Scrutiny of arms Exports and Arms Control - Committees on Arms Export Controls Contents


7  Arms Exports Agreements

UK/US Defence Trade Cooperation Treaty

180. The Committees' previous scrutiny of the UK/US Defence Trade Cooperation Treaty can be found at paragraphs 165-172 in Volume II of the Committees' previous Report (HC 205), and the Committees' Recommendation at paragraph 61 of the Report.

181. The Committees' Recommendation on the UK/US Defence Trade Cooperation Treaty in their 2013 Report (HC 205) and the Government's Response (Cm8707) were as follows:

    The Committees' Recommendation:

    The Committees recommend in relation to the UK/US Defence Trade Cooperation Treaty (DTCT) that the Government in its Response:

    a)  states how many UK members of the DTCT Approved Community have been registered to use the Treaty-specific UK Open General Export Licence (OGEL) for exports under the Treaty;

    b)  lists the complete membership of the Treaty Approved Community;

    c)  states whether, in accordance with the Government's Transparency Initiative, the detailed implementation of public reporting of transactions undertaken under this Treaty's OGEL licences on the Government's Strategic Export Controls website was completed by April 2013 as planned and, if not, when it will be;

    d)  states the reasons, notwithstanding its Transparency Initiative, the Government is not requiring exporters to declare that a particular export was made under the UK/US Defence Trade Cooperation Treaty;

    e)  states what specific steps it will take to make the Treaty more user-friendly; and

    f)  states how satisfactorily or not the Treaty is working as far as British companies are concerned.[178]

    The Government's Response:

    a)  15 UK members of the DTCT Approved Community have been registered to use the Treaty-specific UK Open General Export Licence (OGEL) for exports under the Treaty.

    b)  At the time of writing there are 14 members of the Approved Community. Membership is on a facility basis and at this stage there are 14 companies and 14 facilities. These are:

    1.  Aish Technologies Ltd

    2.  E W Simulation Technology Ltd

    3.  Level Peaks Associates

    4.  MS Instruments PLC

    5.  Nautilus International Risk Consultants Ltd

    6.  3SDL Ltd

    7.  Cox PowerTrain Ltd

    8.  BAE Global Combat Systems Incorporated, Telford

    9.  Communications Audit UK Ltd

    10.  Aspire Consulting

    11.  RJD Technology Ltd

    12.  Envitia

    13.  Beechwood Equipment Ltd

    14.  Ebeni Ltd

    c)  Please see the response to the Committees' questions at paragraph 51 above. [See Government Response to transparency of arms export licensing at paragraph 112 above] As a consequence, information about exports made under the Open General Export Licence (Exports under the US-UK Defence Trade Co-operation Treaty) for the calendar year 2014 will be published in 2015.

    d)  Any transfer made under the OGEL (Exports under the US-UK Defence Trade Cooperation Treaty) will by definition be a transfer under the Treaty. However an exporter may choose to use a different licence to make Treaty-related exports, such as a SIEL or an OIEL. In the Government's view requiring exporters to declare that a particular export was made under the Treaty would place an additional, and unnecessary, administrative burden upon them.

    e)  A significant programme of industrial engagement has taken place in the UK to raise awareness of the Treaty (with corresponding support to US companies from the British Embassy in Washington, D.C.) and its potential benefits. We continue to work with our US Government counterparts to reduce the scope of the key Treaty inhibitors in order to increase UK Industry interest and uptake. This includes ongoing work on narrowing the Exempt Technologies List (ETL). We are aiming for a virtuous circle whereby the more the Treaty is used, the greater the trust and confidence in transatlantic transactions via this mechanism, and where feedback from UK industry feeds into attempts by both governments to improve Treaty effectiveness.

    f)  The Treaty could be working more satisfactorily than at present because the first UK Industry-to-US Government transaction has yet to take place. But expectations prior to Exchange of Notes in April 2012 were that this Treaty would take time to reach optimum utility, not least against a backdrop of industry desire to be on the right side of ITAR compliance (the Treaty is, officially, an ITAR waiver). There is a highly encouraging flow of applications to the United Kingdom Approved Community (a total of 53 UK facilities have now been through the process). Building on this progress, securing the first UK Industry-US Government transaction is a top MOD priority for 2013-14 and the department is looking at a range of possibilities.[179]

182. When the Committees questioned EGAD, in the Oral Evidence session on 4 November 2013, about the effectiveness of the Treaty for British industry David Hayes, EGAD, said:

    It rapidly became apparent to us that the greater the success of the export control reforms to which you referred, Chair, the less would be the relevance of the treaty. A lot of the activities being undertaken by UK companies that would previously potentially have fallen under the treaty will now transfer to the responsibility of the Department of Commerce in the United States and therefore be outside the scope of the treaty. Couple that with the requirements and constraints of the treaty itself, and you end up with something that conceptually started life as a good idea but, as a result of the constraints that were then put around it, combined with developments that took place at the same time in the US export control system more broadly, so we have ended up with something that has little operational relevance or use to industry. That is why the uptake is so low.[180]

183. The Chairman of the Committees wrote to the Business Secretary on 17 April 2014 with a number of questions relating to an analysis produced by the Royal United Services Institute (RUSI). The text of the letter was as follows:

    I attach a copy of the RUSI Analysis of 22 January 2014 by Doctor Joanna Spear of the recent changes made by the US Government to the export controls for the US defence industry.

    Please could you tell me whether the British Government considers these changes to be compliant with the terms of the US-UK Defence Trade Cooperation Treaty.

    Please could you also state whether the British Government considers that the US Government's export control changes will have an adverse or beneficial impact on UK defence exports and in what specific ways.

    Please may I have your reply by 8 May.

    Attachment at: https://www.rusi.org/analysis/commentary/ref:C52DFF7E0C0F8C/[181]

The Business Secretary replied on 6 June. The section relating to the UK/US defence Trade Cooperation Treaty was as follows:

    US-UK Defence Trade Cooperation Treaty and US Export Control Reform

    There is potential for confusion in using the word "compliant" in respect of the Treaty and the US Export Control Reform (ECR) initiative. The intent of the Treaty was to enhance bilateral defence equipment cooperation by creating an exemption to the International Traffic in Arms Regulations (ITAR) (the ITAR relates to those items appearing on the United States Munitions List (USML)). One of the objectives of ECR is to enhance US defence cooperation with a wider range of partners by moving less-sensitive military items from the USML to the Commerce Control List (CCL). By definition items which have moved from the USML to the Commerce Control List (CCL) under ECR are not eligible for an ITAR exemption.

    The real question therefore is whether the utility of the Treaty could be overtaken by ECR unless substantive changes are made. This is because the number of Treaty-eligible items is being reduced under ECR while specific exemptions within the Treaty mean certain other technologies were excluded from the start. There has been good dialogue between our two governments on maintaining a special place for the Treaty but at the moment US resources are focused on the implementation of ECR. The British Government's long term objective is to move the Treaty to the mainstream of our defence and security relationship.

    The ECR process is not yet complete and we are therefore only able to draw interim conclusions about the impact on UK defence exports. The British Government welcomes the continuing efforts by the US Administration to reform export controls and expects the movement of certain items from the US Munitions List (USML) to the Commerce Control List (CCL) will eventually help to simplify and enhance trade between our two nations, resulting in a net benefit to UK exports.

    However it is important to acknowledge that one of the motivations for the ECR initiative was to enhance the international competitiveness of US defence exporters. This could make it harder for UK firms to win business against their US competitors. But we recognise that a more efficient system for processing and granting U.S. export licences could be a huge boon for our industries where they are regularly sending goods back and forth to the United States or working regularly with U.S. affiliates or subsidiaries. We will carefully assess the impact on wider UK national interests.[182]

184. I propose that the Committees recommend that the Government states in its Response to this Report:

a)  the names of the companies and facilities of the UK members of the UK/US Defence Trade Cooperation Treaty (DTCT) additional to the 14 members listed in the Government's previous Response (Cm8707);

b)  the names of the companies and facilities amongst the original 14 members who are now no longer members and why they have withdrawn in each case;

c)  whether any narrowing of the Exempt Technologies List (ETL) has been achieved, and, if so, in what specific ways;

d)  each specific UK Industry-to-US Government transaction that has now taken place, if any, under the DTCT;

e)  its response to the view of the Export Group for Aerospace and Defence (EGAD) about the UK/US Defence Trade Cooperation Treaty the "we have ended up with something that has little operational relevance or use to industry. That is why the uptake is so low."; and

f)  what specific steps it will be taking to achieve its objective to move the US-UK Defence Trade Cooperation Treaty to the mainstream of the UK-US defence and security relationship.

US International Traffic in Arms Regulations (ITAR)

185. The Committees' previous scrutiny of the US International Traffic in Arms Regulations (ITAR) can be found at paragraphs 173-179 in Volume II of the Committees' previous Report (HC 205), and the Committees' Recommendation at paragraph 62 of the Report.

186. The Committees' Recommendation on the US International Traffic in Arms Regulations (ITAR) in their 2013 Report (HC 205) and the Government's Response (Cm8707) were as follows:

    The Committees' Recommendation:

    The Committees recommend that the Government in its Response sets out fully its response to the criticisms of the US International Traffic in Arms regulations (ITAR) made by the Export Group for Aerospace and Defence (EGAD) in EGAD's written and oral evidence to this inquiry, and says what specific action the Government is taking to address each of those criticisms.[183]

    The Government's Response:

    US technology plays an important role in providing UK Armed Forces with battle-winning technology. The US administration's export control reform mentioned at Paragraphs 176, 177 and 178 [of HC (2013-14) 205, Vol. II] demonstrates a welcome willingness to address the concerns raised by their allies as well as industry, including domestic, as to the limitations of the current system and their intention to concentrate their controls on the most sensitive technology. Once fully implemented the reform will significantly improve our access, and that of our NATO allies, to critical US technology. The Government will continue to discuss issues relating to the US International Traffic in Arms Regulations (ITAR) with the appropriate US authorities. These discussions will take into account representations made to us by industry, in particular the Export Group for Aerospace and Defence (EGAD) and its US Export Controls Issues Sub-Group. This dialogue has achieved results: as referenced in paragraph 173, and as a direct result of the Government's intervention, the US agreed to a UK-specific solution to meet the ITAR rule change on Dual and Third Country Nationals. On the matter of MOD acquisition and the formation of any Government-Owned Contractor-Operated (GOCO) organisation, the US Government is engaging with Defence Equipment & Support (DE&S) officials to discuss the ITAR position under any such move. The impact of the US export control reform on the US-UK Defence Trade Co-operation Treaty is also being discussed at government-to-government level.[184]

187. EGAD stated in its Written Evidence that it was are aware that UK Government officials were endeavouring to keep abreast of developments in the US on Export Control Reform, which could have considerable commercial and bureaucratic consequences for UK businesses trading with companies in the US. EGAD said that it was important that the UK Government took an active role in discussing the implications in the context of the Wassenaar Arrangement and considered ways in which it could seek to amend UK national legislation to ensure that the UK Defence Industry was not at a competitive disadvantage in the increasingly crucial global marketplace.[185]

188. When the Committees questioned EGAD on 4 November 2013 about the US reforms to export controls David Hayes, EGAD, provided an example of how it would affect UK companies. He said:

    [...] with effect from 15 October, US suppliers of a range of aerospace items that we would regard as military for UK purposes will be able to export from the US to 36 countries without applying formally for an export licence, under arrangements that the US calls licence exceptions, which you can regard as being conceptually akin to OGELs. One of those countries is Turkey, which is on our doorstep and not the doorstep of the United States. That gives US exporters of this type of equipment a clear advantage over UK exporters, who currently cannot supply the equivalent items to Turkey under open licence.[186]

When asked what could be done through UK legislation to address these matters, without weakening existing controls, David Hayes replied:

    The UK has the option to amend military OGELs to add countries very simply. I do not underestimate the difficulties of adding Turkey to general licences, and the terms of those licences would probably need to be reviewed carefully, particularly in relation to the ultimate end user of the goods, but there is no reason why that avenue should not be explored, with the safeguards necessary to implement it being added to the licences at the same time.[187]

189. In an analysis paper on the US Defence export control reforms the Royal United Services Institute for Defence and Security Studies (RUSI) stated that the reforms had involved revising the categorisation of hundreds of individual defence items, completed systems and services. Defence items considered to provide a critical military or intelligence advantage would continue to be controlled by the International Traffic in Arms Regulations (ITAR) and remain on the US Munitions List (USML). Requests to export items on the USML would always require licenses that undergo inter-agency review and would be processed by the State Department before being sent for Congressional review. Items and services considered less critical to US national security, or that are available from other sources, would be moved onto the Commerce Control List (CCL) and would be subject to scrutiny and control via the US Export Administration Regulations. Items on the CCL will potentially require less time to obtain licenses and more military items on the list would now be eligible for a licence exception to sell to NATO allies and countries that abide by all four international export regimes.

190. RUSI stated that the export control changes reflect the threats to the US from advanced states and therefore required "higher fences around fewer items" of very advanced technology. Other reasons for the change in US export controls was to aid the US defence industries which had complained about losing business to foreign defence firms. RUSI stated that "introduced a paradigm shift in the process of export licensing because now the onus is on US defense firms to determine whether their items and materiel are 'specially designed'." The analysis claimed that there are concerns that the US Congress would now have less statutory involvement in arms export decisions as fewer items now fall under the USML and that the ability to use the controls to deny exports to human rights abusers has been diminished. Further concerns have been raised that the export control reforms have resulted in the US no longer being in step with multilateral export regimes such as the Wassenaar Arrangement and the Arms Trade Treaty.[188]

191. I propose that the Committees recommend that the Government sets out in its Response to this Report the specific ways, if any, the recent US defence export control reforms have put the UK defence industry at a competitive disadvantage to the US defence industry in making exports to third countries.

192. I propose that the Committees further recommend that the Government states in its Response what specific steps it is taking to ensure that there is a level playing field for the UK defence industry when competing with the US defence industry for export controls to third countries whilst maintaining adherence to UK national arms export policies.

UK-France Defence and Security Co-operation Treaty

193. The Committees' previous scrutiny of the UK-France Defence and Security Co-operation Treaty can be found at paragraphs 180-185 in Volume II of the Committees' previous Report (HC 205), and the Committees' Recommendation at paragraph 44 of the Report.

194. The Committees' Recommendation on UK-France Defence and Security Co-operation Treaty in their 2013 Report (HC 205) and the Government's Response (Cm8707) were as follows:

    The Committees' Recommendation:

    The Committees recommend in relation to the UK-France Defence and Security Co-operation Treaty that the Government in its Response states:

    a)  how many UK companies have been registered to use the Open General Export Licence (OGEL) for exports under the Treaty;

    b)  the reasons, notwithstanding its Transparency Initiative, the Government is not requiring exporters to declare that a particular export was made under the UK-France Defence and Security Co-operation Treaty; and

    c)  how satisfactorily or not the Treaty is working as far as British companies are concerned.[189]

The Government's Response:

    a)  The assumption under the UK/France Defence and Security Co-operation Treaty was that the UK would continue to operate its current export licensing arrangements as these were compatible with the Treaty objectives. Hence, there has been no need to create a specific Open General Export Licence (OGEL) for exports under the Treaty with UK exporters able to make use of existing licences. These companies are required to meet all the terms and conditions of these OGELs which include a registration requirement.

    b)  The Treaty does not introduce any special mechanism for the licensing of UK exports to France. In the Government's view, requiring exporters to declare that a particular export was made under the Treaty would place an additional, and unnecessary, administrative burden upon them.

    c)  While it is for industry to judge how the Treaty is working for them, they are able to express views through the UK-France High Level Working Group which oversees capability and equipment issues associated with the Lancaster House Treaty. Industry representatives have indicated a broad level of satisfaction with progress, particularly when considering joint programmes such as complex weapons and Unmanned Combat Air Vehicles.

    On export licensing specifically, the UK and French Governments, in conjunction with respective trade associations, held two successful Treaty-related awareness seminars in Paris in 2011 and London in 2012 which were well attended by industry.[190]

195. When asked in the Oral Evidence session with EGAD on 4 November 2013 whether the UK-France Defence and Security Co-operation Treaty was working, Susan Griffiths, Head of Export Control UK, MBDA UK Ltd, informed the Committees:

    I would say yes. Negotiations have been ongoing, and rightly, so quick decisions have not been made. There is still a lot of negotiation going on, in which we [EGAD] have been heavily involved, and lots of consideration. There is recognition by both sides that, while we are trying to move forward on this, there are some small steps to take. There could be some advantage to this, but it is obviously being considered at a very slow pace with the agreement of both sides. There has been good engagement between the Government and industry on this, and we hope for a satisfactory conclusion.[191]

196. I propose that the Committees recommend that the Government in its Response to this Report provides a further update on the specific steps the Government is taking to ensure that the UK/France Defence and Security Co-operation Treaty is working satisfactorily for the UK defence industry.

197. I propose that the Committees further recommend that the Government states in its Response what specific issues relating to the Treaty are under negotiation between the British and French Governments.

The Intra-Community Transfer (ICT) Directive on arms transfers within the EU

198. The Committees' previous scrutiny of the Intra-Community Transfer (ICT) Directive on arms transfers within the EU can be found at paragraphs 186-191 in Volume II of the Committees' previous Report (HC 205), and the Committees' Recommendation at paragraph 64 of the Report.

199. The Committees' Recommendation on the Intra-Community Transfer (ICT) Directive on arms transfers within the EU in their 2013 Report (HC 205) and the Government's Response (Cm8707) were as follows:

    The Committees' Recommendation:

    The Committees recommend in relation to the EU Intra-Community Transfer (ICT) Directive on arms transfers within the EU that the Government in its Response states:

a)  how many times it has raised concerns about possible breaches of the EU Common Position on Arms Exports in relation to ICTs in the EU Council Working Group on Conventional Arms Exports, and in relation to which EU Member States and what defence-related products;

b)  how many UK companies have been approved to use Open General Export Licences under the EU ICT Directive;

c)  how many companies in the EU have been approved to use Open General Export Licences under the EU ICT Directive and how many of these are British companies; and

    d)  how satisfactorily or not the EU ICT Directive is working as far as British companies are concerned. [192]

    The Government's Response:

    a)  The UK has not raised any such concerns.

    b)  The ICT Directive permits the UK to operate a system very close to its current export licensing arrangements which includes the use of Open General Export Licences (OGELs). Current UK OGELs meet our commitments under the Directive with regard to the establishment of "general licences" (OGEL equivalent licences) that are required to be put in place by all Member States. These OGELs remain available for all companies to use and do not require any form of prior approval. There is, however, one new general licence created under the ICT Directive for Certified Companies that does require Government approval. Under these new arrangements, a company needs to pass a certification test as set out in Article 9 of the Directive to be able to receive goods under the equivalent certified company general licences put in place by other Member States. One UK company has been certified under these arrangements.

    c)  The only information that we have available on EU companies is in relation to the certified company general licence (OGEL equivalent). Details of these certified companies can be found on the European Commission website CERTIDER - http://ec.europa.eu/enterprise/sectors/defence/certider. This shows 18 approved companies - one of which is from the UK. The UK is unaware more generally of the number of companies operating in Member States that have been permitted to use other general licences which are subject to the individual arrangements of the respective Member States.

    d)  Government contacts with industry indicate broad satisfaction that UK export licensing arrangements have been preserved under the Directive and that our established simplified procedures can continue to be used. Industry representatives have expressed some concern in particular about the transparency of the arrangements that have been put in place in other Member States under the Directive. This is the main reason for low demand for certification applications across the EU. It has proved difficult to establish whether becoming certified will provide any benefit to companies. This lack of visibility on the scope of licences and the conditions attached to their use is an issue that the UK has already raised in meetings on the ICT Directive in Brussels. It would also be fair to say that the simplified measures contained in the ICT Directive represent a step change for almost all Member States other than the UK. As such, it is still too early to judge what benefits will eventually filter through to UK industry through the quicker receipt of goods, as we understand that a rather cautious approach has been taken by many Member States so far.[193]

200. EGAD were asked in the Oral Evidence session how well arms transfers within the EU under the ICT Directive were working for British companies. David Hayes replied: "As far as British companies are concerned, from the point of view of exporting, it was never that significant a change for us, because our open licensing system has always facilitated export from the UK to our European partners. It was more important for multinational companies to be able to get exports from the EU into the UK under the directive."[194] Susan Griffiths added:

    I would say that uptake is a bit slow, primarily because some EU countries have not yet established global licensing. We are therefore trying to see a broader aspect of where the balance is, because they have been introduced differently in different EU countries.

    The benefit for some EU countries has been a change in their own national export licensing. In general, however, it is early days to see how balanced the introduction has been, because they are not always equal. For the UK, we have possibly seen a slight increase in the ability to get licences in a quicker way from those countries, but because there is an onus on the importing side as well, the uptake in some countries has been very small.[195]

Bernadette Peers, Compliance Manager, Strategic Shipping Company Ltd, continued:

    The problem is partly a lack of awareness throughout the EU. The UK is very good at doing awareness and advertising to industry that something is available, and we have had a lot of dialogue between industry and Government, from the outset all the way through to getting the directive. That was not the case in the EU, and trying to find sources of information to make use of the directive is difficult. Few UK companies are certified, and we are going to go through the process in order to push the message out. The message as to the benefits of the directive is even more limited across the rest of the EU, because people just do not understand it or know about it.[196]

201. I propose that the Committees recommend that the Government in its Response to this Report states the name of the one UK company that had achieved certification for a general licence under the Intra-Community Transfer (ICT) Directive on arms transfers within the EU as referred to by the Government in its last Response (Cm 8707), and the names of any additional UK companies which have been so certified.

202. I propose that the Committees further recommend that the Government states in its Response what specific proposals it has made in meetings on the ICT Directive in Brussels to improve visibility throughout the EU on the scope of general licences and the conditions attached to their use.

203. I propose that the Committees also recommend that the Government states what specific steps it is taking to raise awareness of the potential benefits of the Intra-Community Transfer (ICT) Directive on arms transfers within the EU for UK defence industry companies whilst maintaining adherence to UK national arms control policies.


178   HC (2013-14) 205, para 61 Back

179   Cm8707, pp 17-19 Back

180   Q 39 Back

181   Ev w214 - Letter from the Chairman of the Committees on Arms Export Controls to Vince Cable dated 17 April 2014 Back

182   Ev w499 - Letter from Vince Cable to the Chairman of the Committees on Arms Export Controls dated 6 June 2014 Back

183   HC (2013-14) 205, para 62 Back

184   Cm8707, p 19 Back

185   Ev w95 Back

186   Q 37 Back

187   Q 38 [David Hayes] Back

188   "The United States Implements Defence Export Control reforms", RUSI, 22 January 2014, https://www.rusi.org/analysis/commentary/ref:C52DFF7E0C0F8C/ Back

189   HC (2013-14) 205, para 63 Back

190   Cm8707, p 19-20 Back

191   Q 45 Back

192   HC (2013-14) 205, para 64 Back

193   Cm8707, pp 20-21 Back

194   Q 46 [David Hayes] Back

195   Q 46 [Susan Griffiths] Back

196   Q 46 [Bernadette Peers] Back


 
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Prepared 23 July 2014