UNCORRECTED TRANSCRIPT OF ORAL EVIDENCE
To be published as HC 689-i

House of COMMONS

Oral EVIDENCE

TAKEN BEFORE the

Committees on Arms Export Controls

Arms Export Controls 2013

Monday 3 December 2012

Roy Isbister, Oliver Sprague and Martin Butcher

Mr David Hayes, Mr Barry Fletcher, Mr David Barber and Mr Michael J. V. Bell

Evidence heard in Public Questions 1 - 69

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Oral Evidence

Taken before the Committees on Arms Export Controls

on Monday 3 December 2012

Members present:

Sir John Stanley (Chair)

Mr James Arbuthnot

Katy Clark

Ann Clwyd

Thomas Docherty

Mike Gapes

Ann McKechin

Bob Stewart

Mr Robin Walker

________________

Examination of Witnesses

Witnesses: Roy Isbister, Team leader, Small Arms and Transfer Controls, Saferworld, Oliver Sprague, Arms Programme Director, Amnesty International UK, and Martin Butcher, Policy Advisor, Arms Campaign, Oxfam GB, gave evidence.

Q1 Chair: Mr Isbister, Mr Sprague and Mr Butcher, welcome to you. We have a lot of subjects that we wish to cover with you. We have just one hour. I am sure that the members of the Committee will seek to put concise questions to you; equally, I hope that your answers can be reasonably concise, but do not feel that all three of you have necessarily to respond to every question. In that way, I hope that we will be able to get through all the subjects that we want to cover with you.

We want to start with the Arms Trade Treaty. I would like to ask you a broad question on that. My question is this. Do you consider that the British Government were in any way responsible for the failure of the negotiations in New York in July, when 90 countries were willing to sign up; or do you believe that, in the circumstances, the British Government did all that they reasonably could to try to secure agreement to the Arms Trade Treaty?

Martin Butcher: We would be absolutely clear, as we were in our written evidence, that the primary responsibility for the failure to adopt a treaty at the end of the conference in July lay with the United States. It was clear that the UK was ready to continue working on the final day, on that final draft, to tweak a few items and adopt a treaty.

We have at least anecdotal information that that ran for some of the countries that were on the sceptical side; that some of the very strong sceptics had been persuaded by the chair not to block the treaty, although there was no chance that they were going to sign up to it. The United States came in and said that it needed more time, in that UN language, and brought the conference to an end. That is where the primary responsibility lies, certainly. The FCO and other Departments-the FCO in the lead-certainly worked very hard throughout the conference. The UK Government, as I say, were ready to go ahead.

Q2 Mike Gapes: I understand that Iran is a problem within this process. Is there going to be certainty that we will have a treaty in March, or are we going to find that some country might block the whole thing at that point?

Martin Butcher: I do not think that there is certainty that we will get a treaty in March. The conference in March will run on the same consensus rule that the treaty ran on in July, so any one state can block adoption of a treaty at the end of the conference. Iran is a sceptic state concerning the ATT-there are others: Syria, Algeria and Egypt spring to mind-but it could equally be that, if negotiations have gone badly, a state friendly to the ATT would want to block to stop a weak treaty being adopted. However, thanks to the First Committee resolution, we now have the fall-back that, either in the late spring or early summer of next year, during the continuing 67th session of the UN General Assembly, a draft treaty can be taken to an Extraordinary Session of the GA and voted through on a two-thirds majority; or, if that cannot be worked out, then a treaty will be taken through the First Committee and then the General Assembly process in the autumn, where again a two-thirds majority will suffice. That will cut out all of the sceptic states. We know that we can get a treaty on a two-thirds majority, and a strongish treaty at that.

Q3 Mike Gapes: In your submission to us, you did point out concerns about a number of loopholes and problems with the drafts. Is it likely that we will get a better or a worse treaty in March than we would have had earlier this year?

Martin Butcher: We certainly have some concerns. We have enumerated the loopholes for you. The most important thing in March, we think, is that we get a robust Arms Trade Treaty rather than a universal one. The Foreign Office has said that the threat, if you like to use that word, of going to the General Assembly and getting a two-thirds vote will mean that they can say that the draft that we have so far is a floor and not a ceiling, and that we work up from there, because they can block anything lower than that. Sceptic states who might want to weaken the treaty know that we can go to the General Assembly, where we will get something stronger than we will get from a consensus process.

We do have worries. As I say, it is important that the treaty is robust. We can always persuade non-signees to sign up later, but the track record of strengthening treaties once they have been adopted is not good, so we would rather not have to try that.

Q4 Mike Gapes: We have had evidence from some people about concerns that there is no robust anti-corruption provision within the draft treaty. Is that likely to be strengthened, or is this one of the issues that is more difficult?

Martin Butcher: That is something that we will be working hard on, and civil society as a whole will be working to push it. Given the UK Bribery Act, I am sure that the Government will also be pushing that as an issue. For Oxfam, for example, it is something that is extremely important because it relates very directly to development. It is an important issue; I think that we can make some progress on it.

Q5 Mike Gapes: Finally, the US decision presumably had a lot to do with domestic politics before the presidential election. Is it likely that the Obama Administration, in its second term, will be more positive in pushing this forward than it was towards the end?

Martin Butcher: We certainly hope so. It was undoubtedly difficult, given the politics of an election year-and in some ways particularly poisonous politics this year-for the Administration to agree to something that the NRA was trumpeting was all about Hillary Clinton going to the United Nations to take away people’s guns, when the treaty has nothing to do with that. Certainly, in a situation where the President does not have to run for office for anything ever again, and as far away from an election as it is possible to get in the United States, if there is ever going to be an easy time for an American Administration to do this, it is now.

Chair: We are now going to turn to cluster munitions.

Q6 Ann McKechin: As you will be aware, the 2010 Act prohibited direct funding of cluster munitions. The then Labour Government indicated that they were going to take consultation on how you could prevent indirect funding of cluster munitions. In your evidence, you indicated concerns that the current Government seem to have rejected that type of approach. Would you comment on what you think the UK Government should now be doing in working with industry and NGOs to tackle this particular issue?

Oliver Sprague: We said in last year’s evidence to this Committee, and possibly in previous years’ evidence, that we think that the loophole around indirect financing needs to be closed. The signal from the prohibition of cluster bombs should be that you should not be involved in the production, manufacture and marketing of cluster munitions. It is certainly the case that there has been no progress during the year since we last raised it with you, on the Government at least having a meeting with interested stakeholders.

It is worth bearing in mind that we have had a number of bilateral meetings with a whole range of UK financial institutions and banks and, while recognising the difficulties in this area, they are all sympathetic to the idea that they wish to phase out indirect financing for these weapons. However, they are strongly in favour of coming together as one; they strongly support Government guidance on this, and they want to see the idea of a voluntary code of conduct, that first step, being instigated. We have all of the UK NGOs working on this area thinking that it is a good idea, and we have the previous Government’s ministerial statement, which I think was supported unanimously by all parties at the time, saying that it is a good idea, and the banks themselves saying that it is a good idea. It remains a good idea, and we want to see it happen.

Q7 Ann McKechin: Okay, but there has been absolutely no communication from the Government about this.

Oliver Sprague: No, not as far as I am aware.

Chair: We now want to come to the review of arms export policy, which the Government set in hand in the wake of the Arab Spring.

Q8 Mike Gapes: May I take you to what seems to be, at least on the surface, a contradiction between concerns about strengthening arms export controls and, on the other hand, the Prime Minister’s well-publicised visit to Bahrain and Saudi Arabia? As I understand it, the Government signed a defence co-operation accord with Bahrain in October. We have had some difficulty in finding out, through parliamentary questions that Katy and others have asked, exactly what is in that accord. It has not been put in the Library of the House of Commons, and we do not yet know exactly what it involves. Given that you are looking at this area, what is your assessment of that accord? Is it a significant move, or is it simply a consolidation of existing agreements and co-operation?

Oliver Sprague: It is worth saying, as we said in our evidence, that we have not seen the details of this accord. In light of the Arab Spring and in light of what is still going on in Bahrain and the human rights violations, that is concerning.

It is important to note that Amnesty produced a report a couple of weeks ago that looked at the Bahrain Independent Commission of Inquiry report from 2011. Basically, it said that there were gross human rights violations that took place in Bahrain, and it made a whole series of recommendations: that the Bahrain security forces should own up to these things and have some independent investigation, and new standards and procedures. As far as I am aware, hardly any of those recommendations from 2011 have been implemented, and there have been further crack-downs on things like the legitimate right to protest.

So Bahrain remains a very sensitive and problematic destination in terms of human rights violations by the security forces. In light of that, it is incumbent on the Government to explain clearly what a defence co-operation agreement looks like, what are the human rights safeguards that are built into it, and what kind of equipment, training and units form part of that agreement. We hope that this Committee will be able to press the Government on that.

Q9 Mike Gapes: What about the wider issue of exports to other countries in the region like Saudi Arabia, the Emirates and a few other countries? One of your submissions says that the Gulf states are among the most vocal or the most persistent opponents of an arms trade treaty. Does that not indicate that we have a wider problem here, in terms of the future of our relationships?

Roy Isbister: I would say, yes, there are some problems there. Again, we have raised before the issue of arms supplies to Saudi Arabia, and there has almost never been a single licence refused. Licences have been issued right across the military in this category in vast quantities, and we see that as problematic. Again, with regard to the Gulf Co-operation Council, we have some similar issues there.

I go back to what you said right at the beginning of the first question on the subject. You mentioned David Cameron visiting recently on an export promotion tour. I thought that the timing of that was interesting, because that was happening at the time that the First Committee vote was being taken in the UN this year. The vote was the best vote yet-157 for, nothing against, with 18 abstentions. Most of those abstentions came from the Middle East, and they were those Gulf Council states and Saudi Arabia. I would be very curious to know what the role of the Government is on those promotional visits in raising the issue of the Arms Trade Treaty, which is a priority of the Government, when discussing this with the politicians and rulers in those countries.

Q10 Thomas Docherty: Let me first draw your attention to my entry on the Register of Members’ Financial Interests.

Mr Sprague, Bahrain is the home to the United States fifth fleet, it is also the home to the Royal Navy’s mine-hunting squadron for the Gulf and it is home to a number of our other assets. So that I am clear, is it your position, first, that we should not have military assets stationed in Bahrain; secondly, that we therefore should not have co-operation with Bahrain; and, thirdly, that the UK Government should not be promoting British business to Bahrain?

Oliver Sprague: No, I do not think that that is quite what I said. What I said was that, in light of the UK Government’s export control policy and the guidelines that say we are not supposed to sell equipment that could be used to facilitate human rights violations, and given the concerns over human rights violations by the Bahrain security forces, there needs to be a very tight control on exports of that type of equipment to that destination.

What we need here is clarity on the who, why and what of this agreement. Who are we working with, and what is the purpose of the equipment? I am not saying that there is a blanket denial on those activities. Does that clarify it?

Thomas Docherty: Yes.

Chair: Now we turn to how the actual mechanics of this review are carried out by the Government.

Q11 Ann McKechin: Last year, you expressed your disappointment to the Committee about the failure of the Government to consult you regarding their FCO review on the sale of arms to the Middle East and North Africa. In your submission this year, you again expressed disappointment that you have not been involved in the implementation of that review’s recommendations. To what extent do you think that the Government should have a dialogue with yourselves and with the industry regarding sales to this part of the world? This is clearly an ongoing issue, and change and developments are happening every month. In what ways do you think the dialogue is working-and not working?

Roy Isbister: First of all, I want to make sure that we do not sound too selfish on this. It is not necessary that they need to consult us; they need to consult with external stakeholders. The idea that if there is a problem you review it yourself, you come to conclusions yourself and you implement it yourself is generally discredited as an approach. We would expect there to be an external involvement, where it is recognised that a problem has existed.

Our experience from the past was very positive. When it was the time of the review of the Export Control Act, there were trilateral discussions going on with industry, NGOs and the Government, and that was a very positive experience. I have recommended that in other countries of the world as a good way to behave. It has been disappointing that we seem to have gone backwards, and gone back to being told what the outcomes will be and what the outcomes are instead of being involved in the actual process.

We have seen in the statement in the annual report this year-the Strategic Export Controls annual report-what has been done to implement it. Again, that raises as many questions as it answers, so there is still a role to play for external stakeholders to look at that.

Oliver Sprague: It is worth noting that when the Foreign Secretary first announced the results of his inquiry into the MENA licences, there were seven areas that the Government were going to look at in light of that review. Those seven areas contain some pretty meaty and important issues. We were told that we would be consulted in the implementation phase, through being consulted as stakeholders, but we have not yet been consulted. It is worth saying that some of those things included a new process to suspend licences, a revised categorisation of countries at risk, and an enhanced risk assessment that would be carried out by licensing officials.

Q12 Ann McKechin: Would you remind the Committee when the implementation phase started? When did the review end and the implementation phase begin?

Roy Isbister: The Foreign Secretary’s statement, I think, was in October last year, in which he announced that the review had been completed and would now move on to the next stage.

Q13 Ann McKechin: Over the year since then, you have not been consulted on these areas.

Oliver Sprague: No. Just to temper the criticism a little bit, we are all aware that the Arms Trade Treaty has been an incredibly important, vital and time-consuming instrument, and that HMG have been playing their full role in supporting it, so we are sympathetic to the time constraints on some of these issues. Because these things are interlinked-your own national export control system, how you assess risk, monitor end-use, report on transparency and link justice and security assistance to export licensing-it is actually crucial to how you might implement human rights, development criteria and provisions in the Arms Trade Treaty. It is very important to make sure that that process continues at speed.

Q14 Chair: Before we finish on this subject, I would like to ask you this question.

One of the central recommendations of this Committee in its two reports so far in this Parliament-a recommendation that, regrettably, has not so far found favour with the Government-is that the review that the Government carried out into their arms export policy following the Arab Spring in relation to countries in North Africa and the Middle East should be extended to authoritarian regimes worldwide. Does that recommendation find sympathy and support as far as you are concerned, or do you oppose that recommendation?

Oliver Sprague: No; absolutely, we support it wholeheartedly. What happened in the Middle East and North Africa, what happened during the Arab Spring, is symptomatic of a wider problem. It is a particular focus and a particular crisis, but it is certainly the case that these rules should be applied everywhere.

Roy Isbister: My understanding is that the outcome of the review of what happened within the MENA region is to be applied across the whole gamut of export control licensing around the world.

If you look at some of the other things going on in Government-for example, the Building Stability Overseas strategy, which is supposed to be applied very broadly-there are a number of factors in that which you would hope would be brought into the export licensing process. It is much more forward looking. We have criticised the Government in the past on the grounds that it feels like a backward-looking basis to an assessment.

The Building Stability Overseas strategy talks about doing a zero to 12 month risk analysis, and a one year to five year risk analysis, elaborating and building on early warning systems and acting early. If that can be brought into the way that export control licensing is done, that would very good but, from what we have seen so far in what has been published, we do not know whether it has. There is very little information on that, and that I think is where engaging stakeholders in a proper conversation would be very useful.

Chair: Thank you. We turn now to another review, which has been the Business, Innovation and Skills Department’s review into the operation of the export licensing system.

Q15 Mr Walker: In advance of my questions, I apologise that I may have to leave the meeting before the end of your evidence.

You have been consulted on the BIS consultation on transfer licensing, and I think that you welcomed that degree of consultation as part of your working group. In your opinion, what information would you like to see BIS providing in its quarterly and annual reports in order to improve transparency further?

Oliver Sprague: For us, it is a simple question. Basically, it is about qualitative information. We need to be able to tell from the data who is in receipt of military equipment, who the end users are and what the purpose of those licences is.

We have all noticed that there have been significant improvements over the years on this particular issue, and there are more and more what I would call qualitative footnotes in the data explaining what some of these licences are for and how they are going to be used. There has been some good practice that has been shown to the Committee, especially in last year’s report, where there has been a greater level of information provided on single individual licences. All of that is to be welcomed.

The one thing that we are slightly concerned about is the information on end users, which I would say for us is pretty critical. At the moment, it appears to be quite limited, and it is just going to be on the basis of whether it is a military user, a private company user or a police user. We probably do need some slightly greater detail on that. We need to know, for example, whether it is naval safety equipment rather than surface-to-air missiles for warships-those kinds of issues. That is the nub of it. We need to be able to tell from the reports that are given to us what the equipment is going to be used for, and who is going to use it. That is the only way we can make an objective assessment about whether the criteria are being applied.

Q16 Mr Walker: I notice that you talked about a more meaningful level of detail in your written submission, but have you provided any more granularity on exactly what you want to see, in terms of the level of reporting and the types of organisation that you want it broken down into?

Oliver Sprague: If it was going, say, to the police to be used in airport security it should say, "For police use for airport security." I know that it has happened in the past that military vehicles have been sold to countries that look entirely problematic. However, the end user for those vehicles is sometimes unclear. Syria is a good recent example, where the end user for those vehicles was not the Syrian armed forces or any group in Syria; it was a foreign embassy. It would be helpful to say, "4x4 armoured vehicles for the use of foreign Government personnel and the protection of embassy staff"-something at that sort of level.

Q17 Mr Walker: There was also discussion about the appointment of an independent reviewer to look at the export licensing system. I presume that that is something that you would support, but what powers do you think that that independent reviewer needs to have?

Roy Isbister: It is something that we would support, although it was rejected by the Government this time, so our suggestion is perhaps to do this on a pilot basis. It might be on a more limited basis, but you can come up with different ways of doing it. You might want to do it for certain geographical regions for a start, and see how that kind of thing works. I have always assumed that this independent reviewer would have advisory powers and that it would be limited to advisory powers, but I would like there to be some transparency attached to any recommendations that the reviewer gave.

Q18 Mr Walker: What degree of transparency are you talking about?

Roy Isbister: I would like public transparency in that the reviewer would provide a report. I would certainly like public transparency, but I should have thought that if we cannot get to that stage then at least this Committee should be able to see that.

Chair: We now come to the very important issue of the relationship between the UK’s national consolidated criteria and the EU Common Position on arms exports.

Q19 Katy Clark: You expressed disappointment with the process of the review of the EU Common Position. What were the reasons for your disappointment, and how should it be taken forward?

Roy Isbister: It is very similar to what we have raised with the Foreign Office review. I am on record as welcoming the fact that BIS, for the purpose of its review, did consult externally. It did not do any harm, but you could have a chat to the Foreign Office about that.

We have exactly the same problem with the Common Position review as we have with the Foreign Office review, but there is an extra layer of complication because it is much easier to dodge responsibility. Who do we go to in order to ask to be involved in that review? If we go to the European External Action Service, it tends to say, "Well, you have to speak to the member states." Then, all of a sudden, you are trying to deal with 27 different actors, and they tend to say, "Well, this is a matter for the EU." You end up in quite a vicious little circle.

We would like to have exactly the same opportunity for external stakeholders to be able to input into that process, make recommendations and hopefully have a discussion as well. Again, as I say-this is not purely from a selfish point of view-industry and others should be involved in that as well.

Q20 Katy Clark: What kind of representations would you like to make? For example, there have been calls for an additional criterion to be added to the EU Common Position relating to corruption. What are your thoughts on that particular suggestion?

Roy Isbister: I do not know if anyone else wants to talk on corruption, but I could just say that one issue that has energised us a little bit over the last year or so is the notion of governance-much more explicitly introducing the notion of good governance into the criteria. On the review of the Common Position, there have been Council conclusions on the review which said that there would be no change to the Common Position. However, they are now looking at whether there can be improvements to the implementation of the existing Common Position, and they say that they are looking at the implementation of the existing eight criteria, although, as far as we have been able to discover, on only two of the criteria can we find evidence that they are actually being reviewed.

Q21 Katy Clark: Which are the ones on which you have found evidence?

Roy Isbister: Criterion 7, the shorthand for which is diversion, I think is very sensible in light, for example, of what has happened with Libya recently. Criterion 8 is the sustainable development criterion, in shorthand, but I think that the rationale behind that is that states have found it most difficult to get agreement on how to do that. Again, looking at the Arab Spring, you would have thought that Criterions 2, 3 and 4, on human rights, internal repression and regional stability, all seem very relevant. To me, the EU should be concerned that it has not got those quite right just yet, so it would be disappointing if we did not see some more review of those.

Oliver Sprague: Before we go on to the specific issue of the other criteria, the general point is that essentially these eight criteria were first developed in 1991 and 1992 as part of what were then the EU’s guidelines on arms transfers. They were further refined and elaborated during the Code of Conduct discussions in 1997 and 1998, but essentially the guts of those rules relating to export controls were agreed in the early 1990s, and that is almost 25 years ago by my calculation. With all these things, we develop our thinking, and there are areas, especially around governance, where the thinking has moved on considerably in those 25 years. We should always keep these kinds of rules and guidelines under constant review, and there is a case to be made to ensure that those eight rules are still the rules that we need.

Martin Butcher: I would just add, as I said in answer to questions about the ATT, in relation to sustainable development, as well as a stand-alone issue, that corruption is very important. We know that, historically, some areas of the arms trade have been particularly susceptible to corruption. Civil society has been engaged with some Governments in discussion on exactly how to do this, and, whether it is done through Criterion 8 or as a stand-alone criterion, we have not really come to a conclusion yet, but dealing with the issue is important.

Q22 Chair: In your previous evidence to us, you appeared to be concerned that there may be respects in which the UK’s national consolidated criteria might be weaker, as far as arms export control policies are concerned, than the EU’s Common Position. However, if you have studied very carefully our last report-I am sure that you have-and particularly the critically important exchange with the Foreign Secretary about the selling of arms that could be used for internal repression, which we reproduced in full in our report, you will, I hope, have noted that the Foreign Secretary signed up unequivocally to the statement that the British Government would not sell arms that "might be used to facilitate internal repression". That wording is stronger and tougher than what is in the EU Common Position, which refers to there having to be a "clear risk" that the arms could be used for internal repression. It is self-evident that you can debate in a very elastic way whether or not there is a clear risk.

My question to you is this. If there are areas of British Government policy where the policy is tougher than the EU Common Position, particularly in relation to arms that could be used for internal repression, would you support the retention of the UK national position?

Oliver Sprague: In all of these areas, there are supposed to be minimum standards. Any member state is allowed to apply stronger standards, should it so wish.

It is not just on the area of internal repression where there are differences. As we said in previous evidence, there are other areas where there are differences that are more negative. For example, in the section that deals with issues around national security assessment and defence interests, the UK guidelines or the UK’s consolidated criteria are considerably weaker in that respect than the EU Common Position. We are under the instruction that full weight is given to those factors. That is much more qualified in the EU Common Position.

For us, the point is that the Common Position is supposed to be implemented in UK law. At the moment it is not, and it should be. Yes, your general premise is right that the UK Government should be able to have stronger criteria in certain areas should they so wish.

Chair: Thank you. We turn now to the issue of arms exports to developing countries.

Q23 Thomas Docherty: Let us say that Land Rover comes to the UK Government and says, "We would like to sell more Range Rovers to India," and it wants to receive Government support in trade missions. Do you think that there is anything morally wrong with Ministers using reasonable methods to lobby, say, the Indians to buy more Range Rovers from the United Kingdom?

Martin Butcher: In terms of at least civilian vehicles, it is something possibly beyond the scope of what we said, but in terms of UK Government support for arms and related equipment-

Q24 Thomas Docherty: Leave aside military equipment. Is there anything wrong with the UK Government using all their relationships to encourage countries in receipt of aid to purchase products produced in the United Kingdom?

Roy Isbister: As far that statement goes, then I personally do not have a problem with it. The idea of tying aid to willingness to buy UK products-I have a problem with that. In the past, that has proved to be problematic. If you start wandering down that road, you can end up in some rather ugly territory.

Q25 Thomas Docherty: Here is the thing: you have raised issues about what you claim Andrew Mitchell, under questioning from The Independent newspaper, is saying-that in order to help sell Typhoons we would use all the levers available, which includes the fact that we have a relationship with India on aid. I am not Mr Mitchell’s greatest fan-nor am I a policeman, to be fair-but I do not think that anybody in the House of Commons would suggest that he actually meant that we would withdraw our aid if that country did not buy Typhoons. It is fair to suggest that he was seeking to use the fact that we have a relationship on aid to help encourage it to buy Typhoons. Is there anything wrong in using those levers, to use those relationships, to encourage countries to buy British-made products, whether it be Land Rovers or Typhoons?

Martin Butcher: We need to follow up what Roy said. If you are specifically saying, "We will not give you aid if you do not buy our military aircraft", yes, that is wrong.

Q26 Thomas Docherty: Andrew Mitchell did not say that.

Martin Butcher: No, he did not. He did not say that. There was an implicit link. If you are saying that there are Government to Government or business to business contacts, where we have friendly relations with that Government, then, no, there is nothing wrong with that.

Q27 Thomas Docherty: In your evidence, you say that it is of questionable legality and bad practice, but I genuinely do not understand. I am no Mitchell fan, but Mitchell is saying that we would use our relationship to encourage them, although I do not think that he ever said, "We will take the aid away if you don’t buy Typhoons." Is that morally wrong? Leaving aside whether it is military or non-military equipment, the principle-

Martin Butcher: The point of the written evidence was that there was some lack of clarity. The quote that we used was made in the context of a debate about the continuation of aid to India. There is at least an implication, therefore, that the policy is that there is some kind of tie. We were clearly restating that that was wrong.

Q28 Thomas Docherty: Where? Where is the implication that there is a tie?

Martin Butcher: I can write to you on this if you want and go into some detail, but this is now something that is about a year old. We would need to do that to get down into the detail.

In the context of that debate, there was at least an implication there. It is entirely possible that Andrew Mitchell, at the time, was speaking somewhat loosely rather than in a very definitive policy-making way, but it raised questions and concerns.

Q29 Thomas Docherty: In your written evidence, you said that the then Secretary of State Andrew Mitchell linked UK aid to India to arms sales in an article in The Independent. Did you or did you not?

Martin Butcher: Yes. That implication is there, yes.

Q30 Thomas Docherty: What Andrew Mitchell talks about is relationships. I genuinely struggle to understand what is the moral objection. If the UK Government, who have a multiple level of relationships with India, are trying to make a very significant sale of a particular UK product, regardless of whether it is military or a luxury brand of 4x4, what is wrong with that?

Martin Butcher: May I say that I shall come back to you in some detail in writing in the next couple of days?

Thomas Docherty: Okay.

Chair: Thank you, Mr Butcher. We will await your further written evidence.

We want now to deal with the issue of the export of goods that could be used in connection with capital punishment and torture, and from there we want to move on to the issue of policy towards the export of components for or whole unmanned aerial vehicles or drones.

Q31 Ann Clwyd: You gave us two examples where you think that the UK Government have failed to act in response to the promotion and supply of goods that could be used for torture. You mentioned a USA company that manufactures electric shock equipment, including electric shock shields, electric shock belts and electric shock stun guns, which became a wholly owned subsidiary of a UK-registered company. The second thing you mentioned was the display of promotional material and literature at arms fairs, which I have seen for myself in the past. You said that three stalls were eventually closed after pressure from Amnesty and others. I wonder what action you think the UK should have taken on both of those issues.

Oliver Sprague: On the issue of promotional material at defence exhibitions for torture goods, my understanding of BIS’s current guidance on Category A controls is quite explicit. It does not exclude goods for general promotion and advertising. It is therefore fairly understood across the sector, and with us, that that includes brochures.

In evidence to the Committee, Vince Cable, the Secretary of State, qualified that by saying that you had to prove the intent to move goods from one third country to another. Just portraying the promotional material itself was not necessarily an offence. I do not think that that is what it says in the current guidance on the BIS website about trade controls and the promotion of torture. It is very clear; it says that the promotion of torture equipment or Category A controls in brochures is an offence.

In this particular case, the UK company was displaying promotional material from a US company, not a British company. Already, there was a third country in there. There was a UK company promoting material from a third country. I assume, because it would not be allowed to be traded from the UK, that it would have to be a deal between third countries. My reading of the law is that that was a suspected breach of trade controls; and certainly the existing guidance, unless it has changed, would imply that too.

The other issue is one that we have talked about before, over many years, to the Select Committee. It is the anomaly that wholly owned subsidiaries of UK companies, despite being British companies, are not covered by UK export controls. We have said on many occasions that for very serious offences-for example, breaching UK embargos, whether they are national, EU or UN embargos, or dealing in Category A goods, torture equipment and weapons of mass destruction and these kind of things-we really think that wholly owned subsidiaries of UK companies should be caught by the controls. This is a clear example of where we think that should happen.

Q32 Ann Clwyd: What response have you had from the Government?

Oliver Sprague: We have not yet had a response, because this is a fairly new case and we have only just raised it. We are still waiting to hear what action is going to be taken in light of the trade control breaches and the cluster bomb legislation breaches that took place at the DSEi. We have not yet heard what the follow-up action is going to be-if any.

Q33 Ann Clwyd: May I ask you about unmanned aerial vehicles, commonly known as drones? They have become quite controversial. What are your views on the increased use of drones? I questioned the Foreign Secretary in the Foreign Affairs Committee on the role of the British Government on this issue, but I did not get much information.

Martin Butcher: In terms of licensing, particularly for armed drones for export, there is one area where Oxfam is beginning to have some concerns. It follows the publication of a report earlier this autumn by Stanford university in the States, which has done the first study of its kind to look at the effects on the ground in Pakistan, on the civilian population, of the permanent deployment of drones and their regular use in attacks away from the battlefield.

There is evidence in that report-anecdotal evidence at the moment, because this is a very new area-that in some areas farmers are becoming reluctant to use agricultural land or to work from certain kinds of buildings for fear of attack, and that there is damage to the social fabric in villages in some of the tribal areas because people are beginning not to attend the weddings and other family events that are extremely important in those villages. As more evidence becomes available, as this seems to be going on, we would hope that this kind of thing would be taken into account under Criterion 8 in deciding whether or not to licence the export of these things.

Obviously, although this is not particularly our remit, that might also be a question for the British Government in setting their own policy on the use of drones, as it could be seen to be having an undermining effect on stability-building in a country like Pakistan, where these things are being used regularly.

Oliver Sprague: It is also certainly the case that, to this Committee and to its previous incarnations, we have raised concerns over drones in a number of different contexts, but primarily relating to the UK’s supplying of component parts and technology for the use of drones. Amnesty International has been very critical of the use of drone strikes in Pakistan, which we consider to be extrajudicial killings and therefore unlawful.

I guess that drone technology is not going to go away, but it is part of a wider move towards more automisation, with computerised control and robotic control of weaponry. That is probably beyond my remit here, as an Amnesty spokesperson, but personally I think that that raises a number of ethical and moral questions that we need to ask ourselves.

I know that there is a Defence Select Committee review process on the use of drones, but generally there needs to be some greater work done on the effect of the increased automisation of weapons systems, and what legal, moral and ethical and international human rights law safeguards we need to have in place before that technology is implemented. I am not aware of any studies currently going on within Government, apart from the Defence Committee looking at those areas, but it is an important area, because this is something that is going to increase, not decrease.

Q34 Ann Clwyd: I do not know if you have seen RUSI’s report, but it suggested that political reconciliation will become even more difficult with the continuing use of drones. The fact is that militants are killed, yes, but so are a lot of innocent civilians.

Roy Isbister: From our perspective, we may be bandwagoning but we are starting to look at drones, but my bit of Saferworld is looking at it from the export control policy. We are trying to work out whether the rules that exist at the moment are sufficient to deal with the transfer of drones, or whether they are unique enough that you actually need to come up with some fresh rules for dealing with them.

The answer that we have got to so far is the old favourite of yes and no, in that some of the ways in which drones are being used seems quite unique. Potentially, that raises new issues about how you manage their transfer, but I kind of think that, if you engage with this in good faith and do it in a thorough way, the existing rules probably do cover the use of drones.

If you run through the same issues and look at the same international law questions, then I think that you are well on your way. The problem is that lots of states do not seem to be clear in their own minds what the international law applying to drones should be. In the US at the moment, I understand that there is a very lively debate going on within Government, trying to work out what is legal and what is not.

Q35 Katy Clark: Have you had any opportunity to do any work in relation to the recent events in the Gaza Strip? I understand that there may well have been UK components in the US-built drones used by the Israeli state. Obviously, Britain is also involved, through the EU security research programme, in joint work with Israel on research in relation to drones. Have you done any work on that, either on the import from Israel to here of drone technology or components, or vice versa?

Oliver Sprague: I stand to be corrected, but my understanding is that the drones that were used in targeted attacks in Israel by the IDF were from Israel’s own supply of drones and not from the US.

There is a long-standing case, which we have raised on numerous occasions to this Committee and previous Committees, about the role of UK components and technology in those drones. We are still not convinced that UK companies have not supplied technology that has found its way into those drones, by the very fact that the main Israeli company that makes these owns the specialist company that makes engines for drones. It is probable that there have been some technology transfers, or at least some assistance. It stands to reason that, if you have a company that makes engines, a specialist company, and you have an Israeli company adapting those engines and they are used in armed attacks, there is an issue there. Whether it is an issue of technology transfer or reverse engineering, or whatever, there are unanswered questions.

Similarly, around the export of componentry to the US, at least one of the companies involved in supplying components still markets its components as commercial off-the-shelf. They are not licence-required, but they are electronics that are important to the communication and navigations systems of those drones. Again, that raises questions around what goods are controlled and whether we need to do further work on military end-use controls and those sorts of issues.

Q36 Mr Arbuthnot: Extrajudicial killings are one issue, but the platform from which those killings might be carried out is another issue. I wonder whether you see a difference in principle between an aircraft that was piloted, with someone actually in the aircraft carrying out a killing, and an aircraft that was piloted from the ground and controlled from a station say in the United States or the ISAF-occupied areas of Afghanistan. Do you see the difference in principle between those two things?

Oliver Sprague: On a matter of pure principle, extrajudicial killing is wrong, whether it is done-

Q37 Mr Arbuthnot: Yes, but that is a different issue.

Oliver Sprague: The more we go down the route of automated systems that operate outside human control, or the more you take the human away from the decision, the more it becomes an increasingly grey area. That is why I said that there needs to be some investigation and some real study into the ethical and legal dimensions of that technology. As a point of principle, no, I am sorry; but I agree with where I think you are coming from.

Q38 Mr Arbuthnot: Is it your understanding that, if a drone is used to fire a missile, the decision is somehow automated rather than taken by a human being?

Oliver Sprague: No, I didn’t say that, but the drone issue is symptomatic of a wider move towards more independent and non-human operated systems. There is a lot of research and work going into this, and that does raise challenges for the future conduct of warfare and international law. At the moment, an extrajudicial killing is an extrajudicial killing, so it does not matter whether you are using a drone to do that or an aircraft. The fact is that it is wrong.

Mr Arbuthnot: I agree with you on that.

Roy Isbister: One more thing-

Chair: Very briefly, because we will have to wrap up.

Roy Isbister: Okay. A drone is not an automated system. The killer robot, which is a fully automated drone, is an automated system. There is an area in the middle. At the moment the pilot is in the loop, and at the other end the pilot is out of the loop as it is fully automated, but there is an area in the middle, which is called "the pilot is on the loop". In that, the pilot is largely outside the operation but may be called in to make a final decision. You start drifting down a slippery slope.

In terms of principle, I would agree that whether it is a manned aircraft or an unmanned one, if it is right it is right and if it is wrong it is wrong. In terms of the broader spectrum of where we are heading, we just need to be a bit careful about the direction of travel.

Q39 Chair: Mr Butcher, Mr Isbister and Mr Sprague, thank you very much indeed for your oral evidence today, and also for your written evidence. Thank you.

We are going to move straight on, please, to our next evidence session with the Export Group for Aerospace and Defence.

Examination of Witnesses

Witnesses: Mr David Hayes, Chairman of Export Group for Aerospace and Defence (EGAD), Mr Barry Fletcher, Executive Committee Member of the Export Group for Aerospace and Defence (EGAD), Mr David Barber, International Trade Compliance Manager, Europe, UTC Aerospace Systems, and Mr Michael J. V. Bell, Export Controls Consultant, gave evidence.

Q40 Chair: Mr Hayes, Mr Fletcher, Mr Barber and Mr Bell, welcome to you and thank you very much. I start with the same question on the Arms Trade Treaty that I put to the previous group of witnesses.

Do you consider that the failure of the Arms Trade Treaty negotiations in New York in July was in any way due to a failure by the British Government, or do you believe that in the circumstances the British Government did all that they reasonably could to bring those negotiations to a successful conclusion?

Mr Bell: I think that I agree with Mr Butcher. I believe that the British Government did their best. We ended up on the green but did not quite manage to hole out, and we are optimistic that we will be able to do so in March.

Q41 Mike Gapes: Are you equally optimistic that the outcome in March will be as robust as what was on the agenda in July?

Mr Bell: Yes. Whether what was on the agenda in July is robust enough is another question, but most of us believe that the March negotiations will carry on from where the July negotiations left off. Certainly, that seems to be the strategy of the British Government.

We all know that there are some weaknesses-a bit of nettoyage, as the French say, to tidy up the treaty. There is some more work to be done, but I think that everybody believes that the right thing to do is to take what we have, tinker with it and use that as the basis for a treaty.

Q42 Mike Gapes: May I switch focus to the issue of transparency? You have given us a submission in which you said that you had concerns about some proposals to introduce greater transparency into UK export controls. I would be grateful if you would clarify what those concerns are and elaborate on them, and let us know whether you have made representations to the Government and, if so, what response you have had.

Mr Hayes: There are several issues bound together here. The overall concern is that there is a lack of clarity over what the purpose and the extent of this increased transparency is. That leads us to a considerable amount of uncertainty as to what the cost to industry is going to be. We are in a position where, as far as we are aware, the vast majority of this information is already available to Governments from information that is already provided by companies to other Government Departments. It seems to run completely counter to the Government’s red tape challenge to introduce an additional level of bureaucracy.

To a greater extent, the argument that open licences in general lack transparency is bogus. Open general licences are published documents available on the internet. It is possible to see what can go where, under what conditions. It is not unreasonable to assume that if anyone had any objections to the scope of that level or nature of exports, they would have raised it as a matter of principle. The only thing that is lacking is the number of times that transactions permitted under that licence take place, and even that information is available to compliance officers at audit.

A lot of the information in relation to OGELs in particular covers transactions that would, by their very nature, be low risk and of little or no interest to the NGOs. I come back to the point that the NGOs themselves made in their evidence. A lot of it revolves around qualitative information. The current drive appears to be towards requiring industry to provide copious amounts of not particularly valuable information and doing little to address the qualitative issue that is of interest to the NGOs.

Q43 Mike Gapes: How have the Government responded to your representations on this issue?

Mr Hayes: Hardly at all, I think would be a fair description.

Mr Bell: Too bad.

Q44 Mike Gapes: "Hardly" is an interesting word. Can you be more specific?

Mr Hayes: There has been very little feedback from the Government on our input.

Mr Bell: We have had discussions with them. We have put our points to them. They have listened. And that is about it.

Mike Gapes: I see.

Mr Barber: We are still waiting to hear in what format the data would have to be provided and what level of detail would be required as part of the transparency agreement. As I say, we are still waiting for feedback.

Mr Fletcher: There is a likelihood that we are going to be supplying lists of hundreds of thousands of items-nuts, bolts, washers, covers, plates, brackets; I could go on for ever-which I do not think are of any interest, but that is what is normally exported under the OGEL on a day-to-day basis. All this information-as I said, it is hundreds of thousands of items-will probably be gathered through the SPIRE system. I suggest that not only will it be expensive to industry to provide this information in a lot of situations, but it will probably divert some of the overstressed, overworked ECO people away from their day-to-day licensing decisions. For what purpose is the information going to be used at the end of the day?

Mike Gapes: Thank you. That is very clear.

Chair: That brings us very conveniently to the Export Control Organisation and its workings.

Q45 Ann McKechin: Your submission described your concerns about delays in processing of applications, particularly in relation to countries in the Middle East and North Africa, and said that some companies have actually lost business as a result. Given the sensitivities and rapidly changing situation occurring in the Middle East at the moment, what would you suggest the Government should do to prevent delays while ensuring the effectiveness and thoroughness of the application review process?

Mr Hayes: One of the biggest issues at the moment affecting the Export Control Organisation overall is resource, coupled with the fact that the organisation itself is adjudged by a single metric-that of turning around 70% of standard individual export licences within 20 working days. That has achieved almost god-like status in the organisation, to the extent that every other activity that the organisation undertakes is subordinate to it, and those other activities suffer.

We have reached the stage where the organisation is processing something like 17,000 standard individual export licences a year, with resources adequate to probably slightly more than half of that figure. By definition, it focuses on the easy cases. The Arab Spring and the developing countries are, by definition, more difficult cases to judge. The organisation is undoubtedly aware that its biggest problem is the fact that it is processing too many of these, with a 98% success rate. If we could move only a small proportion of those over to open licensing, it would free up resources not only to focus on the more difficult cases but hopefully to process those both more quickly and more effectively, which is not necessarily the same thing. Instead of some of the resources being so closely focused on a single task, it could step back and take a strategic view as to what is the solution to the problem confronting the organisation, which is, in fact, that it is processing too many licences.

Q46 Ann McKechin: This is a question about risk assessment criteria. Would you say that that is at the heart of the reason why there is too much definition on one target rather than actually looking over the whole piece?

Mr Hayes: Yes. The target against which they are judged is this one performance metric of 70% of standard individual licences in 20 working days.

Q47 Ann McKechin: Are there particular countries or areas of the world where they currently have to obtain individual licences, which you consider could be better dealt with by a general licence?

Mr Hayes: It is probably more complex than that, because it is not always the country that determines whether you need an individual licence. It is a combination of the country, the goods, the conditions of the export and the end user.

To pick an example, the UK continental shelf is an obvious one. The oil and gas industry operating out of Aberdeen requires licences to export dual-use goods to platforms operated by UK companies on the UK sector of the continental shelf simply because the UK continental shelf is outside the Customs territory of the EU. In all honesty, that is a futile exercise.

Q48 Ann McKechin: Thank you; that is an interesting example. You also mentioned other applications. One that is obviously a subject of concern is the dramatic reduction in the processing of appeals. Over the last year, instead of 51% being dealt with within 20 working days in 2010, it is now down to only 26%. Has the performance of processing applications affected your members directly? Have your members experienced any other problems due to resource issues?

Mr Hayes: Yes. The lengthy processing of appeals is just one example. Another is the lengthy processing of classification requests, what used to be called rating inquiries, where a company wants to know whether its goods are controlled or not. The way that the system works is that, when a licence application goes in, the first real step, apart from a cursory check to make sure that the application is complete, is for the technical assessment unit to determine whether or not those items actually require a licence. It is exactly the same resource that is dealing with the classification request. The resource issue translates into the licences taking priority; therefore the rating requests take longer.

We have got to the stage now where ECO staff are actually discouraging companies from putting in rating requests and saying to them, "Why don’t you just apply for a licence? At least we have to look at that."

Q49 Ann McKechin: Are you getting complaints from members that this is becoming an increasing problem?

Mr Hayes: Yes, across the board. We have real concerns that the Export Control Organisation is under so much pressure at the moment that it is failing UK industry in an increasing fashion. It is not meeting targets, or the time turnarounds, within which industry can cope with the delays that are being caused.

Q50 Ann McKechin: You also stated that you were deeply concerned about the news that the Government will replace ECO’s business link website with a new cross-government website to be called gov.uk. Would you elaborate these concerns? Is it simply because it is just another change in a very short period of time, or are there actual concerns about the platform to which it is proposed to change?

Mr Hayes: There are concerns about the fact that the links that people have built up over the years and saved on to their computers will have suddenly vanished and no longer work. It is very difficult to find resources that you could previously find very quickly. Therefore, checking on a particular export or getting access to a particular licence to check that you are complying with it takes much longer than it previously would have done.

Q51 Ann McKechin: Did the Government provide any guidance to your members about the changes and how they could navigate the new site?

Mr Fletcher: No, EGAD did that for its members.

Mr Barber: The devil is in the detail now, because you have to drill down into the text of the pages to find the links.

Q52 Ann McKechin: It is actually more complicated than the previous system?

Mr Barber: Yes.

Mr Fletcher: It takes time.

Mr Barber: You can find it, but it takes time.

Q53 Bob Stewart: Mr Hayes, in broad-brush terms, how many of those 1,700 applications-

Mr Hayes: It was 17,000.

Bob Stewart: How many of those applications in your view are unnecessary, and could therefore be taken out of the system and thus reduce the pressure?

Mr Hayes: It is difficult to say how many of the 17,000 it would be. If by "unnecessary" we mean that they could be replaced by open licensing-

Bob Stewart: Yes.

Mr Hayes: I certainly think that it would be possible to take out a sufficient number of them to bring the number of standard individual licences down to the sort of 10,000 a year that would be reasonable for the Export Control Organisation to be processing. The difficulty confronting the organisation is that at the moment it is so under-resourced that all of its available resource is focused on processing those 17,000, and it cannot step back to look at the longer-term alternative.

Q54 Bob Stewart: Is there any proper sifting prior to an application to you by Government to say, "Look, this is unnecessary."? Would it help if someone in the Government, a civil servant perhaps, could say, "Actually, this is unnecessary," and it therefore did not come through to you to clog up the system?

Mr Hayes: Unfortunately, what is happening tends to be quite worrying. We have had several cases of companies that understand the export control system applying for standard individual licences because they know that they cannot use an open general licence, even cases where they have explicitly stated in the licence application that they cannot use the open licence, and they receive an almost pro-forma letter back from the Export Control Organisation saying, "Why don’t you use an open licence?".

If you are a savvy company and you know that you cannot, then you will not, and you will persist with your application for a standard individual licence. If you are a relatively naive company, and the export licensing authority says to you, "Why don’t you use an open licence?", that is what you will do-and then get into trouble with Customs.

Mr Barber: The issue is that, once you receive a notification saying that you can use an open general licence, they close your individual application. If you negotiate, saying that you need an individual licence, you have to reapply from scratch. There is no vehicle for reopening a previous application that has been closed.

Mr Fletcher: Even if they have made a mistake, you still have to reapply. You then start again, then go through the process and wait again for another period of time.

Q55 Bob Stewart: The system as it stands is really unhelpful for defence companies, is it not?

Mr Barber: It makes it more difficult.

Mr Fletcher: It is not doing much for British business.

Bob Stewart: That is what I am getting at. Thank you very much.

Chair: We come now to the UK-US Defence Trade Co-operation Treaty and also the related US ITAR proposals.

Q56 Mr Arbuthnot: How is the implementation of the UK-US trade treaty going?

Mr Hayes: I think that slowly would be the best way to describe it. At the last count, I think there were four confirmed members of the UK approved community, we believe with another 20-something in the pipeline, but there is certainly not huge enthusiasm on the part of UK industry to become part of the approved community and work under the treaty. The problem lies not in the treaty but in the implementing arrangements.

Q57 Mr Arbuthnot: What could be done to improve that?

Mr Hayes: Ideally, renegotiate the implementing arrangements.

Mr Bell: Could I add that EGAD did put to the American and the British co-chairmen of the treaty management committee a series of proposals for making the treaty rather more user friendly? These proposals are being considered.

Q58 Mr Arbuthnot: Do you think that they are being considered with a view to their actually being put into effect?

Mr Bell: Some of them may be.

Q59 Mr Arbuthnot: You sound a little frustrated.

Mr Bell: Both sceptical and frustrated. We have lived with this since 2007, 2008. EGAD has pointed out the difficulties on many occasions, and nothing has happened. We are faint, yet pursuing.

Q60 Mr Arbuthnot: How are the International Traffic in Arms Regulations going, and what are your concerns about them?

Mr Hayes: There is an almost inverse relationship between the current review of US export controls and what we understand will ultimately move from the US Munitions List under ITAR to the Commerce Control List under the export administration regulations. As we understand it, a fairly significant percentage of work that is currently under ITAR and involves UK industry will move over to the Commerce Control List. That will put it completely outside the scope of the treaty, of course, because the treaty is confined to items on the US Munitions List.

On the other side of the coin, it will in the longer term make things easier for industry. However, there will be a lot of pain to go through in the transitional period, while companies come to terms with exactly which items have moved and exactly what the rules are that apply to their inventory now that those rules have changed.

There is a bigger, more strategic concern, which is that the reality from a business perspective is that export control systems are effectively competing systems at national level. For many years, the Americans have been on the back foot because ITAR has been putting off buyers-to the extent that it has been saying, "Oh no, no, no. We don’t want to buy it, because it is ITAR. The current export control system of the UK and the EU could be seen as being less competitive in relation to a number of countries than the revamped export control system of the US post-reform. I am not sure that that situation is being sufficiently grasped or responded to in order to keep us competitive as a nation.

Mr Fletcher: I have a different concern from Mr Hayes. I agree with everything that he said, particularly about the pain with the UK companies not having to deal with ITAR items. My concern is that some of them will get very confused, because goods will be arriving into the UK as non-military controlled goods but will still be controlled if they need to be re-exported from the UK as military controlled goods.

Q61 Mr Arbuthnot: What should the UK Government be doing to clarify this?

Mr Fletcher: Certainly not jumping on the bandwagon and getting Wassenaar to change everything to fall in line with the USA.

Q62 Mr Arbuthnot: That is what the UK Government should not be doing. What should they be doing?

Mr Fletcher: That is a difficult one.

Mr Hayes: There needs to be a greater standardisation of approach. To give you a practical example, there are particular components, even before export control reform has gone through, largely because of a change of climate rather than policy in the State Department, where the US is taking the position that a particular component of a military aircraft, although specially designed for a military aircraft and therefore apparently falling under ITAR control, has no military significance-that is the terminology that it uses-and it therefore does not place it on the Commerce Control List under a category that allows it to be exported without a licence to all but five countries in the world. Meanwhile, the UK treats the same item as being controlled as a specially designed component of a military aircraft that requires a licence to go anywhere outside the UK.

Mr Fletcher: To give a further practical example of that, the pilot seat for the C-130 aircraft is exactly what will be coming out of the ITAR and going in to the dual-use control list in the States.

The UK has always adopted the principle of specially designed for military use or originally designed for military use. There is no definition, but it is an understanding, so at least you can do your homework and find out whether a piece of equipment was originally designed for military use and whether the components for it were as well. Now, you will have to do cross-referencing of stuff coming from the States, asking whether it is still military in the UK, whether it is now dual use and whether it requires a licence.

A lot of UK companies, when receiving goods from the States, rely very much on the classification code given for the items. It will be very confusing to them, I suggest, when it shows quite clearly that, as Mr Hayes said, some of these items will not require even an export licence from the States.

Q63 Mr Arbuthnot: It sounds as though you believe that there should be some discussion between the UK and the US Governments about a similarity of approach.

Mr Fletcher: I imagine that that is being done in the regimes.

Mr Barber: If we could come to a conclusion that the US and UK Governments would accept the export ratings as issued by the foreign Government, that would certainly help.

Q64 Mr Arbuthnot: Was that not exactly what Mr Fletcher was saying should not happen?

Mr Fletcher: No, not exactly.

Mr Bell: I would gloss what Mr Fletcher said to the extent that I think some discussion in the Wassenaar arrangements of the lists is going to be absolutely inevitable.

Q65 Mr Arbuthnot: And helpful?

Mr Bell: Yes, it must be helpful. Wassenaar was originally a creature of the United States. We all know that. It is the heir and successor of COCOM. If the United States has unilaterally changed the basis of its dual-use and military lists, then we are going to have to look again at the regime across the Wassenaar membership in the EU and outside.

Mr Hayes: The expression that Robert Gates, the Secretary of Defence, used when initiating export control reform effort in the US was "putting a higher fence around a smaller yard". How high the fence and how big the yard will be will still necessarily vary from country to country, but there is a level of difference beyond which I think the system will not survive, in the sense that we cannot have a situation where the same part requires a licence to everywhere from the UK and virtually nowhere from the United States, and for that system to continue to be tenable.

Q66 Chair: In our last report, we expressed some concerns about brass-plate companies in the arms export field in this country-companies that have their shell here in the form of a brass plate outside some building and a token registration at Companies House but their substance, of course, offshore. Are brass-plate companies of any concern to you, or are you just happy to ignore them? If they are a concern, is there any action that you want the Government to take?

Mr Hayes: It depends why the brass-plate company exists in the context of export controls. Some brass-plate companies exist in order that, in the dual-use sector, a company that is probably established elsewhere than the UK needs to be established-that does not necessarily mean having a legal entity but to have a presence-in the UK in order to use UK open general export licences, and some of them choose to do that because UK open general licences are better than the licensing system in their own countries. You will have a system where dual-use goods might be being exported from the Czech Republic or Belgium physically, but are being exported under a Community licence granted by the UK Government, and those records are being audited in the UK. That is probably of no concern.

If a company is set up here for the purposes of evading controls, as distinct from complying with a more suitable set of controls, that would be of concern. There, I think, we come up against the problem of extraterritoriality again. Although the brass plate is here, everything else is elsewhere. Probably the most appropriate tool to address that, particularly in the defence context, is the Arms Trade Treaty. The controls in the country where they are genuinely and physically operating are of a greater level than currently.

Q67 Mike Gapes: I take you back to your earlier answer on the UK-US Defence Trade Co-operation Treaty. Given that the original signatories were Tony Blair and the then President George W. Bush in 2007, and that the US Senate basically delayed the whole process for three years and then brought in the implementation structure, which is clearly designed either to make the thing not work or be a form of protectionism, is it really worth our while to contemplate, as someone just suggested, talking to the American Administration again about making modifications? Given that the President does not control what happens in Congress, and that there are all these means by which Congress can delay, alter or undermine the intention that was agreed by the President, is not the real problem that we need to start thinking about exerting our weight more with our European partners, in order to stand up to the bullying that we get from the American House of Representatives and the American Senate?

Mr Bell: In the first place, let us be fair and say that the implementing arrangements are not the responsibility of Congress. They were negotiated between the British Government and the US Government. The negotiation was not much of a job, in my opinion, but that was the position.

Part of the problem is that the main issue that the treaty was designed to deal with- that is the appalling delays in processing US licence applications for the United Kingdom in the middle of the last decade-has largely been resolved. At one point, there was a backlog of over 10,000 cases to the Directorate of Defense Trade Controls. Today, the average calendar processing time is 18 days. For UK end-use it is one or two days. It is as easy for a US company to apply for a licence as it is to use the treaty.

I would agree that, if you don’t hang together, you all hang separately. The letter of intent nations, the principal arms exporters of Europe-ourselves, Germany, France, Spain, Italy-have an export controls committee. I understand that its terms of reference now include consideration of negotiating with the United States on export control issues. I am sure that that will be an excellent thing.

Chair: This is the last pair of topics that we want to cover-the UK-France Defence and Security Co-operation Treaty, and the issue of intra-community transfers within the EU.

Q68 Mr Arbuthnot: On the UK-France treaty, how are things going? Is there anything that could be done to improve export opportunities?

Mr Hayes: There have been a couple of meetings, but they have not really led to a lot of progress. I would say that, overall, there has not been a lot of progress on it. That said, the ability of the UK to export to France for French Government end-use is broadly very easy to work with. In the reciprocal direction, less so.

Q69 Mr Arbuthnot: If that is all that you have say about that, I turn to intra-community transfers. Last time you were in front of us, you said that there was some concern about the slow progress that had been made in the implementation of the intra-community directive. Is there any improvement there?

Mr Bell: The ICT came into effect in July or the end of June. It was always recognised that it would not make much difference to the United Kingdom, because what the ICT aimed to do was to oblige other member states to introduce, in a very embryonic form, the export control structure that exists in the United Kingdom, with general transfer licences equivalent to OGELs and so on. In terms of exports from the United Kingdom, it has not really made a lot of difference; we already do substantially more than the ICT requires.

In terms of freeing up exports by other member states, particularly those imported by UK companies, so far we have not noticed much difference but we know that these things happen slowly in the European Union, so we are not totally without hope that progress will be made. As you know, there is a system of certified companies that permits freer imports into member states. There is only a handful of such companies so far in the EU, but there seem to be some advantages. We hope that more states and more companies will take advantage of it.

Mr Barber: The ECO has issued an OGEL for certified companies, which UK companies can use, but at the last count published by the ECO only seven European companies have registered as certified. There may be some benefit in UK companies becoming certified if our European customers and suppliers are going to be using the new certified licence from the Community.

Chair: Mr Hayes, Mr Fletcher, Mr Barber and Mr Bell, thank you very much for giving us your insight into the realities of the arms control licensing system. Thank you.

Prepared 25th March 2013