Strategic Export Controls

Evidence submitted by The Export Group for Aerospace & Defence (EGAD)

Current UK Export Licensing Situation

EGAD recognises the importance of an efficient export control system. This submission focuses on the mechanics of the system, and how it operates, and particularly the timescales involved in processing export license applications which has deteriorated in recent years. Delays in processing licenses, by the Export Control Organisation (ECO), has resulted in contractual penalty clauses being enforced against UK companies. EGAD has received an increase in the number of companies that have experienced such delays over the last year. This situation does appear to be getting worse and is affecting the reputation of companies within the UK. This is a serious issue.

The number of applications that the ECO is processing far exceeds the levels expected. In 2010 we understand that 17,000 license applications are expected by the ECO, compared to c.15,000 applications which were processed in 2009. Resources have been allocated by the ECO on the basis of processing between 9-10,000 Standard Individual Export Licence (SIEL) applications per annum.

The ECO should be credited for managing such a large increase, but this situation is clearly unsustainable. Furthermore, it is at odds with the Government’s ambition to increase UK exports.

The ECO and advisory departments are so focused on processing SIELs that other aspects of the UK’s export control system, such as ‘Ratings’ and processing of Open Individual Export Licence (OIEL) applications is suffering.

Evidence and impact of delays in issuing licences

Some Members have now informed us that their customers (including the United Nations) have become so disenchanted with the delays in delivering equipment that they are seeking to purchase what they need from outside the UK.

In addition, we are aware of at least one inward investment decision which is at risk as a direct result of the export control system. A UK-based company has been considering returning manufacturing work to the UK from Latin America. This would bring significant benefits in terms of jobs, export sales and strategic capabilities. Having being persuaded of the business case, the company is currently reconsidering this investment because of the frustrations that they are already experiencing in other areas of their business in working through the UK’s export control system.

From an Industry perspective there are two steps which are necessary to improve the efficiency and maintain the effectiveness of the current system:

1) Increase the resources of the ECO and its advisory departments so that they can cope with the increased demand. Increased UK exports are an ambition of the Government and deliver both jobs and greater income to the Exchequer in the form of increased tax receipts.

2) ECO and its partner organisations should identify improvements in the current system for processing licensing applications.

The Government’s policy of proactively seeking to encourage UK Industry to export more will result in further pressure on our export licensing system, not only from defence and security companies, but also from dual-use firms.

With some 98% of SIEL applications being successful each year, there is a strong case for removing a large number of current SIEL applications from the system and into the Open General Export Licences (OGELs) process without undermining of the effectiveness of our national export control system.

EGAD believes that the existing suite of OGELs needs to be reviewed, to ensure that these licensing products are as effective as possible.

UK/US Defense Trade Cooperation Treaty

After nearly three years of deliberation, the US/UK Defence Trade Cooperation Treaty (as well as its US/Australia equivalent) was ratified by the US Senate Foreign Relations Committee (SFRC) on 21 September, and confirmed by the US Senate on 29 September 2010.

It aims to streamline and improve defence export processes and allows for the export of defence articles, without a license or other written authorisation, from the US to an "approved community" of recipients in the UK and US and the subsequent transfer of these articles within that community without further US authorisation. 

There is some uncertainty within industries on both sides of the Atlantic on the full implications of ratification and what steps companies need to take to benefit from the treaty. The US Department of State announced that it intended to undertake a formal public consultation immediately after the Treaty was ratified, on its implementation.

As is usual with such complicated matters, the finer details of the Implementation Arrangements, which were published separately from the Treaty on both sides of the Atlantic in February 2008 need to be understood in detail. Some examples of the analysis which is required by individual companies is set out below:

· The equipment under consideration must not be on the very extensive "Excluded Technologies" List, which was published in early-2008;

· The intended end-user for the items covered by the Treaty must be either the UK and/or US Governments only; the Treaty will not cover items for onward export to other third countries;

· The UK companies who want to use the Treaty, including any and all sub-tier suppliers and freight forwarders who receive Treaty items, must be part of the "Approved Community", and, therefore, have X-List Security-vetted status from the UK MoD;

· Individuals within UK X-Listed companies who need to have access to the controlled US technology must be UK citizens with SC Security Clearance from the UK MoD.

At the behest of the UK MoD, A|D|S and EGAD are planning on organising a series of half-day workshops in early-2011 to brief UK firms so that they can be better informed on what the impact of the Treaty may be on them and their commercial activities. This will allow them to make an informed decision on whether they want to apply to be part of the Treaty's ‘Approved Community’.

November 2010