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:
2. E W Simulation Technology Ltd
3. Level Peaks Associates
5. Nautilus International Risk Consultants
Ltd
8. BAE Global Combat Systems Incorporated,
Telford
9. Communications Audit UK Ltd
13. Beechwood Equipment 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
|
