Examination of Witnesses (Questions 30-65)
MR DAVID HAYES, MR DAVID WILSON, MR BRINLEY SALZMANN
AND MR BARRY FLETCHER
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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