Select Committee on Foreign Affairs Appendices to the Minutes of Evidence


Letter from Defence Manufacturers Association to the Chairman of the Quadripartite Committee

  We have read with great interest the latest report of the Quadripartite Committee on "Strategic Export Controls: Further Report and Parliamentary Prior Scrutiny", which was published on Tuesday 25 July.

  As you can expect, the section of the report which was of greatest interest to us was that on the proposed system for Parliamentary prior scrutiny of export licence applications (Sections 80-90, pages xxvii to xxviii), which the Committee has argued should be introduced with great haste. We circulated details to our Members, encouraging them to obtain copies of the whole report. We have since received a large number of comments from a broad range of British defence companies and individuals who have practical experience of dealing with export licences. These are consolidated below.


  We have not received a single supportive response from any company or individual. There is unanimous feeling against the proposal, based on practical grounds. DMA Members have, again, given their full support for the views expressed in our previous paper to the Committee, as reprinted in the 11 February 2000 Report of the Committee (pages 59-72). We note from the 11 February Report from the Committee (paragraph 85) that it felt that:

    . . . some of the practical objections made (by the DMA) suggest that some are more imagined than real.

  The view from Industry continues to be overwhelmingly supportive of our concerns, as previously raised. British Industry is strongly in favour of an ethical and transparent export control process. However, many respondents regard the proposals made in the latest report as representing a major threat to their ability to engage in the export of legitimate defence capability to many significant defence markets around the world.


  The Committee's justification of its position begins (paragraph 81) with the fiercely stated, but, in our view, lightly argued, contention that:

    . . . accountability demands that Parliament is engaged in scrutiny of arms export licences before as well as after their grant.

  Many industrialists would take issue with this. The Government is able to take decisions of substantially greater impact on foreign relations and the lives of people overseas (eg the intervention in Kosovo) without prior Parliamentary scrutiny. There appears to be no current legislative basis for the proposals.

  We would seriously question the Committee's assertion (paragraph 80) that:

    The nation as a whole feels an exceptional degree of engagement with such decisions.

  We would contend that, despite the highly vocal lobbying of some NGOs, and contrary to their assertions, there is not a wellspring of UK public opinion demanding the changes envisaged.


  Whilst we noted that the Committee stated in its report (paragraph 90) that the proposed system:

    . . . would introduce no delay of any significance in the granting of export licences,

the fact that the Committee felt the need to include in the wording of this phrase the words . . . of any significance . . . is disturbing to Industry, as it implies that the Committee recognises that some delays may result. What may seem to be an insignificant delay from the Committee's perspective, may not be seen in the same light by the companies involved, which could lose orders as a result. It is stretching belief to say that scrutiny by a Parliamentary Committee would not impose delays of any significance. If the Committee is to provide truly effective scrutiny, and second guess Ministers' decisions, then significant delay is bound to occur.

  Our Members are convinced that the proposed system would result in further delays to the UK's export licensing system. Delay in the existing system is the aspect that causes the greatest frustration. We have been asked by our Members to seek the strongest possible guarantees from the Government that any such system, if introduced, would result in NO additional delays.


  Increasingly in the commercial world, as in many other areas of life, there is an expectation of rapid service. Defence customers around the world, including the Ministry of Defence (UK), whose SMART procurement maxim is "Better, Faster, Cheaper", are not exceptions to this. Customers frequently spend a long time deliberating about a decision, and leave little time to spare for the manufacturer to meet their deadlines. If a supplier cannot meet a deadline, customers will increasingly look elsewhere. This is especially so for small value items and spares for equipment. In the experience of many UK companies, the customer's expectation for delivery can frequently be four weeks or less. The smaller the size of the project, the greater the customer's expectation for immediate delivery. If UK Industry gains a reputation for not being able to meet such tight schedules, its competitive position will be seriously undermined.


  The issue of the potential workload on the Committee must again be highlighted. With the imminent advent of controls on intangible transfer of technology and the resultant increase in applications, we believe that the potential workload on the Committee would be even higher than it currently believes. This alone could make Parliamentary scrutiny unworkable. We believe that there would be an exceptionally large workload on the Committee, with a considerable number of licence applications (possibly an average of some 50-60 applications received at Stage 1 alone every working day) and a very wide scope of information needed in order to assess properly any applications that were considered to be contentious.

  A number of our Members have highlighted the experience in Germany during the 1990-91 Gulf Crisis, when the Chancellor insisted on seeing every military export licence application. As a result, we understand that Germany's exports of military equipment almost completely ceased, to all practical intents and purposes, until this edict was rescinded.

  We believe that the proposed system would result in significant additional staff work by the already stretched resources within the DTI, MoD(UK), FCO and DFID, as well as Industry, in presenting applications and supporting information to the Committee.

  We believe that it would be unfair for the Committee to make decisions on export licences, especially in cases of possible/likely refusals, unless the companies involved were allowed to make representations in support of the applications—this in turn would add to the workload and the time needed to assess individual cases.

  We are convinced that the sheer scale of the workload required has not been properly taken into account, both on officials and on the members of the Committee.


  The Committee stated in its Report (paragraph 90) that:

    Our proposed system poses no threat to either the commercial confidentiality or the competitiveness of British companies.

  Industry has strong concerns about the essential issue of confidentiality. Inherently, the more people who see any document, including an export licence application, the more confidentiality is put at risk. The threat is not just that of confidential information leaking to non-UK firms, but also to other British companies. Government officials are (generally speaking) trusted by industry with confidential information, because they are seen as disinterested and impartial. Clearly it would be essential under any new system for this confidence to be maintained.

  We note that the Committee has stated (paragraph 84) that:

    The information in Stage 1 notifications would be confidential to the Committee.

  However, NO similar reference is made to the information provided in Stage 2, and we would question the reason for this omission. Indeed, the specific mention (paragraph 86) of a desire by the Committee that the information that it is provided with for Stage 2 should be non-classified and the reference (paragraph 89) to possible Special Reports to the House and Parliamentary debates on particularly contentious applications could easily result in confidentiality being compromised.

  If the introduction of the system proposed results in customer knowledge that the application might be made public, this could prove to be a major disincentive to buying British. Some important customer nations could find it an affront to national pride to have their countries' procurement decisions subject to possible parliamentary debate in another country.


  We noted from the Report that the Committee had recognised the essential need for the export licensing system still to function during the long periods of Parliamentary recess (paragraph 85). However, there is no explanation of how this system might work. The report notes that the Committee ". . . would have to have arrangements in place . . .", indicating that the Committee has not yet worked this out. In addition, we note that this statement only refers to the Stage 1 process, and there is no similar mention of the Stage 2 process also having safeguards in place to ensure that Parliamentary recesses do not interfere with the expeditious processing of applications. This suggests that it is unrealistic for such a system ". . . to be put in place forthwith..." and to commence operation " . . . as from the beginning of the next Session of Parliament."


  Industry questions whether the members of the Committee have the necessary technical knowledge to scrutinise licences without the advice of the Government officials who are examining an application. Seeking such technical information (eg what the item is and what it does), would duplicate existing strands of the system and introduce further delays.


  We note from the latest report (paragraph 85) that the proposed system would involve the selection by the Committee, in Stage 1, of those export licences that they wanted to see more information on at Stage 2. However, the report does not clarify how this selection process would take place, ie what proportion of the Committee will be required to agree on stage 2 assessment. Would it require a majority of the whole Committee, or just a majority of one of the constituent committees, or just a certain percentage of the members of the Committee, or just one member? Again, this undermines the potential for a system ". . . to be put in place forthwith . . ." and to commence operation ". . . as from the beginning of the next Session of Parliament."


  We are concerned at the statement in the report (paragraph 86) that:

    The Committee would require Stage 2 notifications not fewer than 10 working days prior to the intended issuing of the licence.

  This statement suggests that the current system is not fully understood. Government officials do not know 10 working days before a licence is issued that they are going to approve it. Once the ministers or officials have decided that an application should be approved, the issuing of the licence takes place immediately. If it is the case now that officials are able to predict at least 10 working days beforehand that a particular licence should be issued, Industry would certainly like to know about it.

  In order to accommodate this wish by the Committee, the DTI's Export Control Organisation would have to delay the issuing of a licence—and such a delay, of 10 working days, would not be regarded by Industry as . . . no delay of any significance.

  It is worth noting that the target turnaround timescale for uncirculated export licence applications by the DTIs Export Control Organisation is, itself, 10 working delays, reflecting the urgency with which licences need to be processed.


  We note from the report (paragraph 87) that the Committee seems only to be interested in licences which are going to be approved, and not to want to concern itself with any that might be refused. This suggests a pre-judgement by the Committee, which is not supportive of Industry.


  As already stated in our previous paper to the Committee, comparison of our system with those of other nations is flawed. The Committee gives two examples of nations that allow Parliamentary scrutiny—the vast majority do not.

  Sweden's defence exports are a fraction of those from the UK—on average there are nine times as many applications per day in the UK as there are in Sweden. Comparison with the system in France would be much more appropriate and here there is no Parliamentary scrutiny.

  The USA, on the other hand, is in the unique position of having a sufficiently large domestic market to support a vibrant defence industrial base, even in the absence of exports. As a result, defence exports are viewed in the USA as being desirable, but not essential, and primarily, an instrument of foreign policy. In comparison, the British Defence Industry comprises a much larger proportion of the UK's overall manufacturing base and exports a much higher proportion of its output—without significant defence exports, it would rapidly decline. Many UK defence companies would not be viable if they had to rely only on sales to MoD(UK).

  A contraction of the UK Defence Industry could result from the disruption of exports, and this would ultimately not only impact on employment and the UK's balance of payments, but also have strategic implications from the loss of indigenous defence industrial capability. The introduction of additional bureaucracy and delay into the UK export control system could have much more profound and damaging effect than in either of the two countries that the Committee has used for comparison.


  We are concerned at efforts to press the Government to rush into action on this. To ask that such a system be brought into being before . . . the beginning of the next Session of Parliament is unacceptable in our view. There are many issues to be addressed and many concerns that Industry has on this proposal, which should be carefully considered and discussed before such a step is taken. The Committee in forming its views seems not to have consulted adequately with industrialists on the potential impact of prior Parliamentary scrutiny on their export activities.


  We must emphasise that the British Defence Industry needs export outlets for its products for its very survival. This has been especially so in recent years in which the UK has been reducing its own defence budget. Should exports be impeded, there would be a consequent reduction in research and development and production activities, which would make the UK's defence capability increasingly dependent on the USA and Europe. We believe that the practical problems arising from the proposed system would inflict significant damage on the UK's Defence Industry's competitiveness, particularly because of the inevitable delays and increased bureaucracy that would ensue.

  We would welcome the opportunity to explain and discuss further the concerns that Industry has with the Committee, if this would be useful.

25 September 2000

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