are getting something completely different.

  All witnesses: Yes.


  Q54  Mike Gapes: Thank you.

  Q55  Chair: A key issue is getting, hopefully, universal knowledge and awareness of the export control system, which I know is of much concern to the reputable companies in the business in the UK. Katy Clark will lead on this one.

  Q56  Katy Clark: Last year, a study for the Department for Business, Innovation and Skills found that 53% of respondents were aware of SPIRE, and 46% of the Export Control Organisation website. Do you think that over the past year, the Government's efforts have been successful in making companies more aware of the licensing system generally, and in particular of SPIRE and the Export Control Organisation website?

  Mr Wilson: I think that David has a splendid set of statistics to cover that.

  Mr Hayes: One thing that struck me about the research done by the ECO at the time was that, from memory, about 80% of companies claimed to be compliant, but only around 40% had heard of SPIRE and were registered with it. Given that SPIRE is the only way to obtain an export licence, I would be interested to know how the other 40% managed to be compliant.

  Q57  Katy Clark: Do you think that they just didn't know the names?

  Mr Fletcher: If you're complying, you know what SPIRE is—it's as simple as that. More people become aware of the need for export licences through high-profile court cases than they do through any publicity that the Government or BIS want to put out. That's the thing that makes people sit up and realise that export controls may affect them.

  Q58  Katy Clark: Given that court cases are not necessarily completely in the Government's hands, what else can the Government do to make people aware of the processes?

  Mr Wilson: I would perhaps like to see more work with local chambers of commerce. In a previous existence, I went round trade associations and chambers of commerce, and the level of understanding, except among the major defence exporters, was frankly woeful. I now find, working for an IT outsourcing company, that our clients do not understand that their data are subject to controls. That is not confined entirely to the UK; it's almost all the way across Europe. People say, "Oh, it's Europe. Everything gets moved around freely inside Europe", but they fail to realise that military material is not moved freely around and is subject to export controls. Quite large companies do not know that. They do not understand and are really quite boggled by the fact that the controls applied to them all the time and they did not know it.

  Mr Hayes: There is a possibility of a better use of IT systems. One thing suggested in the past was to monitor the internet—not a difficult thing to do—and look at companies whose product ranges are apparently, from the information they provide on the internet, controlled. We could then match that against the licensing database.

  Mr Fletcher and I are both consultants. We are both independent, and we work independently and collaboratively. We come across non-compliant companies on a regular basis. There is a correlation table between the harmonised tariff schedule which is a numerical description of any goods for export, and the export control list. It's very far from perfect, but it is at least a rough guide. Why isn't it possible for customs, in choosing its IT systems, to identify companies that are making export declarations of those tariff codes, and advise them that the goods may be affected by export controls?

  Q59  Katy Clark: Would there be resource implications with that?

  Mr Hayes: Absolutely. There would.

  Mr Fletcher: Yes.

  Mr Wilson: Going back to an earlier comment, it would increase the number of licence applications.

  Mr Fletcher: Significantly.

  Mr Wilson: And it would increase the burden on the Export Control Organisation and increase the costs to the companies concerned. At the moment, export compliance is largely a coalition of the willing. EGAD is, if you like, the public face of those companies that have realised that they need to comply with export controls, and are spending money on making sure that that happens.

  Q60  Katy Clark: Thank you, that was helpful. Moving on to a slightly different issue, since this April, the Government have had in place a revised compound penalty system, expanding the use for minor breaches of export controls. It is obviously quite a short period since there has been this revised scheme, but what is your view in terms of how it is operating?

  Mr Hayes: It is very difficult for us to have a view because, as we have said in our evidence to the Committee previously, the system used by the RCPO, the Revenue and Customs Prosecutions Office, to operate the compound penalty system is completely opaque. We have absolutely no idea what criteria it uses for imposing the penalty or how the penalties are arrived at.

  Q61  Katy Clark: Have any of the organisations that you have had contact with had any dealings with this or been fined? Do you have any knowledge of its operations?

  Mr Fletcher: Very little. Again, as Mr Hayes pointed out, both he and I are consultants. It is one of the questions that is always asked of a client: if I have to make a voluntary declaration, what is this going to mean? You can't advise them—you have absolutely no idea.

  Mr Wilson: That really is a change for the worse because historically there has been a slightly more give-and-take approach between the regulatory authorities—the auditors from DTI, then BERR, then BIS, or whatever it is called this week—the prosecuting authority, which is Revenue and Customs, and the companies. An auditor would come in, find an error and say, "Ah." It would slap wrists and say, "Don't do it again." For a slightly less minor, more serious, error, you really need to go and make a voluntary disclosure. So you ring up customs at a clearly defined point and say, "I think I need to make a voluntary disclosure about so and so", and it says, "Yes, you probably do." It would then give you advice and it would come back. If it was serious, you would expect to get a serious kicking for it.

  What is now happening is much closer to the American system—this is entirely anecdotal—where you submit a voluntary disclosure with no give and take or feedback, and there is no discussion between you and the auditor and between you and customs. So it is a one-way system: you throw it into the system and the penalty comes ricocheting back out of the system again, and I think that's a retrograde step.

  Q62  Chair: Can I just come to bribery and corruption? That has the great difficulty, for law-abiding and reputable companies, of reputational risk—a bad apple tends to taint everyone in sight. It also has the capacity to face you with unfair competition. People are producing backhanders amongst your competitors and denying British exporters a fair and reasonable chance to get the export contract. Is there any action that you would wish to see the present Government taking to deal with bribery and corruption, over and above what is already on the statute book? I am referring particularly internationally. What do you feel should be done to make certain that law-abiding and bribery and corruption-free British companies don't get beaten to the point of signing a contract by competitors that are engaged in bribery and corruption?

  Mr Hayes: I don't think we necessarily see an additional criterion in the export control as being a way forward because, as you rightly say, the UK now has probably the strongest anti-bribery legislation in the world—certainly stronger than the US FCPA in terms of its scope. If we add an additional criterion, it will only be applicable across the EU, so we are really only addressing a subset of potential competitors. Coupled with that, we all know of examples in which the criteria are interpreted very differently by different member states.

  Mr Fletcher: My main concern at this point in time, with the Act just coming in, is how a company will know how far it can go and what would be considered normal hospitality. It is totally different, from a company with half a dozen employees who know that that is not bribery, to a multinational company in which it is common practice, say, to lay on a dinner for people. Are both acceptable? I hope they are, but it is difficult, and I think the lawyers will make an awful lot of money advising companies on how far they can go.

  Q63  Chair: I have another question I want to put to you. Present Ministers have been up front in trying to give priority to exports generally, including defence exports. Can you tell us what role you would like Ministers to take on defence exports? Do you want them to involve themselves personally in supporting particular contracts, or do you regard Ministers as more trouble than they are worth and prefer that they stay out of it? What do you expect Ministers to do to deliver the stated policy of strengthening defence exports?

  Mr Fletcher: Personally, I would like them to come out with a statement that they have no intention of charging for export licences. That would be a great help to the industry, which is extremely worried about the rumours that there may be charges for licences.

  Mr Salzmann: We would welcome Ministers actively supporting British companies and particular programmes pursuing potential export projects to help to counter-balance the high level of political support that our competitors in countries such as France and the United States receive. They receive a high level of support, and we are keen to see similar support from our Ministers.

  Mr Hayes: There is a potential linkage between contracts for which the Government have expressed support at ministerial level, and the use of the open general licensing system, because it must necessarily follow that if the Government will the end, they must will the means.

  Q64  Margot James: I want to revisit your response, Mr Salzmann. Could you fill the Committee in a bit more about the sort of support that the French and American Governments give their defence industries that you think we could learn from?

  Mr Salzmann: Certainly. With regard to Brazil, in France President Sarkozy personally has been heavily lobbying his Brazilian counterpart for a whole range of potential defence projects out there. He has been very active in trying to lobby on behalf of the French industry. With regard to the Indian market, a whole host of international statespeople are queuing up to visit India to lobby in support of their industry for particular projects. The multi-role fighter programme in India is one instance. President Obama has just visited there, and I think President Sarkozy is about to visit there. They focus on trying to support their industries in particular markets at a very high level.

  Q65  Chair: One last question, unless any of my colleagues want to come in on anything else. Do you want to put to the Committee any further changes or, as you would see it, improvements to the export licensing system? You obviously referred to the issue of delays and the very cumbersome nature of the new general open licences. Are there any other changes you would especially like to see?

  Mr Hayes: There is a planned review of the current suite of open general licences, and there we would like to see genuine and open participation by everyone, including Government, and, if necessary, starting with a blank sheet of paper—not necessarily trying to make the best of the existing suite of licences, but maybe starting again and thinking about what we are trying to achieve today, not what we were trying to achieve when the system was first invented. That is with the caveat that of course the use of OGLs should always be confined to only those exports where it is inconceivable that an individual licence would ever be refused.

  Mr Wilson: Bear it in mind that over 90% of single individual export licence applications are approved. What we should be looking at more closely is trying to identify the 2% that are contentious and might be turned down, and making it easier to export the other 98%. Our open general export licensing system is the envy of my counterparts in business across the EU and across the US, because generally it is clear and simple. The US equivalent on the dual-use side is the licence exception system, which is written by lawyers for lawyers, generates a huge amount of revenue for legal companies and is incredibly difficult to understand. I would not wish our OGL system to go the same way, but our OGL system has done a Topsy. It started off simple; it has grown and become more complicated, and bits have been added on to it. We have a golden opportunity to review those that we have, make them simpler and make them broader in areas where there are no concerns.

  Mr Hayes: But the system is so valuable to industry that we would certainly share the NGOs' view that the system must not be used for exports for which it is unsuitable, because if it is, that threatens the existence of the system.

  Chair: Mr Fletcher, Mr Wilson, Mr Salzmann and Mr Hayes, thank you very much indeed. We have appreciated your evidence. We may wish to follow it up with one or two additional written questions. Thank you so much.

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