Select Committee on Trade and Industry Fourth Report


GENERAL LICENSING POLICY

OIEL or SIEL?

99. Saferworld expressed suspicions in their memorandum that there was a subtle shift in the use of open individual export licences (OIELs), as opposed to the inherently more transparent standard individual export licences (SIELs)—

100. We raised these concerns with the Government. The suggestion that there had been any change of policy was repudiated—

    There has been no change in the Government's view of the appropriate use of ...OIELs as opposed to ... SIELs. The Government has made it clear that OIELs will only be granted for exporters with a proven track record of applications for SIELs and /or where the particular nature of their business makes the application of SIELs inappropriate. The Government will also take into account the resources available to monitor the use of OIELs, the nature and destination of the items concerned and whether the exporter can comply with the requirements of an OIEL ... The key question that the Government has to ask when it receives an application for an OIEL is whether this type of application allows the Government to make a proper assessment, against the Consolidated EU and national export licensing criteria, of the exports proposed under the licence.[163]

101. The statistics on the numbers of OIELs and SIELs issued[164] do not suggest to us that there is any obvious evidence of a change in the application of the policy outlined by the Government. However, we recommend that the Government should examine ways in which more consolidated analytical information about OIELs (such as destinations covered and equipments covered) might be presented in the Annual Reports in order to allay any suspicions of abuse, and to discourage any temptation to relax controls.

Small Arms

102. Saferworld expressed particular concern about exports of small arms under OIELs. However, as we noted above, the latest Annual Report has given increased information on small arms exported under SIELs.[165] In many developing countries the proliferation of small arms and light weapons (SALW) contributes directly to conflict, which in turn hampers the sustainable development of affected countries. There are an estimated 500 million small arms in circulation, with perhaps 50% of the international trade being illegal.[166] As our predecessors noted,[167] this poses particular problems for the control of small arms; that is, export controls on new weapons will not remove existing stockpiles from circulation. The international community has now begun to take the problem of small arms and light weapons seriously, as a security problem and as a development problem.

103. The Annual Report on Strategic Exports for 2000 records—as have the three previous Annual Reports—the important role played by the UK Government in promoting multilateral measures to control the problem of small arms and light weapons. In particular, it sets out the UK Government's role in finalising the UN Protocol against the Illicit Manufacturing of and Trafficking in Firearms, their Parts, Components and Ammunition, and also, in coordinating the OSCE's Document on Small Arms. Work at the OSCE continues, with the focus now on information-sharing in preparation for the eventual implementation of the measures agreed in Vienna in November 2000.[168] These agreements, along with complementary efforts by NATO, and by the EU working with several African states, paved the way for a major UN Conference on small arms and light weapons.

104. The United Nations Conference on the Illicit Trade in Small Arms and Light Weapons took place from 9 to 20 July 2001 in New York. The Conference adopted a consensus programme of action aimed at tackling the illegal trade in small arms, through initiatives at the national, regional and global levels. It also contains provisions on enhancing cooperation among states and providing assistance to affected states, as well as review and follow-up mechanisms. At the UN Conference, the UK Government committed £19.5 million to efforts to curb small arms and light weapons proliferation,[169] funds that will be disbursed through UN agencies, regional organisations, Governments and non-governmental organisations seeking to develop and implement measures at all levels to combat small arms problems.[170]

105. We applaud the role played by the UK Government in working towards international agreement on the control of small arms. We welcome too, the inclusion in the Annual Report of details of surplus arms destroyed by the Government, and information on the number of small arms covered by standard individual licences agreed in 2000 on a country by country basis. We remain concerned however, that the UK Government's enthusiasm for small arms initiatives at the regional and international level is not going to be fully expressed in the provisions of the Export Control Act, making it harder to monitor and control the production, trade, and end-use of arms, including the small arms which contribute to conflict and hamper sustainable development. We will re-examine the issue of trafficking in small arms and light weapons when we come to look at the draft proposals for subordinate legislation to be made under the Export Control Act.

The War against Terrorism

106. We raised with the Foreign Secretary the question of the impact of the events of 11 September 2001 and their aftermath on the operation of the export control régime.[171] He told us that once the UN Security Council Resolution 1373 became operative, he had taken—

    ... the initiative [to] review inside the Department whether the consolidated criteria were consistent with the obligation in international law ...What I concluded, in the end, was that the criteria themselves did not need amendment ... I think they are pretty robust ... I believe there is no need to amend the consolidated criteria for us to comply fully with the terms of the UNSCR 1373 ...[172]

107. In their recent report on the FCO's annual report on human rights, the Foreign Affairs Committee commented that they were—

    ... concerned that the Government should not lose sight of the need to criticise and address human rights abuses which take place in countries which are our allies in the international coalition against terrorism, although we understand that in emergencies there will be an earnest debate on where to find the balance between security and liberty ...We are somewhat reassured by ... reassurances [given by the FCO Minister of State, Mr Peter Hain] that the human rights dialogue with Pakistan continues, and by his statement to us that—

    we can have members of an international coalition to fight a common threat of this awful kind whilst at the same time having a full and frank dialogue including, where appropriate, pressure with individual countries ... We are very conscious that the human rights agenda must not be made subsidiary.

    We are concerned nonetheless that in concentrating on the need to build up a global alliance, the Government and its allies may have let human rights in countries which are supporters of the international coalition slip down their list of priorities. We recommend that the Government ensure that the human rights agenda is pursued with our allies in the war against terrorism as vigorously now as before September 11.[173]

108. Of course, countries which are contributing to the war on terrorism by taking action against terrorist organisations within their borders need to be supported, possibly including the provision of necessary military equipment. The Foreign Secretary's view was that consistent application of the criteria was necessary and that if a country's approach had changed, that would be reflected in the assessment of a licence application against the criteria, as in the example of Afghanistan itself. [174]

109. The reverse side of this is that al Qaeda and other terrorist organisations must be prevented from obtaining weapons or the raw materials to make them. As the Foreign Secretary pointed out, the consolidated criteria already contain provisions to address both these issues. Having reviewed them in the light of last year's attacks on New York and Washington, the Government decided that no amendments were necessary. Nonetheless, the Government's supplementary memorandum says the case for reviewing the EU Code in the light of 11 September is being examined. In particular, the Foreign Secretary believed there was a greater need now for international export control regimes (for example the EU Code) to focus on non-state actors.[175]

110. The FCO wrote to the Clerk of the Committees on 27 June giving the results of these deliberations.[176] It reported that the the CFSP Working Group on Conventional Arms Exports (COARM), which has oversight of the implementation of the EU Code of Conduct, had had a brief informal discussion on whether the Code should be amended in September 2001, in the immediate aftermath of the terrorist attacks, and had concluded informally that the Code was already sufficiently robust on the prevention of arms flows to terrorists. Having argued that the Code was already sufficiently clear in Criteria Six and Seven about the need to prevent arms flows to terrorists, the letter went on to point out that—

    The EU Code does not include the language in the second consolidated criterion ... that HMG:

    "considers that in some cases the use of force by a Government within its own borders, for example to preserve law and order against terrorists or other criminals, is legitimate and does not constitute internal repression, as long as force is used in accordance with the international human rights standards described above"

    We [HMG] have always taken the view that the inclusion of this language in the Consolidated Criteria does not contradict our obligations under the EU Code. It merely clarifies what is arguably an obvious point: that the use of force is not internal repression if it does not breach international human rights standards. For example, criteria four (external aggression) and six (international law) do not explicitly include text on the legitimate use of force. Nevertheless, we believe it is consistent with these criteria (and the EU Code) to view the use of force by a destination country as legitimate, so long as it is not used aggressively against another country or to assert by force a territorial claim, and so long as force is used in accordance with that country's international obligations and commitments, including under international humanitarian law. The Foreign Secretary has therefore concluded that the EU Code of Conduct does not need to be amended in response to the terrorist attacks of September 11 or in order to be compliant with UNSCR1373. The Code as currently drafted provides adequate safeguards against the supply of arms and other controlled goods to terrorists, while allowing Member States to equip those conducting legitimate, responsible campaigns against terrorism.[177]

We do not demur from the Government's position that it is on occasions legitimate for another government to use force within its own borders to achieve security and defeat terrorism. We nonetheless reiterate the warning by the Foreign Affairs Committee of the need to remain alert to the threat of violations of human rights. Such cases indicate the difficult decisions which confront Ministers when different criteria have to be balanced against each other. Great vigilance is required to ensure an appropriate balance is maintained.

Case-by-Case Consideration of Applications

111. In its answers to many of our questions about the impact of external events or wider policy considerations on Ministers' exercise of their discretion in considering licence applications, the Government has consistently stressed the need to take decisions on a case-by-case basis.

112. When we asked if the cumulative effect of arms exports to a particular destination is taken into account when considering a SIEL application, the Government simply acknowledged that "this may well be a relevant consideration in the assessment of a licence application"[178] under the consolidated EU and national arms export criteria. But in many cases, the cumulative effect of exports will raise quite different concerns to those that might be raised by an individual application, and there is little evidence anywhere in the data given in the Annual Reports as to how such considerations may weigh in decisions. Saferworld have suggested that data on quantities and values of items covered by each SIEL granted should be recorded and published to aid the assessment of the implications of arms licensed for export against the consolidated criteria on a case-by-case basis.

113. We accept that the Government is obliged to continue to assess each SIEL application on its own merits against the consolidated criteria and on a case-by-case basis. However, the Government has acknowledged that the cumulative effects of exports to a particular destination could be a relevant consideration in this assessment. To aid our review process, we recommend that the Government should consider including in its Annual Reports data on the value and quantities of controlled goods for each SIEL granted.

114. The cumulative effect of exports to a particular destination will be a particularly relevant factor in considering the application of Criterion Eight, the sustainable development criterion. It is to this topic we now turn.

Sustainable Development

THE DEBATE OVER SUSTAINABLE DEVELOPMENT

115. The issue of sustainable development and arms exports has been one of the major issues during the passage of the Export Control Bill. In the draft Bill published last year, sustainable development was one of the consequences listed in the Schedule to which regard was required to be given in determining export licence applications. In the Bill as published, it had disappeared. In the Commons, the Government resisted attempts to reintroduce it, while arguing that its absence did not indicate that it had ceased to be a factor which Ministers would have to take into consideration. However, the explanations they offered for the change between the draft Bill and the Bill as introduced were confused and confusing.

116. In the Lords, the Bill was substantially recast by Government amendments and in the process reference to sustainable development was reinserted on the face of the Bill.The debate in that House exposed a little more about the underlying difficulties in getting to grips legislatively with sustainable development and strategic exports. Unlike the other matters addressed in the criteria, sustainable development issues are not specific to the purchase of weapons and other military goods by poor nations. Any unnecessary or imprudent expenditure which diverts resources from economic and social development and the relief of poverty will hamper such a country's sustainable development. Although armed conflict is undoubtedly one of the greatest impediments to economic development, many non-military contracts that might fall into the category of such imprudent expenditure do not require export licences. In such cases, sustainable development considerations would come into play only if the exporters required export credit guarantee support, or if the purchaser was a recipient of bilateral or EU aid. The sustainable development criterion is not, unlike the other criteria, self-evidently designed principally to protect ourselves or to protect others, but appears to be designed to protect others from themselves (or at least, to protect people from their own governments' misjudgements). In this sense, sustainable development is an issue which is additional to, rather than central to, the arms exports control regime—a status which is reflected in the institutional arrangements for its consideration within Government. The Tanzania case which we discuss below only became linked with the export control regime because the air traffic control system included a military component—had it not, then Criterion Eight would not have applied, as the system would not have required a licence for export. None of the other criteria would seem to apply to the purchase of this essentially defensive system.

CRITERION EIGHT

117. Sustainable development does not have a universally agreed definition. However, the Millennium Development Goals—to which the UK Government is signed up—include targets for reducing poverty and hunger, achieving universal primary education, promoting gender equality, reducing child mortality, improving maternal health, combatting HIV/AIDS and other diseases, ensuring environmental sustainability, and developing a global partnership for development. If these goals are to be achieved, in poor countries spending on health, education and basic social services must take priority over other unnecessary or excessive government spending—including unnecessary or excessive military spending.

118. As the Foreign Secretary emphasised repeatedly, applications for export licences are considered only in relation to the Consolidated Criteria.[179] Criterion Eight states that the UK Government, when considering an application, will take into account—

    The compatibility of the arms exports with the technical and economic capacity of the recipient country, taking into account the desirability that states should achieve their legitimate needs of security and defence with the least diversion for armaments of human and economic resources

and goes on to say that—

    The Government will take account, in the light of information from relevant sources such as United Nations Development Programme, World Bank, IMF and Organisation for Economic Cooperation and Development reports, whether the proposed export would seriously undermine the economy or seriously hamper the sustainable development of the recipient country. The Government will consider in this context the recipient country's relative levels of military and social expenditure, taking into account also any EU or bilateral aid, and its public finances, balance of payments, external debt, economic and social development and any IMF or World Bank-sponsored economic reform programme.[180]

TANZANIA

119. In the Autumn of 2001, a controversy blew up in the media over a proposal to approve a licence for the export of an air traffic control system to Tanzania. The eventual granting of a licence for the proposed contract therefore inevitably raised questions about the way in which sustainable development concerns were considered in the determination of export licence applications.

120. Tanzania has a population of 34 million, a per capita income of $270 and, as of 2000, had a debt of $5.4 billion.[181] It is classified by the Development Assistance Committee of the OECD as a Least Developed Country. On the 27 November 2001, it became the fourth country to qualify for debt relief under the Heavily Indebted Poor Countries (HIPC) initiative, and was granted relief from 54 percent of its debt.[182] In 2000-2001 Tanzania received UK bilateral aid amounting to £69 million.[183] Criterion Eight requires Ministers to ask whether the arguments for issuing a licence permitting Tanzania to spend about £28 million on an air traffic control system are outweighed by the argument that the proposed export would seriously undermine the economy or seriously hamper the sustainable development of the recipient country when it has pressing development needs and has agreed to channel scarce resources from debt relief and aid into basic social services.

121. The Overseas Development Administration—the forerunner to the DfID—was first aware of the proposed export in 1992. In February 1993, a preliminary MoD F680 application was made by BAE Systems.[184] In July 1997 a second F680 application was made, and this was approved in August 1997.[185] In October 2000, the Secretary of State for International Development was made aware of the formal licence application.[186] In December 2001, the UK Government granted two licences for the export of air traffic control equipment to Tanzania.[187]

122. While the three Secretaries of State who are formally involved in the licensing decision concluded that the proposed export did not breach Criterion Eight, it is clear that the Secretary of State for International Development was not happy with the decision. She commented in oral questions on 15 May—

    When it completed its debt-relief process, Tanzania gave an undertaking to the World Bank board that it would review the contract, but the Government of Tanzania came under pressure to break that undertaking ... We do not give aid unconditionally where there are bad procurement and bad contracts and so end up using aid money to subsidise a bad contract that is damaging a country.[188]

123. On the other hand, the Foreign Secretary told us of the complex cost-benefit analyses conducted before he came to a decision. We asked to see a summary of these calculations, but were told that further consideration was being given to whether this could be provided, in confidence, in a way which was consistent with the Code of Practice on Open Government.[189] We fail to see the relevance of the Code of Practice to the provision of information in confidence to select committees of this House. We expect to receive shortly the summary of the cost-benefit analyses prepared within Government before the decision on the application to export an air traffic control system to Tanzania was

determined.

124. The Foreign Secretary also explained the efforts to assess the suitability of the system for Tanzania's needs, but stressed that these judgements were primarily matters for the Tanzanian Government to decide upon.[190] But if questions of value-for-money and the suitability of the system were not apparently central to the UK's decision to grant an export licence, they were considered by the World Bank with the assistance of the International Civil Aviation Organisation. In a letter of 8 November 2001, the International Civil Aviation Organisation told the World Bank that the proposed export would not be adequate for civil air traffic control purposes, and was too expensive for Tanzania's needs, a £10 million system being regarded as adequate (this figure was later revised downwards). Prior to being approved by the World Bank for HIPC debt relief on 27 November, Tanzania undertook to reconsider the suitability and value for money of the proposed system.

125. The Foreign Secretary told us that the World Bank's HIPC approval played an important role in the UK decision to grant an export licence.[191] It was emphasised that the licence is a permissive licence; it allows the export to take place, but it does not commit Tanzania to the purchase of the system. On 15 May, the Secretary of State for International Development reiterated this point in the House rather more emphatically—

    It is clear that Tanzania needs a civilian air traffic control system to ensure safety in the country's air space. The issue is whether the proposed system meets Tanzania's needs, and represents value for money. The Government of Tanzania and the World Bank await the report of the International Civil Aviation Organisation on whether the BAE system best meets Tanzania's needs ... I hope that once we have the report from the International Civil Aviation Organisation, and assuming that Tanzania responds to it in the best way and in the interests of the country and of poor people, we will be able to give it more help to solve its problem.[192]

126. However, it is not at all clear why a decision on the licence application was made on 21 December 2001, before the results of the discussions between the Government of Tanzania, the World Bank and the International Civil Aviation Organisation on whether the BAE system best met Tanzania's needs were known. The application had, after all, already been pending for upwards of two years by then. Criterion Eight specifically requires the Government to 'take account of' information from the World Bank in considering the application of the criterion. There is no argument that Tanzania does not need a modern air traffic control system, but if the World Bank were to advise that the system chosen was unnecessarily or imprudently expensive (as it appears subsequently to have done), we would expect Ministers to take that view into account in reaching a decision on the application of Criterion Eight.

127. In defending his decision the Foreign Secretary, in private session, laid great emphasis on the point that as a legitimate government of a sovereign state, the Government of Tanzania had the right to decide what air traffic control system it bought from whom. But while the legitimate right to self-defence is recognised in the criteria, sovereignty is nowhere mentioned in them. When it comes to applying the sustainable development criterion, we cannot accept as in any way decisive (or strictly relevant) the argument that to have refused the application in this case would have been an infringement of Tanzanian sovereignty. The acceptance of such an argument as axiomatic would rule out of court any attempt to apply Criterion Eight. The status of the Tanzanian Government does not relieve Minister's of their obligation to consider Criterion Eight, particularly (as the criterion's terms make clear) where the proposed purchaser is a recipient of bilateral aid. Development partnerships impose rights and obligations on all the partners.

128. On 20 March 2002 it was reported that the DfID was freezing £10 million of UK aid to Tanzania whilst it re-assessed Tanzania's commitment to poverty reduction. Although the Foreign Secretary argued[193] that in making this decision the DfID was simply applying a different set of criteria, and that this indicated neither approval or disapproval of the contract between Tanzania and BAE Systems, we are not convinced by this assertion. The Secretary of State for International Development subsequently argued that the UK was—

    ... the biggest provider of aid to [Tanzania], and we have provided large funds this year. We are holding back the £10 million so that we get a decent outcome once we have the report from the International Civil Aviation Organisation ... We have said that we will hold back the £10 million and that when we have the report and if we can get a good outcome for Tanzania, we will assist Tanzania to take forward the process.[194]

On 3 July, in the course of an official visit to Tanzania, it was announced by the Secretary of State that she was recommencing the payment of aid to Tanzania following discussions about the lessons of the process of letting the contract for the air traffic control system.

129. While the argument over the Tanzania contract clearly demonstrates that there are considerable differences within Government over the interpretation of the sustainable development criterion, we must recognise that assessments in terms of Criterion Eight are about whether the proposed export has the potential seriously to hamper sustainable development in the recipient country or seriously undermine its economy, rather than about whether it is supportive of sustainable development. Although there was a clear prima facie case for considering the application under Criterion Eight, we accept that the decision to allow the licence was a "judgement call", and that it was reached after careful and prolonged consideration. But the controversy which surrounded it does illuminate the lack of clarity about what Criterion Eight means in practice—a lack of clarity which is made more problematic by the fact that no "case law" on its application has developed because it has never been the primary reason for the refusal of a licence application.[195]

LESSONS OF TANZANIA

130. The Tanzania case is not unique. It has however, in the context of the debate over the Export Control Bill, taken on the status of something of a test case. The Foreign Secretary sought to assure us that sustainable development concerns are taken seriously by the Government, and that the fact that such concerns had never led to an application being refused "does not mean that the criteria are not criteria that are worth having".[196] There is little or no dissent from the conviction that the criteria are worth having. But it is important to ensure that they are interpreted and applied transparently, fairly, and effectively.

131. We believe that the Government is serious about its commitment to sustainable development and seeks where appropriate to assess export licence applications carefully against Criterion Eight. But the terms of the criterion are very hedged: it is not about promoting sustainable development but about the protection of sustainable development from serious threat of its being hampered. The Tanzania case leads us to conclude that there is confusion within the Government about the interpretation and application of the criterion. We are concerned about the lack of yardsticks against which serious hampering of sustainable development could be measured in a way which could be sufficiently transparent to give some reasonable expectation about how Criterion Eight will bite. We also note that although the criterion has become universally known as the "sustainable development criterion" it also refers to the risk of "seriously undermining the economy" of the recipient country. It is not at all clear to us what the distinction is between these two concepts. We recommend that the Government explain the distinction in Criterion Eight between seriously hampering a country's sustainable development and seriously undermining its economy, if any, in its response to this report.

132. What is needed to prevent future controversies such as the Tanzania case is some clarification of the meaning of Criterion Eight, and some clear guidance as to its interpretation and application. Neither the Consolidated Criteria nor the Export Control Bill contain explicit definitions of sustainable development, let alone what might be meant by its serious hampering. If the criterion is to be applied fairly and openly, something better is needed. The International Development Act states that—

    Sustainable development includes any development that is, in the opinion of the Secretary of State [for International Development], prudent having regard to the likelihood of its generating lasting benefits for the population of the country or countries in relation to which it is provided.

This would be a start, by suggesting that the hampering of sustainable development would be anything which was imprudent having regard to those goals, but it would be a definition which relied heavily on the opinion of Ministers, and would still not define what kind of actions might seriously hamper (as opposed to just hamper) a country's sustainable development prospects. The Secretary of State for International Development clearly considered the proposal to purchase a military-type air traffic control system grossly imprudent. This view appears to have been shared by the International Civil Aviation Organisation and the World Bank. It was clearly not shared throughout the UK Government.

133. Although the Foreign Secretary maintained that the decision to grant the export licence in the Tanzania case was the correct decision,[197] he did recognise that—

    ...we are in relatively new territory here with the principles of sustainable development ... we are involved in an iterative system where we are building up experience ...There has been a lot more experience about classic defence military criteria. There are some possible export licence applications which do not require more than a millisecond's consideration because it is perfectly obvious that if we have an order for arms to a known and notable rogue state the answer to that is no and ... where it is clear beyond any peradventure that it would be used for internal repression far exceeding any need for maintenance in a proper sense of law and order within human rights bounds ...At the other end, not least because it is a new area and it is an intrinsically wider definition, there is the issue of sustainable development and what we have to do is to carry on building on the experience that we have had.[198]

We agree that we have to go on refining the criteria and their interpretation. There are different individual views on whether the decision on the Tanzania case was the right one. As we have made clear, the decision was far from clear cut or easy to make—and we believe the decision was made by Ministers in good faith. However, we share with the Foreign Secretary the view that the lessons of the Tanzania case need to be examined and applied. We were pleased to hear that there is a Cabinet Office Review taking place[199] to improve and refine the processes within Government by which Criterion Eight is interpreted and applied.

134. Coming to a clear definition of such a complex goal as ensuring that a proposed arms export would not seriously undermine the economy or seriously hamper the sustainable development of the recipient country will be far from easy, but we consider the importance of having clear criteria governing the export control regime as justifying the effort required to produce workable guidance on the application of Criterion Eight. We look forward to seeing substantial progress towards formulating clear guidance as to the interpretation and application of Criterion Eight under the provisions of the Export Control Act. We will be examining that guidance closely.

JOINED-UP GOVERNMENT

135. Finally, whilst we understand that applications for export licences are considered against the Consolidated Criteria, and that DfID makes decisions about its aid allocations on the basis of other criteria which assess the needs and policies of potential recipients, the Tanzania case does reveal some inconsistencies. A more joined-up Government would not find itself on the one hand granting an export licence to BAE Systems, and on the other freezing UK aid to Tanzania. We will be watching future licensing decisions closely to determine whether the lessons of the Tanzania case appear to have been learned and applied.

Collaborative Defence Manufacturing and Export Controls

136. On 8 July 2002, after a decision to grant a licence for the export to the USA of components which were to be incorporated in aircraft which were to then be exported to Israel had been made, the Foreign Secretary announced in a written answer some additional factors which were to be applied by Ministers when making licensing decisions. These additional factors are to be taken into account in considering applications for licences relating to defence manufacturing projects which involve UK firms supplying components for equipment to be assembled in other friendly countries.

137. This answer to the written PQ in which these additional factors were set out constitutes a major policy announcement, which it is necessary to quote extensively. In it the Foreign Secretary said—

138. As the Government acknowledges, the new factors to be taken into account in making licensing decisions which the announcement indicates go wider than the circumstances of this individual decision. We regret, therefore, that it was made by way of a written answer, rather than by an oral statement on the floor of the House on which the Foreign Secretary could have been questioned and challenged. It requires careful consideration and debate. Because of its timing, we have not had an opportunity to examine the implications in detail with Ministers. In a letter to the Chairman on the day the written answer was published, the Foreign Secretary offered to provide us with further evidence, and we intend to take up this offer at an early opportunity. At this stage we set out some questions which appear to us to be raised by the announcement which we can pursue after we have received the Government's response to this report.

139. Every F-16 manufactured, wherever it is sold to, incorporates components originating in the UK, including the Head Up Display units. In the particular case of the F-16s intended for export to Israel, the Government would appear to be arguing in defence of its decision to license them for export first, with an eye to paragraph (c) of the 8 July additional factors, that the components form only a very small part of the aircraft, and second, with an eye to paragraph (b) of the additional factors, that the risks to the UK's defence relationship with the US of breaking the contract outweigh the relative insignificance of these components to the capability of aircraft which might be deployed aggressively in the Occupied Territories. It appears to us that these two criteria are likely often to conflict—the greater the "materiality and significance" of the UK-produced components to the end-product, the more damaging their withholding is likely to be to any collaborative procurement project and the more problematic a supply disruption is likely to be for the UK Government's political and defence relationship with another country. (Though it is not easy to identify a country other than the USA outside the EU to which such considerations would apply.) We conclude that if paragraphs (b) and (c) of the 8 July additional factors were to be applied on a "case-by-case basis", they would suggest that the more insignificant a component is to a finished product, the more likely it is to be approved for export, while at the same time the more significant a component is to a finished product, the more likely it is to be approved for export. We recommend that the Government explain more fully these apparently conflicting considerations in its response to this report.

140. We also detect a possible inconsistency between the arguments the Foreign Secretary deploys in the preamble of his announcement and the additional factors relevant to the Consolidated Criteria which the written answer enunciates. The preamble stresses the inter-connectedness of the modern globalised defence industry and the importance attached to sustaining the UK's domestic strategic industrial base, but the additional factors refer only to "the importance of the UK's defence and security relationship with the incorporating country". We recommend that the additional factors are clarified to indicate whether they require Ministers to take account in determining licence applications only of the UK Government's defence and security relationship with the government of the "incorporating country", or also permit Ministers to take into account the implications of a contract for the UK's strategic industrial base and its commercial relationships with that country.

141. Paragraph (a) of the 8 July additional factors refers to the effectiveness of the export control regime operated by the "incorporating country". This is a factor already referred to in Criterion Seven as one to be taken into account in assessing the risk of diversion. It is not at all clear to us what it adds in the context of the 8 July statement, since the risk of diversion seems unlikely to be uniquely and differently relevant in most of the circumstances which the additional factors seem intended to address. We recommend that the Government clarify, in its response to this report, the relevance of the quality of export controls in the "incorporating country" to licensing decisions relating to collaborative manufacturing products. In his written answer the Foreign Secretary noted that our predecessors on the Quadripartite Committee had commended the US's export controls. However, the point at issue here is not the effectiveness of the controls (and certainly, in relation to prior scrutiny and end-use monitoring, there is evidence to suggest the US system has some very positive aspects) but the policy which those controls are used to implement. In this particular case, the debatable point is the difference between European and US policies towards the Israeli Defence Force's activities in the Occupied Territories. We conclude that the comments of our predecessors on the effectiveness of the US system of export controls should not have been called in aid to justify the decision of Ministers in relation to policy on the export of aircraft components to Israel via the USA.

142. Such differences of policy have to be taken into account by Ministers if the integrity of the export control system is to be maintained. Paragraph (e) of the 8 July additional factors refers to the consideration to be given to "the standing of the entity to which the goods are to be exported". It is not entirely clear whether this means the "incorporating country" or the proposed final purchaser of the assembled equipment. If we assume it is the latter, this is a reassuring indication that the UK will not licence for export components regardless of whether the "incorporating country" follows UK policy on exports in relation to the proposed end-user. This seems to heighten the apparent irrelevance of the factor relating to export controls in the incorporating country. However, it also seems to suggest a lower weight will be given to the UK's judgement on the record of the ultimate end-user in these circumstances than would have been the case were the export to have been directly from the UK. It is not a factor used directly in the Foreign Secretary's answer of 8 July as a justification for agreeing to a licence for exports which would finally arrive in Israel. We recommend that the implications of paragraph (e) of the additional factors of 8 July are spelled out in greater detail in the Government's response to this report.

143. In that context, we also note that our predecessors' comments on the quality of the USA's export control system were made in the context of their urging that every opportunity should be taken to press the USA to align itself with the EU Code.[201] They went on to

say—

    A visibly coordinated approach between the USA and Europe would present a powerful message to those arms exporting nations not within the consensus. We remain of the opinion that there would be value in an internationally harmonised system of conventional arms export policies to be followed by the major arms exporters.[202]

We conclude that the Government's announcement of 8 July has made it more urgent that efforts be redoubled to seek to secure harmonisation of EU and US policies on arms exports.

144. Although the Consolidated Criteria (and their precursors) have always applied to components as well as to assembled equipment, it is true, as the Government points out in the statement of 8 July, that they do not specifically and in exact terms refer to the problem of incorporation of components in equipment for onward export from the receiving country—although this is certainly not a phenomenon that has only arisen since the Code was agreed, and the apparent loophole has never before been identified as such. The Government's statement of 8 July claims that there is no common EU-wide policy about licensing strategic exports where it is understood that the goods are to be incorporated in products for onward export. Whether or not this is an interpretation of the terms of the Code with which our European partners would all agree, we recommend that the Government, in its response to this report, sets out its view on the compatibility of the new factors announced on 8 July with the EU Code, and indicates what steps it intends to take to secure an EU-wide policy, or amendment to the Code, in respect of licence applications for goods where it is understood that the goods are to be incorporated into products for onward export.

145. The Foreign Secretary explained the introduction of additional factors to be weighed alongside the Consolidated Criteria announced on 8 July as an attempt to get to grips with the trans-national nature of the contemporary defence manufacturing industry. Although this problem has undoubtedly been exacerbated by changes in the structure of European and US defence manufacturing firms in recent years, it is not a new issue. We recognise the issue the Foreign Secretary was seeking to address in his announcement of 8 July—the challenge faced by the UK defence manufacturing industry in securing participation in and sustaining collaborative procurement projects, particularly those involving the USA—but we conclude that in his statement he identified a dilemma without doing enough to illuminate how it is to be resolved in future cases. We have outlined above a number of concerns we have about the impact of the additional factors which are now to be taken into account in certain licensing decisions on the integrity of the UK's and the EU's export control regime—in particular about whether exports which would otherwise breach the first four of the Consolidated Criteria (and therefore the EU Code of Conduct) will now be licensed if they are to arrive in a destination via a third country rather than directly from the UK. We will be pursuing these concerns with the Government when we have received its response to this report.

146. We recognise that the Government was prepared in this case to reveal at least some details of a controversial decision as soon as it was taken, rather than standing on the supposed convention that such information would be disclosed only in the Annual Reports (up to eighteen months after decisions have been made). We acknowledge that the Government, by announcing publicly (albeit after a decision on different terms had been taken) these new factors to be taken into account in licensing decisions, has provided some opportunity for prospective as well as retrospective debate on its effect on the application of the Consolidated Criteria. We recommend that the Government's Annual Report for 2002 identify the number, destination and types of goods covered by licences where in decisions to allow the export the additional factors announced on 8 July played a part.

147. We are not wholly convinced that, in making his statement on 8 July, the Foreign Secretary fully met his own standard of not applying any unannounced criteria to licensing decisions. Nonetheless, taken together with his readiness to release information on licences relating to India and Pakistan, and to Tanzania, we do detect a move towards greater openness and a willingness to expose controversial judgements to examination and debate—but still too late for Parliament to express any view on such decisions before they have been taken. We conclude that several of the cases we have focussed on in this report starkly illuminate many of the shortcomings of retrospective scrutiny of licensing decisions. It is to the subject of prior scrutiny that we now return.



162   Appendix 3, Ev 18 Back

163   Appendix 6, question 42, Ev 36 Back

164   See Tableabove Back

165   see paragraph 44 Back

166   FCO paper on Small Arms and Light Weapons (SALW): A global problem. December 2000. Back

167   Defence Committee, Third Report, Foreign Affairs Committee, Second Report, International Development Committee, Third Report, Trade and Industry Committee, Fourth Report, Session 1999-2000, Annual Reports for 1997 and 1998 on Strategic Export Controls, HC 225, para 52 Back

168   Ev 47 to Ev 48 Back

169   Appendix 6, Ev 36 Back

170   HC Deb., 22 April 2002, c 26W Back

171   QQ 24 to 27 Back

172   Q 24 Back

173   Fifth Report from the Foreign Affairs Committee, Session 2001-02, The Human Rights Annual Report 2001, HC 589, paras 6 and 7 Back

174   Q 26 Back

175   Q 26 Back

176   Appendix 14, Ev 50 Back

177   Appendix 14, Ev 51  Back

178   Appendix 9, question 12, Ev 47 Back

179   For example: Q23, Q34, Q41, Q59 Back

180   See Annual Report 2000, p 346 Back

181   World Bank, World Development Indicators for the year 2000 Back

182   This is predicted to reduce the proportion of government revenue spent on debt-servicing from 19% to 7.7%: IMF Press Release No. 01/48, November 27th 2001. IMF and World Bank support US$3 billion in debt service relief for Tanzania under enhanced HIPC initiative. http://www.imf.org/external/np/sec/pr/2001/pr0148.htm Back

183   DFID Statistics on International Development, 1996/7-2000/1. Back

184   HC Deb., 29 January 2002, c 218W Back

185   HC Deb., 30 January 2002, c 335-6w; c 331W Back

186   HC Deb., 21 March 2002, c 473W Back

187   Q 28 Back

188   HC Deb., 15 May 2002, c 764 Back

189   Appendix 9, question 3 (b), Ev 44 Back

190   Q33 Back

191   Q29 Back

192   HC Deb., 15 May 2002, cc 762-3 Back

193   Q42 Back

194   HC Deb., 15 May 2002, cc 763-4 Back

195   Q35 Back

196   ibid. Back

197   Q 20 and Q 56 Back

198   QQ 55 and 56 Back

199   Q 55 Back

200   HC Deb., 8 July 2002, cc 650W - 652W Back

201   Defence Committee, Eleventh Report, Foreign Affairs Committee, Seventh Report, International Development Committee, Seventh Report, Trade and Industry Committee, Eleventh Report, Session 1999-2000, Strategic Export Controls: Further Report and Prior Parliamentary Scrutiny, HC 467, para 71 Back

202   ibid, para 73 Back


 
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