Select Committee on Foreign Affairs First Report


Background to the legislation

16. The origin of the Export Control Act 2002 was the Report of the Scott Inquiry published in February 1996, which criticised the export control regime at that time for its lack of accountability and transparency. The report recommended that "the present legislative structure, under which Government has unfettered power to impose whatever export controls it wishes and to use those controls for any purposes it thinks fit, should […] be replaced as soon as practicable".[23] Following a White Paper on Strategic Export Controls[24] in 1998 the Government published the draft Export Control and Non-Proliferation Bill in March 2001[25]. A draft bill was introduced in the Commons in June 2001 and completed all its stages receiving Royal Assent in July 2002. The Export Control Act 2002 (as the draft Bill became) was primarily an enabling power and so attention also focussed on the orders to be made under the Act, the first of which were produced in draft in 2001. The legislation came into full operation on 1 April 2004.

17. In carrying out our review of the operation of export control legislation we have not restricted ourselves to the issues raised in the Government's consultation document. Although the Government supplied the terms of reference to us in January 2007, the consultation document itself was not published until 18 June with a deadline for responses, 30 September, eight weeks after the start of the summer recess. It would therefore have been impractical for us to have taken evidence within the Government's timetable. We therefore had to anticipate the likely issues and to seek evidence accordingly. Of more importance, however, we consider that if there is an issue that needs to be addressed—irrespective of whether or not it has been raised in the Government's consultation document—the Government's review is the opportunity to attend to it. In carrying out our review of the legislation we have therefore addressed and sought views on a wider range of issues than those sent out in the consultation document. We have drawn on the following:

a)  our predecessor Committees' pre-legislative scrutiny of the primary and secondary legislation;

b)  the Government's stated aims for the legislation and policy;

c)  issues arising from the Scott Report; and

d)  Law Commission's 2006 consultation paper on post-legislative scrutiny.


18. Our predecessor Committees reviewed both the proposals in the draft Export Control and Non-Proliferation Bill[26] and subsequently the proposed orders to be made under the Export Control Act 2002.[27] In scrutinising the legislation our predecessor Committees identified changes that they considered were required as well as a number of tests that could be used to evaluate the effectiveness of the legislation. We have drawn on the work of our predecessor Committees in reviewing the export control legislation.


19. In the consultation paper published with the draft Export Control and Non-Proliferation Bill in 2001 the Government stated that the aims of the primary legislation were to:

a)  set out the purposes of export control in legislation;

b)  provide for parliamentary scrutiny of secondary legislation made under the Bill;

c)  require the Government to publish annual reports; and

d)  create new powers to impose controls on the transfer of military and dual-use technology by intangible means, on the provision of related technical services, and on trafficking and brokering of military and dual-use equipment.[28]

20. These are significant, but relatively narrow, aims. In our view there can be little doubt that they have been achieved with the coming into operation of the legislation in April 2004, though, as we discuss later in this Report, we have concerns that the legislation does not fully extend controls to transfers of all intangible transfers of technology, technical assistance and brokering and enforcement.[29] The key issue is the extent to which the legislation—both primary and secondary—has assisted in achieving the aims of the Government's strategic export control policy which were to:

a)  maintain an effective system of export controls to ensure that UK involvement in arms exports did not contribute to regional instability, internal repression or external aggression whilst supporting a strong defence industry and defence exports;

b)  play a leading role in helping to strengthen international regulation of the arms trade; and

c)  prevent the proliferation of weapons of mass destruction.[30]

21. Our predecessor Committees concluded that the main test of effectiveness of the Government's proposals would be how well they were able in practice to discourage trade in military goods and technology where it was undesirable without also discouraging trade that the Government wished to promote.[31] We consider this issue further from paragraph 46.


22. The Government stated that the legislation would not only strengthen and modernise the domestic export control regime but also implement key recommendations of the Scott Report by providing for greater government accountability and transparency in the export control regime.[32]

23. We took evidence on two issues that were identified in the Scott report:

a)  whether export controls on goods or technology are being used as an instrument of foreign policy; and

b)  the state of communication between departments with responsibilities for considering applications for export licences.


24. We have also drawn on the Law Commission's 2006 consultation paper, "Post-Legislative Scrutiny",[33] to carry out our assessment of the legislation. The purpose of post-legislative scrutiny is to evaluate the effects of legislation, to stand back and take a careful view of the legislation in order to evaluate whether it has achieved what the Government said it would do, to analyse the effects of the legislation and to recommend changes, if required. The process should also identify success. Taking our lead from the Law Commission's paper we sought evidence to answer the following questions:

a)  whether the Government's stated aims and purposes for the legislation have been achieved;

b)  whether the new provisions introduced by the legislation—such as controls on the intangible transfer of technology and on brokering and certain extra-territorial transactions—are operating satisfactorily;

c)  whether the effects of the legislation identified in the regulatory impact assessment (RIA) were accurately and adequately predicted by the Government—in particular:

whether the costs and benefits in the original RIA were correct;

the effectiveness of the proposed enforcement regime; and

the extent to which the "solution" did actually solve the problem;[34]

d)  what have been the economic consequences of the legislation, particularly what effect has there been on defence manufacturers;

e)  whether the legislation complements defence and anti-terrorist policies and has the flexibility to adapt to possible changes—for example, the changes arising from a review of the EU Code of Conduct on Arms Exports or a requirement to licence brokers and the European standards for regulating brokering (EU Common Position on Brokering of June 2003); and

f)  whether the legislation has had any unintended consequences.


25. In our Report last year we recommended that the Government commission research to establish:

a)  the volume and categories of the "goods falling within definitions on the Military List and in the dual-use regulations but which are being exported in breach of export controls without licences";[35] and

b)  the extent to which dual-use goods "not subject to control are exported from the UK and are then incorporated into equipment which had it been exported from the UK would have been subject to export control".[36]

26. We regret that the Government declined to follow our recommendations[37] and, as far as we are aware, has not commissioned any independent research to test the effectiveness of the legislation in these and other key areas. Instead, the Government has drawn on an internal assessment of the controls undertaken by the Export Control Organisation (ECO) to evaluate the impact and effectiveness of the controls, which it described as "a useful starting point for the Review"[38] and "a contribution to a broader debate".[39] The Government explained that the evaluation comprised two elements:

Business impact; the extent to which the new controls have placed additional burdens upon business. For this element, we looked at the number of applications received on average per annum in comparison to the estimates in the final Regulatory Impact Assessment (RIA) […] We also looked at application processing times for Open Individual Export Licences, Standard Individual Export Licences, Open Individual Trade Control Licences and Standard Individual Trade Control Licences following the introduction of the new controls, to gauge whether exporters have received a slower service than previously.

Effectiveness; the extent to which the controls achieved their intended purpose. To measure this, we gathered information from those in the ECO who process licence applications or conduct compliance visits, and exporter feedback from seminars and workshops. Although this evidence is not statistically based, we nevertheless feel that it is an important contribution, which can be supplemented from other sources as the review progresses. It is also legitimate to view any refusals made under the new controls as an indication of effectiveness: these represent transactions which we had no means of stopping before the introduction of the new controls.[40]

27. The Government stressed that the ECO assessment did not prejudge the results of the public consultation.[41] In the 2007 Consultation Document the Government posed a number of "questions for readers" to gauge the extent to which the conclusions on business impact that the ECO had drawn from its own evidence were supported—or not—by exporters and other interested parties.

28. In our view the ECO's assessment is useful but as the Government itself concedes is only a starting point which, in our view, fails to provide the breadth and depth of analysis to supply the assurance that the system is working effectively. The assessment has two flaws: it allows the ECO to report on its own effectiveness and therefore lacks an element of independence; and it concentrates on those who comply with the controls, albeit with some shortcomings. Supplementing the ECO assessment with responses to the Consultation Document goes some way to addressing these shortcomings but is not a substitute for a systematic analysis of the effectiveness of export controls since 2004. The responses may, as the Government appears to want, encourage a debate but this is a debate that we have observed and reported on for several years. We are concerned that without better and harder evidence the debate will not reach a conclusion.

29. The Government states that the internal assessment drew on evidence held by the ECO only and was not a Government-wide assessment.[42] We question this approach. How can the Government measure the effectiveness of the legislation without examining, for example, the extent to which it has prevented "undesirable transfers" (a term used in the EU Code of Conduct on Arms Exports[43] and also by Malcolm Wicks MP, Minister of State for Science and Innovation, in his introduction to the 2007 Consultation Document)? One obvious way to do this is to enter into an inter-agency consultation and check with enforcement agencies and intelligence. There is no indication in the 2007 Consultation Document that this has been done. There is only one reference to the main enforcement agency, HM Revenue and Customs (HMRC), but that is a listing in an annex of abbreviations and glossary of commonly used terms.[44] We cannot believe that the Government intends that agencies such as HMRC and the intelligence services to make their contributions by completing the questionnaire in the Consultation Document. In the absence of a Government-wide assessment we question whether the Government is justified in making the assertion in the Consultation Document that "no serious non-compliance with [the new controls] has come to light".[45] We recommend that the Government carry out a government-wide assessment of the effectiveness of the export control legislation since 2004 and that the assessment encompass all the agencies with responsibility for the monitoring and enforcement of export controls.

30. We have examined the limited material that is available. It appears to us to throw up more questions that need to be answered. For example, when he answered a Parliamentary Question in 2006 the then Financial Secretary at the Treasury, Mr John Healey MP, indicated that 17% of the goods seized in 2004-05 would not have been licensed for export and the remaining 83% would have been granted an export licence had the exporter applied for one.[46] Commenting on the figures the Export Group for Aerospace and Defence (EGAD) said that if 17% of attempted shipments which were seized would not have received an export licence, "that is a very high proportion".[47] EGAD was not aware of any analysis of the figure.[48] We asked HMRC about the cases where licences would have been granted and it explained that the percentages were estimates and "might be slightly overstated". HMRC continued:

    If we discover export control breaches, such is the general complexity that we will not necessarily know at the time as to whether such goods would be rated licence-required. Sometimes we might find in some cases that the decision which emerges from the DTI ratings people does not follow what we expected. If we were to pull back from these cases you might be criticising us for paying less attention to enforcing this area.[49]

31. We are disappointed and puzzled that the Government has not carried out research. Whilst we acknowledge that research may not be straightforward, we consider that the Government is under a duty to measure and analyse the effectiveness of its policy in this important area. If, as EGAD points out, it were to be the case that 17% of the goods leaving the country were doing so in breach of export controls and would not have been given a licence if one had been sought, this would cast a serious doubt on the effectiveness of the system. We recommend that the Government in responding to this report produce detailed evidence to demonstrate the effectiveness of export controls.

32. In the face of the Government's reluctance to commission research we asked Miss Joanna Kidd and Dr Sibylle Bauer, two of our advisers, to examine aspects of the UK's systems of export control and to compare it with aspects of the systems in other countries. This work is not exhaustive but we consider that as well as providing preliminary conclusions, it highlights issues that require further and more detailed consideration. We have published the results of their research, which each carried out with a colleague, as memoranda.[50]

23   Scott Report, HC (1995-96) 115, Vol IV, Chapter 2, para K2.1 Back

24   Strategic Export Controls White Paper, July 1998, Cm 3989 Back

25   Consultation on Draft Legislation: The Export Control and Non-Proliferation Bill, Cm 5091, March 2001 Back

26   The Defence, Foreign Affairs, International Development and Trade and Industry Committees, Report for Session 2000-01, Draft Export Control and Non-Proliferation Bill, HC 445 Back

27   The Defence, Foreign and Commonwealth Affairs, International Development and Trade and Industry Committees, First Joint Report of the Session 2002-03, The Government's proposals for secondary legislation under the Export Control Act, HC 620 Back

28   Cm 5091, p 1 (hereafter "2001 Consultation Document") Back

29   See below, paras 166 ff, 252 ff, 49 ff, 123 ff respectively. Back

30   Department of Trade and Industry, Final Regulatory Impact Assessment: Export Control Orders, 2003, para 2 at (hereafter the "RIA")  Back

31   HC (2002-03) 620, para 23 Illegitimate is defined as breaching the law, disregarding norms such as the EU Code on Arms Exports or UN Security Resolution 1540/2004 or assisting the proliferation of weapons of mass destruction. Back

32   RIA, para 2 Back

33   Law Commission, Post-legislative Scrutiny, Consultation Paper no. 178 - and Law Commission, Post-legislative Scrutiny, Cm 6945, October 2006 Back

34   RIA, para 13.1 Back

35   HC (2005-06) 873, para 76 Back

36   HC (2005-06) 873, para 100 Back

37   Cm 6954, pp 14-15 Back

38   2007 Consultation Document, pp 2-3 Back

39   2007 Consultation Document, para 1.2 Back

40   2007 Consultation Document, para 1.3 Back

41   2007 Consultation Document, para 1.2 Back

42   2007 Consultation Document, para 1.2 Back

43   More precisely Criterion 7 of the EU Code refers to "The existence of a risk that the equipment will be diverted within the buyer country or re-exported under undesirable conditions" (Cm 6882, p 72). Back

44   2007 Consultation Document, annex 1, p 93 Back

45   2007 Consultation Document, para 1.4.iii Back

46   HC Deb,13 September 2006, cols 2335-6W Back

47   Q 64 (Mr Saltzmann) Back

48   Q 66 Back

49   Q 148 Back

50   Ev 130;Ev 137 Back

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