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 - Foreign Affairs Committee Contents

4  The Performance of the Export Control Organisation

24. The Export Control Organisation (ECO), which is based within BIS, is responsible for "assessing and issuing (or refusing) export licences for a wide range of controlled so-called "strategic" goods. These include military and dual-use items."[36] There are two main types of export licences: Standard Individual Export Licences (SIELs) and Open General Export Licences (OGELs). SIELs allow shipments of specified goods to a specified consignee up to the quantity specified by the licensee. OGELs are blanket approvals for certain goods which are intended to reduce administrative burdens on subsequent shipments. OGELS "allow the export of specified controlled goods by any exporter. They remove the need for exporters to apply for an individual licence, providing the shipment and destinations are eligible and the conditions are met."[37]

25. In written evidence to us, EGAD highlighted delays in processing of export licence applications by the ECO. They complained that the poor performance of the ECO had led to contractual penalty clauses being enforced against UK companies and, "the situation does appear to be getting worse and is affecting the reputation of companies within the UK".[38] EGAD considered that the ECO was "understaffed and overworked;"[39] and that it was receiving far more licence applications than it had capacity to process. Some 17,000 licence applications were expected for 2010 by the ECO, compared with some 15,000 that were processed in 2009.[40] According to EGAD, the ECO was resourced to process between 9,000 and 10,000 Standard Individual Export Licence (SIEL) applications per year.[41]

26. We asked EGAD to elaborate on their concerns about the performance of the ECO. They told us that the ECO faced problems with their workload for two main reasons. First, there was greater awareness amongst firms, especially those selling dual-use items,[42] which are more likely to be dual-use than arms, of the need to apply for an export licence. Second, the new generation of open general export licences had been made "incredibly complicated" and instead of reducing administrative burdens, had increased the bureaucratic workload for firms.[43] As a result, instead of applying for the open licences, firms were applying for separate individual export licences, partly to avoid the complexity of the OGEL application process.[44]

27. EGAD noted that "it will be difficult to have an export-led recovery if the licensable element of that recovery is hampered by the fact that companies cannot obtain licences in a timely and efficient manner."[45] They were therefore pleased that the "forthcoming review of the open general licensing system will probably have the effect of reducing the number of individual licences" and hence, the workload for companies and the ECO. It was hoped that the process for applying for an OGEL would be simplified with less exceptions and caveats. EGAD requested that the Government produce a "model undertaking" that would clarify what compliance officers would accept as meeting the requirements of the licence.[46]

28. EGAD highlighted more general grievances with the work of the ECO. Mr Fletcher commented that the ECO was "putting obstacles in the way of UK exports."[47] It was suggested that the ECO was applying regulations to goods, which were not intended to be covered by the various agreements and regulations;[48] and that export regulations were being applied too liberally to "dual-use" goods such as laptops, modems and routers, which was "not the intention" of the negotiated export controls.[49]

29. BIS told us that it was aware of the increase in the number of licence applications, but, while there was "room for improvement" it was confident that the ECO performed well. The Head of ECO, Mr Tom Smith, told us that:

    I've looked at our main competitor systems—for example, in the USA, France and Germany. Our customers tell us that we compare very well; ... I think we're a world leader.[50]

He conceded that the average time for processing applications had increased from "about 13 days to 19 days", but he disagreed with EGAD's figures that the ECO was resourced to handle only between 9,000 and 10,000 applications.[51] He said that overall the ECO "coped very well" and went on to dispute many of the complaints levelled by EGAD against the OGEL system.[52] While he agreed that there were problems around the "complexity and ease of use" he felt that the new open general licence was, on balance, "very successful".[53] He also confirmed that the review of the OGEL system would include a rewriting in plain English of the licence application and the use of more standardised conditions of compliance. His overall assessment was that the system was "quite impressive".[54]

30. We asked whether there were plans to introduce charging for licences: EGAD had asked for a "statement that they [the Government] 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."[55] The BIS Minister, Mr Mark Prisk, would not give an assurance that charges for licences would not be introduced. Instead he said that:

    It is not the intention of the Government to do anything that would be any more than seeking to look at the possibility of charges for the costs of the service. This is not intended to be some sort of back-door charge over and above that, and we would want to consult industry. We must look at the balance of these issues to see whether, in fact, there is a different finance model which would make more sense.[56]

31. We conclude that a well-functioning licence application system is vital to the promotion of arms exports and that the system should impose the least possible administrative burden on exporters, consistent with an effective control regime. We further conclude that it is a matter of concern that a prominent industry representative body, such as the Export Group on Aerospace and Defence (EGAD), has such a low opinion of the performance of the Export Control Organisation (ECO). We recommend the Government reviews the performance of the ECO and provide us with the results of this Review in its response to this Report. We further recommend that the Government reports to us the results of its review into the workings of the Open General Export License system.

36   ECO Website: Back

37   Department of Business Innovation and Skills, "Introduction to the Export Control Organisation and to Export Controls", March 2010 Back

38   Ev 40 Back

39   Q 38  Back

40   Ev 40  Back

41   Ev 40 Back

42   Dual-Use items are goods, software or technology (documents, diagrams etc) which can be used for both civil and military applications. See and also Council Regulation (EC) No 428/2009. Back

43   Q 34  Back

44   Q 34  Back

45   Q 39 Back

46   Q 37-Q 38 Back

47   Q 42  Back

48   Q 42 Back

49   Q 41-Q 42 Back

50   Q 75 Back

51   Q 76 Back

52   Q 76-Q 78 Back

53   Q 76 Back

54   Q 78 Back

55   Q 63  Back

56   Q 77 Back

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Prepared 5 April 2011