UNCORRECTED TRANSCRIPT OF ORAL EVIDENCE To be published as HC 686-i

HOUSE OF COMMONS

MINUTES OF EVIDENCE

TAKEN BEFORE THE

COMMITTEE ON ARMS EXPORT CONTROLS

STRATEGIC EXPORT CONTROLS

MONDAY 13 DECEMBER 2010

ROB PARKER, OLIVER SPRAGUE and MARTIN BUTCHER

MR DAVID HAYES, MR DAVID WILSON, MR BRINLEY SALZMANN and MR BARRY FLETCHER

USE OF THE TRANSCRIPT

Oral Evidence

Taken before the Committee on Arms Export

on Monday 13 December 2010

Members present:

Sir John Stanley (Chair)

Malcolm Bruce

Katy Clark

Mr Jeffrey M. Donaldson

Mike Gapes

John Glen

Richard Harrington

Margot James

Mr Michael McCann

Ian Murray

Mr Dave Watts

Chris White

Nadhim Zahawi

Examination of Witnesses

Witnesses: Rob Parker, Head of Policy and Advocacy, Saferworld, Oliver Sprague, Programme Director, Military Security and Police, Amnesty, and Martin Butcher, Oxfam GB, gave evidence.

Q1 Chair: Good afternoon, Mr Sprague, Mr Parker and Mr Butcher. Welcome to the first sitting of the Committee on Arms Export Controls in this Parliament. It is very good to see you. We want to put a number of questions to you. As this is the first Session under the new coalition Government, I shall start by asking each of you to highlight, in a few sentences, the policy differences between the present coalition Government and their predecessors. What are the policy differences that please you and what are the policy differences that displease you? What are the pluses and minuses, as you see it, of the change of Government? Mr Sprague, would you like to start?

Oliver Sprague: In general, the impression that we have had from Ministers and civil servants is that many of the issues that were of concern to the previous Government remain as a focus of this Government, with some caveats. For example, things such as the arms trade treaty remain as a policy commitment, although we have concerns that that may not be as strong a priority as it was. I am sure that we will elaborate on that later. There are other issues on which I think progress might be difficult-for example, military end-use controls. We are concerned about things such as the torture end-use control not being implemented yet.

Rob Parker: From our perspective, it’s perhaps not a policy change, but a continuation, with a bit of a refocusing on working in contexts of fragility and where there are conflict-affected communities. The previous Administration certainly were interested in conflict prevention. There was some strong policy development in the Department for International Development, but recently some of those policies have been perhaps consolidated to a certain extent in the strategic defence and security review around the issue of upstream conflict prevention, as the Secretary of State called it. We’re very keen to see the detail of that and to work with the new Administration on looking at what it looks like in terms of preventive diplomacy, boots on the ground and so on.

Martin Butcher: At this point, I would echo what my two colleagues have said. I don’t have anything particular to add to that.

Q2 Nadhim Zahawi: Thank you for coming, gentlemen. You’ve raised concerns about the coalition Government’s policy on prioritising the commercial potential of arms exports. Are there any specific areas where you suspect that this commercial potential may be prioritised at the cost of conflict prevention, sustainable development or a responsible arms trade? I want to push you on the specific areas where you think this may be problematic.

Rob Parker: If I could answer from my perspective, it is probably important to give a quick bit of context. No one on this panel is coming from the ideological perspective of being against the arms trade, so we don’t actually have a problem with promoting UK exports per se. Our basis for engaging with the issue is more around restraint, risk analysis and regulation. With that in mind, there have been two recent policy commitments. One relates perhaps to commercial foreign policy, and UK arms exports may play a part in that. The other relates to the focus on conflict prevention. Both those policy commitments will entail using UK staff overseas in some way.

My concern is that, at the moment, the export control regime is based quite heavily on risk assessment. One vital element of that risk assessment, which the UK is rightly recognised for, is this country’s diplomatic networks and its ability to use them to assess the appropriateness of potential UK arms exports and the risk that they may be diverted or misused. There is perhaps a concern that there is a dual role, with one hand potentially imposing some kind of restraint by looking at appropriateness and risk, and the other hand promoting. Without the detail of how that would be worked out, it is difficult to say how it will play out.

In terms of the conflict prevention aspect, one vital element of upstream conflict prevention is, again, the diplomatic networks-the soft diplomatic skills and the knowledge and analysis of what is actually going on in-country. In come contexts, the UK’s diplomatic and political leadership and pressure would best be used in promoting the kinds of political and social development and reform processes that address the drivers and the causes of conflict. If the personnel involved are, at the same time, being asked to promote arms exports, there are potentially competing or conflictual agendas.

I don’t think that will play out geographically in the places where there is the most acute conflict, because I don’t think for a minute that the UK is thinking of promoting arms exports in the likes of Somalia, Afghanistan or south Sudan. I don’t mean to single places out, but in our experience, working in places such as Kenya, Uganda and Nepal, the UK can play a really strong role diplomatically and politically in promoting the processes that address the causes of conflict through the promotion of the rule of law, good governance, inclusion and the participation of the public in decision making on these issues. That is a really key role, which seems to be being prioritised, but it is not clear how the Government will reconcile the promotion of that role for its overseas personnel with the commercial foreign policy. That is by no means to say that the two can’t co-exist; it is more a case of trying to flag up where there might be a conflict.

Q3 Nadhim Zahawi: Mr Sprague or Mr Butcher, is that how you feel?

Oliver Sprague: Yes, broadly. This isn’t an area where a human rights organisation like Amnesty, with our mandate, has a great deal to say, other than we concur largely with what my colleague has just said.

Martin Butcher: I would echo those comments.

Q4 Nadhim Zahawi: Very briefly, have you had discussions with Ministers about those specific concerns?

Rob Parker: We’ve raised them broadly, but because the policy commitments on the table are fairly broad, we hope that we will be able to get engaged in some way in the new year in the development of the building stability overseas strategy if there is a consultation process. We can then raise the practicalities of how you go about delivering on these policy commitments.

Oliver Sprague: It’s worth just adding as a quick follow-up point that Amnesty recognises that in certain conflict situations, the rule of law, the rule of policing, training, accountability, human rights standards etc. are all very important in improving democratic situations, but the key is that the risks are well managed and that when we talk about human rights training, we actually mean thorough, decent, robust human rights monitoring and standards.

Q5 Chris White: I have a supplementary question. You mentioned conflict and risk. Do you have any evidence that human rights are taken into account when these decisions are being made?

Rob Parker: UK exporting decisions?

Chris White: Yes.

Rob Parker: No. We are perhaps flagging a potential area that is not clear yet. If the same personnel who should on the one hand be providing Her Majesty’s Government with an analysis of, say, the human rights situation on the ground in a country that is requesting UK arms and on the other hand they are being asked to promote UK exports, we would say that there is potentially a risk if that is not clear. The UK would then potentially be at risk of breaching its commitments under the EU common position, whereby the promotion of exports should not in any way undermine the other criteria around human rights.

Oliver Sprague: It is also worth saying that we are very early into the new Administration. I think that there have only been two quarterly reports published as yet, so it’s actually quite difficult to look at specific cases of licensing to see whether there has been a shift in practice in licences. That is something that will probably come across throughout our evidence on a lot of related issues. It’s certainly too early to tell. So what we are doing here is flagging up concerns that we might have, which might appear over time.

Chair: We are now going to come to a question about the licensing criteria.

Q6 Ian Murray: You have already touched on the licensing criteria. The UK working group argued that the UK’s consolidated criteria for assessing licences should be updated along the lines of the EU, particularly with regard to humanitarian aspects. What do you think should be changed in the Export Control Act 2002 and why, particularly with regard to the EU common position of 2008?

Oliver Sprague: The thing to recognise here is that in 2008 the EU code of conduct was turned into a common position, which is a legally binding obligation on member states to implement that agreement in their national licensing legislation. If you look at last year’s UK annual report, the impression given is that it puts the common position as the policy guidance for arms export licensing. However, my understanding is that that is not the case and that the text of the common position is not used by licensing officials. Licensing officials use the consolidated criteria of 2000.

That is important because, as is pointed out in our evidence, the common position is stronger in a number of respects, specifically as related to international humanitarian law, which has been fed into the criteria on human rights violations. I will just quote you the difference. The difference in the common position is that it says: "There is a requirement now to deny export licences where there is a risk that serious violations of human rights and international humanitarian law might occur." Under the consolidated criteria that UK licensing officials currently use, criterion 6 refers to an obligation to only "take into account" the recipient’s record on international humanitarian law. That is clearly a weaker standard.

You ask how this could be done under the 2002 Act. The 2002 Act makes it quite clear that the Secretary of State or the Government can produce policy guidance, which can be announced to Parliament, that will inform the licensing position. Also, there is a section of relevant consequences of the Act that we should not ignore. As far as I can see, it would be a relatively straightforward matter to reflect the exact text of the common position by issuing new guidance under the 2002 Act.

Q7 Ian Murray: Can I follow that up with a question about the broader debate on open licences? I take it from Mr Sprague’s answer to that question that the Secretary of State could essentially promote stricter guidance, particularly with regard to the humanitarian parts of that particular legislation, in Parliament if he wished to take that forward.

I will move on to the export control organisations’ encouragement, or apparent encouragement, of general licences rather than individual licences. Is there a legitimate case for that particular viewpoint and what would be your response to the concerns that exist about open licences rather than standard individual licences?

Oliver Sprague: It is worth stating, in line with what Rob was saying earlier about opposition to the arms trade in general, that we are not opposed to the use of open licences in certain circumstances. We agree that they are a way of easing the administrative burden both for the industry and for the Government, and they allow licensing officials to free up resources and to allocate more to higher-risk transfers and licensing decisions. The key for us, if there is to be a shift towards open licensing-we are told that there will be an increasing shift towards open licensing because of the increased pressure on licensing staff within the export control organisation-is that those licences are given only to very unproblematic areas that would have automatically received a yes decision anyway.

One concern of course is around transparency, not only for NGOs but for members of the Committee. The information that is available and reported is considerably less for open licences than for single individual licences, and some of the problems are compounded by the fact that much of the information resides at company level under open licences and not at Government level. There is a challenge for reporting on those licences.

Chair: We come to the sustainable development criterion.

Q8 Malcolm Bruce: Criterion 8 of the consolidated EU and national arms export licence criteria talks of compatibility of arms exports with the technical and economic capacity of the recipient country, taking into account the desirability that the state should achieve its legitimate needs for security and defence with the least diversion for armaments of human and economic resources. That can be pretty broadly interpreted, I would have thought.

You say that the Government should ensure that it includes a full assessment of the risk of unaccountable spending, as well as corruption, as part of their arms export controls, and that it should take place case by case and not be restricted to the least developed countries. Do you have a particular context in mind? We have had issues relating to Tanzania, for example, and we have heard of growing involvement in conflict or post-conflict states, where interpretation of this criterion could cut either way. If you have to deal with conflict, you want a Government with the capacity to be secure. On the other hand, you don’t want to supply a civil war.

The first point is this: can you give us a context as to how you think the criterion should be applied? Secondly, I gather that the UK used it only once but that France has used it 63 times, and although the Netherlands has used it once, it was promoting a seminar to discuss it further. Do you have any information on whether that seminar has happened, and in particular why France has used it so much?

Martin Butcher: I can certainly talk about the second part. This issue is very much under discussion at the moment. The Netherlands did convene an informal session of the EU COARM working group on 24 November, following the regular COARM meeting. Several of our colleagues were asked to make presentations to that meeting but the debate that followed was closed to member states, so it is a little hard for us.

Q9 Malcolm Bruce: Were those presentations in written form?

Martin Butcher: They were.

Q10 Malcolm Bruce: It is possible for us to get copies?

Martin Butcher: Yes.

Q11 Chair: Would you send those to the Clerk?

Martin Butcher: Yes.

It was a little hard for us to know exactly what followed in the debate, as it was for member state representatives. We expect that there will be further consultations between EU member states and civil society and industry on this. In parallel, I would say that there are a number of Governments who are taking their own initiatives. For example, Spain is developing a process to look at how to apply criterion 8, and Germany is actively discussing with civil society and industry the appropriate methodology.

Q12 Malcolm Bruce: What is your view on what it’s for and how it should be applied?

Rob Parker: I find it hard to delink criterion 8 from issues around corruption, as well, because I think, as you say, the wording is very broad and the interpretation can be very broad. The instances where we’ve come across something perhaps a bit more tangible are, for example, things like-in South Africa-a deal that went through and not only was subsequently revealed to have included a number of corrupt practices; it also had a huge impact on the ability of South Africa to develop in terms of primary education and anti-HIV-type work. The discussions we’ve had at EU level with officials around the corruption and sustainable development issues are that there’s certainly an appetite and a willingness to look at how to address corruption more directly; but perhaps it’s a slightly sliding scale between convenience-how easy it is to do-and effectiveness.

Q13 Malcolm Bruce: Can I push you by giving an example? We’re in Afghanistan. Our objective in Afghanistan is to build up the capacity of both the army and the police to deliver security, yet people might be concerned if we started to supply the Afghan army with weapons-although it would be a bit odd if we say we want them to be effective but we won’t supply them with weapons; they’ll have to get them elsewhere. I’m just trying to get a feel for what you as a group of NGOs feel about these criteria. These are developing countries with security issues. Should we or should we not be selling them arms at all, and if we are how does criterion 8 apply?

Martin Butcher: Afghanistan, to take your example, is a very difficult question. It’s very hard to know what to do. You do have very well documented examples of weapons supplied to Afghan national forces, to the police and to the army, simply vanishing from stores-being either sold or handed over to the Taliban or to other armed groups; but at the same time, as you say, the objective is to build up the security of the Afghan Government, so that is clearly a major dilemma for the Government.

Rob Parker: The crux of it really is this balance between stabilisation and longer-term development. It’s striking a balance between how you essentially stop the bullets flying-to enable conditions where longer-term development can gain some traction-and what role UK arms exports play. From our perspective on where the balance needs to be struck, I hark back to the upstream conflict prevention comments I made about political processes: if your stabilisation efforts, including potential UK arms exports, are actually part of an inclusive political process whereby you’re not essentially shoring up an elite, which is going to continue protecting its own interests, but are part of an inclusive process whereby there is buy-in from more actors within the country, I think UK arms exports have a significant role to play. But where it falls down is where the process itself isn’t transparent enough, and inclusive enough, so that you are actually re-equipping or rearming security services who perhaps were abusive in the past, or perhaps predatory, and who will actually maintain some of the existing problems. Basically our answer is probably that more needs to be done to unpack criterion 8, to look at how it impacts on these other issues of stability-

Q14 Malcolm Bruce: Was that what this Netherlands discussion was partly focused on, which is where your submissions have been of interest?

Martin Butcher: Yes, that’s right-how it can be applied; what those words that you read out really mean, and how they can be applied in a common way.

Oliver Sprague: As a quick follow on: in terms of the role of the UK and other Governments in supplying fairly large amounts of military equipment to both Iraq and Afghanistan, Amnesty has published quite a lot of material in the past that shows how the accountability and the rules in place to ensure that the equipment is used properly, and that there is an adequate monitor on who is getting what, were not followed. There have been examples where UK companies have been working with the US Government. They weren’t taking proper account of the serial numbers of huge numbers of assault rifles. Hundreds of thousands of assault rifles were given to both the Afghan police and the Iraqi security services without a proper check on who was getting them.

In our view, training of units of the police force, especially in Afghanistan, didn’t follow the UN basic principles on the use of force and firearms-basic things like weapons being stored in a secure facility. Our understanding is that at least for one unit, training lasted about five days, an assault rifle was given as part of that training and the weapon was taken home.

Chair: Dave Watts has a quick supplementary question.

Q15 Mr Watts: Is that realistic in an environment like Afghanistan? You seem to be applying the same standards that you would apply to a modern European country to the Afghan situation. It is difficult to understand whether the systems you are talking about could be set up in a place that’s in so much turmoil.

Oliver Sprague: I certainly think that you should be responsible for the equipment that you supply. Something as basic as not properly logging the serial numbers of assault rifles is a basic error. That should have been done. There are minimum standards of training that are international standards. You are causing problems in terms of the threat to UK forces on the ground if proper safeguards are not in place to ensure that the training of the people being equipped is adequate.

Chair: We will now turn to the arms trade treaty. Mike Gapes.

Q16 Mike Gapes: The written memorandum from the working group contains a paragraph that I find quite worrying. You say the perception is that, rightly or wrongly, the new UK Government have ceased to provide leadership on the arms trade treaty negotiation process. Later, you say that the US, France and Australia are now beginning to dominate the process. Why do you think that is?

Martin Butcher: It does seem that the new Government have pulled back somewhat. There is a difference in positioning on the ATT, and the leadership role appears to be waning. There is a reluctance to commit, for example, to specific aspects of treaty content. In the strategic defence and security review, and in recent responses to parliamentary questions, the Government have said that they are supportive of the ATT, but not that they are leading. During the July prepcomms, some states that looked to the UK for leadership over the past few years have been concerned that in contrast to previous ATT discussions within the UN, the UK has been taking a back seat. It was very noticeable, for example, at the first committee that the UK was very reluctant to make a statement at all. There is an international perception that the UK is stepping back from leadership. Because the leadership has been so marked over the past four years, that shift is being interpreted as a change in the level of support for the treaty.

Q17 Mike Gapes: Is that due to a change of personnel, or are these the same people operating under different instructions?

Rob Parker: If I could just jump in, it might also be a case of conflicting priorities. At crucial points in the process, the nuclear non-proliferation treaty was running at a similar time. Some of the personnel were pulled in different directions. As I understand it, they are more or less the same personnel. Whether or not they are receiving instructions to step back, or whether they are simply not receiving as clear instructions around the leadership role to play, is unclear.

To a certain extent, we need to own up; we cannot have it both ways. There was a time when we said that it was not necessarily the most productive thing for the UK to always be right at the front, because this is intended to be a global treaty that therefore needs support from many different areas. But I think that in addition to the lower profile, the content of the statements is also less around the need for the treaty to be based on human rights and humanitarian issues and perhaps more hinting at the idea that it’s a trade agreement, as opposed to something more.

Q18 Mike Gapes: In the previous Parliament, we as a Committee discussed the issue of whether you wanted a treaty or a good treaty, in the sense that you might be able to get a treaty, but it might not actually be very strong in its content. We erred as a Committee on the side of a strong, effective treaty. We also, if I recollect, had a discussion about the change brought about by the Obama Administration coming in: the US was then engaged on this, whereas before they’d been very hostile. Is that part of the reason why the UK is stepping back-because the Americans are now seen to be crucial to getting an agreement?

Martin Butcher: That could certainly be part of the explanation. It’s clear that the Government is working together with the US Administration now. To come back slightly to the point about personnel, the personnel haven’t changed. We do have significant concerns; there seems to be a strong possibility that when Ambassador Duncan leaves his role at some point in the first half of next year, he won’t be replaced, and that role of arms control, non-proliferation and disarmament ambassador will be at least suspended, if not done away with. We have strong concerns that that would lead to a lack of co-ordination of British policy and a lack of ability to input strongly into the process.

In meetings with Ministers at the Foreign Office, representatives from Oxfam and Amnesty have been told that Ministers are still supportive of the process. Obviously, there has been cross-party support over the past years as well. It may just be that at the moment-six months into a new Government with an awful lot on its plate-there hasn’t been a good brief from Ministers down to civil servants as yet.

Rob Parker: I also wonder if it’s an issue of prioritisation, in terms of the resources put into thinking through what’s coming up. It feels that in some respects, the UK Government is on the back foot as opposed to the front foot in terms of the issue of consensus, thinking through scenarios of how to build support among reluctant states and actually taking this issue by the scruff of the neck, if you like, and being proactive as opposed to reacting to things. It’s impossible for us to know what goes on in terms of discussions between Ministers and diplomatic staff, but the feeling we get is that sometimes, perhaps, the ideas aren’t there, in a sense, to take that leadership role.

Q19 Mike Gapes: Can I press you on this relationship with the US? There were clearly differences in approach between the US Administration, even though they changed their attitude to the treaty, and the UK Government’s long-standing position. Is it still apparent that there are differences in approach, or are we, in a sense, moving behind the Americans?

Oliver Sprague: Both on the issue of consensus and, importantly, on the issue of content, there are a number of noticeable differences. As you’ll have picked up in our submission, for example, we remain concerned that the US will want to remove ammunition from the scope of the arms trade treaty. In any treaty that has a humanitarian core-the treaty is to prevent arms-related suffering around the world-to remove the very item that is responsible for nearly all deaths in conflict from a case-by-case risk assessment process seems to me to be ludicrous.

From our joint discussions with the industry and with Government in technical meetings about what the UK Government’s policy position on scope should be, the UK Government is very clear, in my understanding, that ammunition should form part of the arms trade treaty. There’s a difference of opinion there, and we’re not quite sure which way the decision will go in a consensus process, because with a consensus process, everybody is going to have to agree and if the US Government make ammunition a red line, we will be in trouble in two years’ time.

Q20 Mike Gapes: Is the two-year time scale to 2012 still on course, or is it likely to slip?

Rob Parker: I don’t know whether it can slip. It’s more a case of, what are we likely to get at the end of it? What will probably slip is less the time scale and more the quality of the product. In relation to your earlier question about whether we want a good, strong, robust treaty but perhaps not with everyone in it or something that everyone can sign up to, I think we would agree that if everyone is happy to sign up to it, the chances are it’s not really going to take us much further. Our concern is that unless progressive states, like the UK, start putting the time into developing draft treaty text and applying that at the preparatory committees over the next year or so, very soon the negotiating conference is going to be upon us and there will be little chance of getting something with teeth at that conference. That’s where the leadership role comes back in, because we would very much welcome stronger leadership on the drafting of treaty text, the running through of scenarios and ideas, and producing a strategy on how to bring on board some of the more reluctant states in the very short time that we have.

Q21 Mike Gapes: You talk about reluctant states. There are 150 countries in favour, but India, China, Russia and Pakistan are not signed up, and there are a large number of others, particularly in the Muslim world, who don’t seem to be on board. Are we heading for a situation in which a substantial part of the importing regions or the exporting regions or both will not be signed up to the treaty?

Martin Butcher: At the moment, there are probably only a couple of states, probably around Pakistan, that are outright and adamantly hostile to even the idea of the treaty. Other states-the ones you’ve mentioned-have concerns about different aspects of it. They would like to see, in some areas, a weaker treaty. But actual opposition to the treaty is really vanishingly small. There are concerns that trying to get all this done in the small amount of negotiating time that remains might put pressure on treaty content if people don’t work very, very hard at it.

Q22 Mike Gapes: May I ask one last question? In relation to your own role as NGOs and civil society organisations, are you confident that you are continuing to have input, given that the whole idea came out of an NGO initiative 13 years ago? Is the NGO movement internationally still being listened to by the Government, or has it gone on to somewhere else?

Martin Butcher: NGOs certainly still have a strong role. We were very concerned in the summer at the first two prep comms that about 60% of the sessions were closed to us. We feel that at such an early stage, which was essentially a conceptual stage, with nations putting ideas into a basket for future discussion, rather than a detailed negotiating session, it wasn’t appropriate that NGOs, as stakeholders in the process-as you say, as initiators of the process-were closed out of the room. That certainly impacted on our ability to assist, in particular smaller states-from, say, the Caribbean or Africa-which have come to rely on NGOs for expertise and support. Many of these countries will have just one person representing them and often covering several different things at once. It’s very hard for them to be engaged in a treaty process, which is very important to them, without support from groups such as ours. As we understand it, that was an early sign of the consensus process operating, in that some of the sceptic states said, "NGOs out," and the Chair just said, "Oh, okay," to keep the sceptic states in for the moment. Yes, we have those concerns.

Oliver Sprague: It’s certainly the case that in the UK-not just for the arms trade treaty but for a whole raft of interrelated UK arms export control policy decisions-we have been an important joint stakeholder in all discussions, both with Government and industry. I would say that everybody has benefited from that process and we’ve come out with a stronger agreement as a result. So we would be very concerned if the role of civil society is removed from the process, because from all sorts of aspects, as Martin and Rob have said, we have a lot to give to the process.

Chair: We have another four subjects to discuss and there are only 20 minutes. Just bear that in mind. We will turn now to corruption and bribery.

Q23 Mr Donaldson: Criterion 8 was mentioned earlier, gentlemen. In evidence, Transparency International recommended a new criterion 9 dealing specifically with corruption. What is your view on this proposal and do you think there is any realistic prospect of it being taken forward?

Rob Parker: Shall I kick off? On the one hand we’re supportive of the proposal. As we say in our submission, this would bring EU practice in line with global norms. I’m thinking in particular of the firearms protocol and the UN convention on corruption. But it’s the art of the possible. Basically, when you talk to EU officials, as I mentioned before, there is certainly a willingness to look at the issue, but there is more of an appetite to look at it perhaps in the users’ guide or in the context of an addition to an existing criterion rather than creating a new criterion 9. I think it’s actually a bit of a sliding scale between convenience and effort. While the corruption criterion would potentially be the most effective, it would also obviously be the most difficult to enforce. We’re at the stage of promoting discussion of what is feasible and what needs to happen if our collective interest is in ensuring that arms exports generated from within the EU area do not lead to corrupt practices and undermine the sustainable development.

Martin Butcher: I would argue that the United Nations convention against transnational organised crime and its protocols, which came into force in 2003, have put an international obligation on all adherent states to work within international standards on corruption as set out in that agreement. The arms trade, unfortunately, is somewhat susceptible to corruption. Clearly, within the EU, having this in some way included in the common position would be the best way of dealing with the issue of corruption. Whether it is possible to do that by an entirely new criterion, as Rob has said, or whether it needs including in one of the existing criteria is open to debate.

Q24 Chair: May I turn to extra-territoriality? As you will recall, the previous Arms Export Controls Committee, in its final report at the end of the previous Parliament, concluded: "We conclude that we see no justification for allowing a UK person to conduct arms exports overseas that would be prohibited if made from the UK." The present Government, in their response to that report, have basically continued the policy of the previous Government and are refusing to extend extra-territoriality to all items on the military list. That refusal of this Government, continuing the refusal of the previous Government, has to be seen against the successful agreement between the NGOs and the representatives from the arms exporters-the agreement you successfully concluded on extra-territoriality. Notwithstanding the fact that you finally achieved an agreed position, both the previous and the present Government have turned down your agreed proposal. In the light of that, do you feel that we are now into a cul-de-sac on this issue, or do you wish to see continuing pressure for the extension of extra-territoriality to all items on the military list?

Oliver Sprague: The first thing I would say is that, as the UK Working Group, we have long supported the Committee’s recommendation that there should be greater extraterritorial controls on brokering across the military list. The case is clear that there are certain categories of military equipment that are brokered and trafficked around the world that are not just small arms and light weapons.

Of course, we were disappointed that our joint proposal, which we worked through with industry, was rejected. My understanding now is that the olive branch that has been given to us is that-maybe not every item on the military list-if we could come up with categories for inclusion in category B of the new transfer controls, those items will be looked at.

We have already had agreement from the response to last year in that anti-vehicle landmines will be included in category B. I’m afraid I have not checked to see whether they have been included, but I could do so and come back to you on that. But the commitment from the Government was to put anti-vehicle landmines, for example, into category B.

We would be keen to re-establish our working with industry to see if we can come up with a list-if it is not the entire military list, there must certainly be a case for putting things such as vehicles, attack helicopters and combat aircraft into category B.

Chair: Thank you very much. I am sure that the Committee would be interested to have any further evidence that you want to provide to us. If there are any specific items that you are going to offer to the Government under what you have described as their olive branch, we would appreciate being kept informed about which ones you think it would be appropriate to include.

Q25 Margot James: The UKWG has said that if the EU is going to take more than six months to introduce a catch-all clause amendment to torture end-use controls, the UK should act unilaterally. In evidence, you mentioned the export of sodium thiopental to the US for use in its executions. Have you had discussions with the UK Government since becoming aware of this situation, and do you detect a sense of urgency on their part?

Oliver Sprague: There are a number of parts to that question. The first is that the issue of sodium thiopental became subject to a judicial review, which, for obvious reasons, made it very difficult to have substantive discussions while that legal review was going on. The result of the review was that the Government were asked, under powers under the 2002 Act, to put in an emergency order to put sodium thiopental on to the control list.

Our argument-and we think that we won the case through our work on the review of the export control list, and it was certainly a Government commitment-was that in cases where there was a reasonable risk of goods being used for torture or capital punishment, the way to control these dual-use items was through a catch-all clause. In our view, when they became aware that sodium thiopental was at risk of being used in death penalty cases in the United States, at that point a torture end-use control provision would have kicked in.

From our discussions with the Government, there is a difference of opinion between what we think a torture end-use catch-all control clause is and what they might think it is. We think that it is about risk: it is about reasonable knowledge and where the exporter has-or ought to have-knowledge that their goods might be used to facilitate torture in death penalty cases.

It seems that the Government’s view is that the burden of proof in these cases is extremely high, so that the knowledge has to be almost certain for them to think that the torture end-use control would kick in. So it is not a risk-based system; it is a proof-based system.

There is a difference of opinion there that we need to work through, because certainly we have always looked at this as a risk-based system. Where there is credible evidence to suggest that this might happen, a licensing option should kick in-not if it will happen; but if there is reasonable risk that it might. That is a very important distinction.

In terms of the timeline, there is already going to be a delay at the EU level, because the DG Trade, the Commission and the External Action Service are reorganising from 1 January, so the actual EU committees that regulate the regulations-the catch-all clause will come into the EU torture regulation-are unlikely to meet in the next six months because of the ongoing restructuring at the European level. Progress on the issue at the EU level will be slow anyway so, given that this was a commitment made in 2008 and that we have had this case with sodium thiopentol, which included, first, a court case and, secondly, a decision to put an emergency order into the export control legislation, we think it probably is high time that the Government act first to put this in place as best practice.

Does that answer your question? Sorry, it was a very long answer.

Margot James: Thank you-it was very informative.

Chair: We have one or two countries that are of concern to us-John Glen.

Q26 John Glen: In your evidence, you said that arms supplied by the UK to Saudi Arabia have subsequently, apparently, been used in illegal acts against Yemen-or our aircraft have been involved in illegal acts against Yemen. Similar concerns have been expressed about strategic exports to Israel and Sri Lanka. What is your view about the export control system generally, and the licensing criteria? They are clearly not fit for purpose if you can point to such clear breaches. Following on from that, if you do think that the whole system generally isn’t working, what improvements would you suggest?

Oliver Sprague: In the case of Yemen, Amnesty produced a report in August 2010, in which we highlighted in great detail the role of aerial bombardment against the villages of the Houthi groups in northern Yemen. It is very clear to us that there was an intensive aerial bombardment, to the point of destroying infrastructure, religious places and marketplaces, and flattening buildings-an extremely extensive aerial bombardment, which we believe raises severe questions about international legal obligations, international humanitarian laws and such things, in which there are express prohibitions on deliberately targeting, for example, civilian infrastructure.

We think there is credible risk that Saudi Arabia used military equipment of a type supplied by the UK-so, attack aircraft-in those aerial bombardments. The consolidated criteria, the common position and the Export Control Act 2002 are very clear that licences will be denied if there is a reasonable risk that crimes of this nature might take place. In that case, we have asked for an immediate investigation and review into the use of UK or Saudi-supplied equipment, and a suspension of export licences while that review takes place.

One of the things that we were concerned about in particular, referring back to the open general licensing and the open licensing discussions that we had earlier, was that two days after our report was launched, a new open general licence was issued, and one of the things that it allowed was for spare parts and components to be supplied to Saudi Arabia in support for the Typhoon Eurofighter project. In our view, in light of real, credible risk that this military equipment was used in ways that would breach the EU common position and the UK relative consequences for the 2002 Export Control Act, we think it inappropriate to have a country such as Saudi Arabia as a permitted destination on something like an open general export licence. We think that there are already powers to revoke, suspend and amend those licences, to make sure that no transfers take place until an investigation has taken place.

John Glen: Is that before it is proven one way or the other?

Oliver Sprague: Yes. We are not saying, "Ban all exports to Saudi Arabia." We are saying that exports should be suspended while an investigation is done into the role that the Saudi Arabian air force may have played in the attacks.

Rob Parker: I wonder whether I might add a little supplementary information. We don’t categorise the system as being broken, in that sense. The role of this Committee and of us giving evidence are testament to the fact that the system is open to scrutiny, and that we have an opportunity to try to make incremental improvements to it by raising issues around the things we have been talking about today. I would not want to give the impression that we think otherwise, because we also praise this system as being one of the most robust of the many that we work with.

Q27 Chair: I would like to put another question on another country. In their response to the previous Committee’s report, the Government referred to lessons learned from Georgia. Are you aware of any breaches of arms export licensing controls by UK persons or businesses as far as Georgia is concerned?

Rob Parker: I am not aware of any.

Oliver Sprague: This may not be a very satisfactory answer, but it is probably a true one. We are in the very early stages of a new Administration, so it is very difficult to pinpoint specific licences of concern, but we could certainly come back to you in writing on the Georgia question.

Q28 Mike Gapes: I wanted to follow up on the issue of Sri Lanka. The previous Committee was very critical of the fact that arms exported during the ceasefire period were subsequently used in the civil war in Sri Lanka. Has there been a change of policy on Sri Lanka in recent months? If you cannot answer now, perhaps you could send us a note with your assessment of the current position on Sri Lanka.

Oliver Sprague: We can certainly do that. I am mindful that the Government responded to the Committee and gave explanations that the licence applications that they issued were such that there were no risks of the arms being used in the conflict. There is a wider point there about transparency and end use. It is actually quite helpful to have that kind of detailed breakdown across the whole spectrum of problematic arms licences, probably in annual reports. We could certainly come back to you in more detail specifically on the Sri Lanka case, and on whether you as a Committee were satisfied with the responses.

Q29 Chair: One final question, if I may. As you will recall, the previous Committee was very firm that our arms export control structure would be greatly enhanced if we had "no re-export" clauses in our arms export contracts, yet although the number of other countries that adopt that as standard practice is quite striking, we were not able to persuade the previous Government, and I do not think that we have so far persuaded the present one, that that is a good route to take. Instead, they have come up with a halfway house in terms of end-use undertakings. We have had that system running for a year or so. Do you have any observations as to how well or not well it is working?

Rob Parker: In terms of the impact of those commitments, the question is probably one for the Government to answer, but it seems very unlikely to us that someone would ring up to announce that they plan to re-export UK equipment to an embargoed destination. I am not being flippant. It seems a back-to-front approach to the issue, when we are talking about destinations that are already prohibited. It seems unlikely that a UK clause on re-exports would influence the actions of a state that is set on exporting to an embargoed destination in the first place.

We see the value of a no re-export clause essentially as raising the bar in terms of the tools that you have available for your risk assessment. It is not so much about on-the-spot enforcement-there is not a lot the UK can do to stop another country exporting UK equipment. It is more about having that on a contractual basis, so that the burden of proof for your risk assessment is less about where someone may have re-exported UK equipment to, but more about the fact that they breached contractual obligations to consult with the UK before they did so.

There are a number of elements that would be useful in terms of sharing information with EU counterparts, for example, and raising a flag, not necessarily to show that there was an egregious occurrence as a result of the transfer, but just the fact that the state or end user was not sticking by its contractual obligations. It seems to us that it is normal standard operating procedure for legitimate trade, and people are happy to follow standard operating procedure. There will not be a significant number of cases when the UK feels it needs to step in and enforce this; it is more that it is just part of the bigger picture of good practice.

Chair: Thank you very much Mr Sprague, Mr Parker and Mr Butcher for joining us this afternoon. Your evidence has been very useful, and we will be glad to have the follow-up material that we have requested.

Examination of Witnesses

Witnesses: Mr David Hayes, Chairman, Export Group for Aerospace and Defence, David Hayes Export Controls, Mr David Wilson, Vice-Chairman, Export Group for Aerospace and Defence, Hewlett Packard Enterprise Solutions, Mr Brinley Salzmann, Secretary, Export Group for Aerospace and Defence, AeroSpace, Defence and Security Group, and Mr Barry Fletcher, Executive Committee Member, Export Group for Aerospace and Defence, Fletcher International Export Consultancy, gave evidence.

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 have 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: The 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 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.