Select Committee on Foreign Affairs Seventh Report


Government proposals

78. The 1996 Green Paper sought views as to the extent to which new legislation should seek to control the transfer of technology by intangible means. The 1998 White Paper set out the Government's proposal to control the transfer of technology, whatever the means of transfer, and to support the European Commission proposal to extend existing controls on dual-use goods to electronic transfers.


79. There was and is little idea of the extent of the problem to be addressed. The Provisional Regulatory Impact Appraisal published with the 1998 White Paper noted that there had been 232 applications for licences for technology transfer in 1997, representing around 2% of all licence applications received. It recognised that there would be some increased burden on exporters, but concluded that it would be unlikely to be significant, "particularly as it would be spread over a large number of companies".[130] Companies were less sanguine. In evidence to the Trade and Industry Committee, they emphasised the range of the services which would have to be covered, and the difficulties of enforcement.[131] The Committee recommended that the proposed extension should be limited to electronic transfer of technology related to weapons of mass destruction. The Government's response of February 1999 stated that some of the fears expressed had been misplaced. For example, public domain information would be exempt. The Government stated that it intended to develop detailed proposals for new legislation in this area in consultation with industry and others.[132]

European dual-use controls

80. At the same time as the Government's consultation on extension of controls, the European Commission presented a proposal to extend the Community regime on dual-use items to cover "transmission of technologies via electronic media, telephone and fax". It was briefly mentioned in the 1998 White Paper. The draft Regulation was not deposited in Parliament until the Trade and Industry Committee's queries as to its scrutiny history revealed this deplorable oversight. The Committee stated that there could be no question of the UK agreeing to an extension of the UK's dual-use regime "until a consensus has been arrived at on the way forward on controls of intangible transfer of technology generally". Despite this cautionary note expressed by the Committee in December 1998, the Government agreed to the new EC dual- use regime in June 2000, and the related UK Regulations under the European Communities Act were introduced in September 2000.[133]

Latest proposals and reactions

81. Cm 5091 sets out the Government's proposals.[134] Clause 2 provides general powers to impose controls on transfer of technology. Intangible transfer of all Military List technology is to be covered, based on the controls recently introduced on dual-use goods. The latest draft Regulatory Impact Assessment (RIA) seeks to estimate the impact of these controls. It records the scepticism expressed about the estimates in the previous RIA, and the evidence given to the Trade and Industry Committee suggesting a 4:1 invisible:visible ratio in transfers of technology. It seeks to learn from experience to date of the dual-use regime on intangible transfer, while recognising that the widespread use of open licensing may render comparison harder. The figures suggest that the extension to intangibles has had little significant impact. The DMA suggested, however, that it was far too soon to be able gauge the likely impact on industry of the dual-use regime and to extrapolate from that to the effect of comparable Military List controls.[135] Mr McLaughlin of Rolls-Royce told us "We are still wrestling with compliance following the introduction of the licensing of intangibles in an EU dual use context".[136]


82. It is intended to maximise the judicious use of open licences for military technology transfers. That will no doubt lessen the anticipated burden.[137] There is likely to be an increase in the volume of ratings inquiries — informal inquiries from companies as to whether a licence is required. In the longer run, it may prove practicable for the transfer of technology by whatever means to be included in the initial licensing procedure for an export. Doubts remain on the practicality of the proposals. The DMA referred in particular to the potential impact on multinational companies, to the explicit inclusion of telephone conversations, and to the general hidden burden of time spent as a result of uncertainty as to what is to be required.[138] Nobody would put forward a general proposition that transfers of licensable technology should be exempted, simply because of the means used to transfer it. It is nonetheless incumbent on Ministers to ensure, in deciding on the details of the regime for intangible transfers of technology, that burdens on business are minimised, including through sensible adaptation of the existing regime for tangible transfers.


83. It is sometimes suggested that controls on intangible transfers of technology — and other changes such as controls on technical assistance (see below) — are being introduced in order to meet a US requirement that the UK introduce comparable export controls. As part of a wider programme known as the Defense Trade Security Initiative (DTSI), particular countries (and companies in those countries) may qualify for a series of special favours and exemptions from the US International Trafficking in Arms Regulations (ITAR). The exemption would be contingent on conformity to various rules on end use and retransfer of goods and technology. The Committee Members who visited Washington in May 2000 heard something of this issue. The UK and Australia have been identified as the two countries "most ready" to take advantage of this exemption.

84. In some quarters the ITAR exemption initiative has been seen as driven solely by the potential benefits for US exporters. UK industry might also benefit, however, from avoiding delays in US export licencing procedures. This would allow UK firms to obtain in sufficient time the essential information needed from the US to bid for American contracts — the application of existing US export controls is regarded by many UK firms as one of the biggest hurdles in seeking to enter the US defence market. For the MoD, an ITAR exemption might allow items to be obtained from the US more quickly, helping to reduce delays in introducing new defence equipment into operational service — a key aim of its 'smart acquisition' initiative.[139]

85. The ITAR exemption discussions have also been taking place within the wider context of a UK/US 'Declaration of Principles'. The Declaration, signed in February 2000, deals with much of the same ground covered by a similar six-nation European 'Framework Agreement', which the Defence Committee examined in its First Report of this Session.[140] These two initiatives included a range of measures aimed at facilitating defence collaborations and industrial rationalisation, and included arrangements intended to provide security of supply from the other signatory countries and to streamline the administration of exports between them. Within the European context, these arrangements envisage new 'global project licences' to cover exports to third-party countries of collaboratively produced defence equipment, which we raised with the Foreign Secretary in January 2001.[141] Although the 'Agreement' and the 'Declaration' cover much of the same ground, from the UK and US perspective their separation has the advantage (over a possible joint European/US framework for export controls) of making it easier to negotiate ITAR exemptions for countries seen by the US as sharing its view of the global security environment.

86. The defence press has reported difficulties over the negotiations of the UK ITAR exemption in recent months, in part the result of a hiatus linked to the change of US Administration. The joint statement following the 17th January 2001 visit to Washington by the Minister for Defence Procurement recorded that "some important issues remain". The Secretary of State assured us that it was a "happy unintended consequence" that the passage of the Bill might now make it easier to complete negotiations on an ITAR waiver. The DMA agreed that some of the proposals might indeed be the price of such a waiver.[142] We understand that the US Secretary of State has now endorsed the aims of the ITAR exemption negotiations, which are due to resume shortly.

130  Page 25 Back

131  HC 65, para 39 Back

132  HC 270, page vii Back

133  Cm 5091, para 37 Back

134  Paras 40-48 Back

135  Q 62 Back

136  Qq 63-4 Back

137  See eg Qq 66-69 Back

138  Qq 61-62 Back

139  The MoD, industry and US attitudes to the ITAR exemption were discussed at a conference at the Royal United Services Institute on 23 April 2001 Back

140  First Report, Session 2000-01, The Six-Nation Framework Agreement, HC 115 Back

141  HC 212, Qq 72-81 Back

142  Qq 75-6 Back

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