16 December 1998. Thanks to YA.
Source: http://www.parliament.the-stationery-office.co.uk/pa/cm199899/cmtrdind/65/6501.htm

House of Commons

Session 1998-99

Trade and Industry - Second Report

Here you can browse the report together with the Proceedings of the Committee. The published report was ordered by the House of Commons to be printed 2 December 1998.

CONTENTS

Terms of Reference

LIST OF WITNESSES

LIST OF MEMORANDA INCLUDED IN THE MINUTES OF EVIDENCE

LIST OF APPENDICES TO THE MINUTES OF EVIDENCE

REPORT

I. INTRODUCTION

II LEGISLATION AND PARLIAMENTARY SCRUTINY

III PURPOSE AND SCOPE OF CONTROLS

IV ADMINISTRATION OF SYSTEM

MINUTES OF PROCEEDINGS

MINUTES OF EVIDENCE

APPENDICES TO THE MINUTES OF EVIDENCE

Prepared 10 December 1998

TERMS OF REFERENCE

The Trade and Industry Committee is appointed under Standing Order No 152 to examine the expenditure, administration and policy of the Department of Trade and Industry and associated public bodies.

The Committee consists of 11 Members. It has a quorum of three. Unless the House otherwise orders, all Members nominated to the Committee continue to be members of it for the remainder of the Parliament.

The Committee has power:

- (a) to send for persons, papers and records, to sit notwithstanding any adjournment of the House, to adjourn from place to place, and to report from time to time;

- (b) to appoint specialist advisers either to supply information which is not readily available or to elucidate matters of complexity within the Committee's order of reference;

- (c) to communicate to any other committee appointed under the same Standing Order (and to the Committee of Public Accounts, the Deregulation Committee and the Environmental Audit Committee) its evidence and any other documents relating to matters of common interest; and

- (d) to meet concurrently with any other such committee for the purposes of deliberating, taking evidence, or considering draft reports.

The membership of the Committee since its nomination on 9 July 1997 has been as follows:

Mr Martin O'Neill (Chairman)

Mr Tony Baldry Mr John Bercow (added 15.6.98) Mr Roger Berry Mr John Butterfill Mr Jim Cunningham
Mr Lindsay Hoyle (added 19.2.98)
Mr Alan Johnson (discharged 19.2.98)
Mr Bob Laxton
Gillian Merron (discharged 9.11.98)
Mr Alasdair Morgan
Linday Perham (added 22.6.98)
Mr David Prior (discharged 15.6.98)
Mrs Helen Southworth (added 9.11.98)
Joan Walley (discharged 22.6.98)

Mr Martin O'Neill was elected Chairman on 16 July 1997.

LIST OF WITNESSES

[HC 1146-i]

Tuesday 10th November 1998

SAFERWORLD AND AMNESTY INTERNATIONAL UK

Mr Paul Eavis, Saferworld and Ms Fiona Weir, Amnesty International UK

DEFENCE MANUFACTURERS ASSOCIATION

Major General Alan Sharman, Director General, Mr Brinley Salzmann, Director, Market Information, Mr David Evans, Managing Director, Chemring Group plc, Mr Nick Prest, Chairman and Chief Executive, Alvis plc and Mr Douglas Garland, Managing Director, RBR International

JOINT ELECTRONICS AND TELECOMMUNICATIONS SECURITY EXPORT

CONTROL COMMITTEE OF THE FEDERATION OF THE ELECTRONICS INDUSTRY

Sir Brian Tovey, KCMG, Chairman

DEPARTMENT OF TRADE AND INDUSTRY

Barbara Roche MP, Under Secretary of State, Dr Roger Heathcote, Director, Export Control and Non Proliferation and Mr Andrew Mantle, Director, Export Control

LIST OF MEMORANDA INCLUDED IN THE MINUTES OF EVIDENCE

Submitted by

Amnesty International UK

Saferworld

Defence Manufacturers Association

Joint Electronics and Telecommunications Security Control Committee of the Federation of the Electronics Industry

Department of Trade and Industry

Department of Trade and Industry, Supplementary memorandum

LIST OF APPENDICES TO THE MINUTES OF EVIDENCE

Submitted by

Confederation of British Industry

EEV Limited

RBR (UK) Ltd

Terry Palfrey, Leeds Business School

TAPOL: Indonesia Human Rights Campaign

Campaign Against Arms Trade

UK Working Group on Arms

Foreign and Commonwealth Office

Foreign and Commonwealth Office, Supplementary memorandum

World Development Movement

Committee of Vice Chancellors and Principals of the Universities of the UK

Oxfam GB

Society of British Aerospace Companies Ltd

British American Security Information Council

Dr Ross Anderson, University of Cambridge

BLWA Ltd

Department of Trade and Industry, Further Supplementary memorandum

Foreign and Commonwealth Office, Further Supplementary memorandum

Saferworld, Supplementary memorandum

Department of Trade and Industry, Further Supplementary memorandum

Department of Trade and Industry, letter to the Chairman

Ministry of Defence

Foreign and Commonwealth Office, Further Supplementary memorandum

Department for International Development

Defence Manufacturers' Association, Supplementary Memorandum

SECOND REPORT

The Trade and Industry Committee has agreed to the following Report:—

STRATEGIC EXPORT CONTROLS

I. INTRODUCTION

Past Inquiries

22. The operation of strategic export controls, and analysis of weaknesses in the system of controls, have been matters of interest to our predecessors. In its Report of March 1992 on Exports to Iraq: Project Babylon and Long Range Guns the Committee inquired into a tangled web of events between 1988 and 1990, which ended with the detention of eight huge steel tubes at Teesport and the arrest of a number of people involved.[1] The Committee's conclusions were critical of several aspects of the performance of DTI's Export Control Organisation (ECO). In June 1996 the Committee published its Report on Export Licensing and BMARC, following a debate in June 1995 in which the allegations of diversion to Iran of naval cannon exported by BMARC to Singapore in the late 1980s had in effect been referred to the Committee.[2] The Committee examined export licensing procedures in some detail, both as they had been in the late 1980s, and as they were at the time; and came to a number of critical conclusions.

Scott Report and Green Paper

23. In November 1992, following the collapse of the prosecution of Matrix Churchill executives for alleged export control offences in relation to the export of machine tools to Iraq in the 1980s, an inquiry was established by the Government into the Export of Defence Equipment and Dual - Use Goods to Iraq and Related Prosecutions, undertaken by Lord Justice Scott. His Report was published in February 1996, and was highly critical of both the statutory basis for strategic export controls — the Import, Export and Customs Powers (Defence) Act 1939, passed as emergency legislation on the outbreak of the Second World War — and many of the procedures and practices followed by departments in operating those controls.[3] His recommendation of a comprehensive review was accepted by the then Government, which published a Green Paper on Strategic Export Controls in July 1996 .[4] This sought responses by the end of October 1996, to be followed by more detailed consultation in late 1996 and early 1997. The 36 responses to the Green Paper were placed in the Library in February 1997 and subsequently published as a departmental volume in June 1997.[5] These responses have been very useful in preparing this Report.[6]

White Paper

24. The new Government came to power with a number of commitments designed to be implemented quickly without the need for legislation, primarily the agreement and publication of new criteria in considering applications for export licences — announced in July 1997 —and the adoption of an EU - wide Code of Conduct, formally agreed in June 1998. It was not until 1 July 1998 that it published its White Paper on Strategic Export Controls, seeking written comments by the end of September 1998.[7] These responses — 54 of them — were made publicly available on 30 November 1998.[8] Copies were made available to the Committee in confidence on 17 November, and have assisted the preparation of this Report. Legislation in the 1998 - 99 Session should technically be possible, although responses to the White Paper in some areas, particularly proposed new controls over the export of intangibles, raise genuinely complicated issues requiring resolution. The Minister assured us that legislation would be introduced when parliamentary time was available.[9] We note that the Queen's Speech makes no reference to the Bill. Given that almost 3 years have passed since all parties accepted the strong recommendation in the Scott Report that there should be a new legislative framework for strategic export controls, and that controls are still being operated under a barely refurbished piece of emergency legislation from 60 years ago, we hope that time can be found for such largely uncontroversial legislation.

Inquiry

25. We decided to inquire into the proposals in the White Paper and related matters as part of a wider programme of inquiries into matters connected with ethical trading, and to take forward some of the detailed concerns raised by our predecessors. Fortunately, we have not had to delve into the intricacies of particular past cases. We have benefited from the results of the Government's own inquiries into two recent cases involving trafficking of arms in contravention of UN embargoes: in 1995 to Rwandans in Zaire by Mil - Tec, an Isle of Man - based company, and in 1997 - 98 to Sierra Leone by Sandline, a UK company.[10] We have also been aware of the inquiry into Foreign Policy and Human Rights undertaken earlier this year by the Foreign Affairs Committee, although the results of that inquiry were unfortunately not available to us in drawing up this Report. The Committee heard oral evidence on 10 November 1998 from Amnesty International UK (AIUK) and Saferworld: the Defence Manufacturers Association (DMA): the Joint Electronics and Telecommunications Security Export Control Committee (JETSECC) of the Federation of the Electronics Industry: and the Minister at the DTI responsible for the ECO, Barbara Roche MP, and her officials. We also benefited from a most instructive informal briefing and visit to the ECO's offices where we were able to see for ourselves the processing of licence applications. We are grateful to all those who have assisted in the inquiry.

Annual Report

26. The new Government is also committed to the production of an Annual Report on UK strategic exports, setting out the state of export controls and reporting — hopefully in greater detail than has been the case in the past — on their application. We await its publication with interest and some impatience. The 1998 White Paper suggested that it was "likely that various Select Committees will wish to examine the Annual Report which, in turn, may lead to a parliamentary debate".[11] Several Select Committees are potentially concerned, primarily Defence, Foreign Affairs, International Development and ourselves. As we reported to the House in conjunction with the Defence Committee in July 1998 "we consider that to leave such scrutiny to the individual exertions of each of these committees would risk confusion, and would be likely to result in effective scrutiny being lost in the gaps between committees ..... . It is for all the committees involved, working through the Liaison Committee to propose any sort of new joint mechanism. At this stage, we emphasise our joint belief that it would be desirable to have some definite mechanism for effective consideration of these matters by select committees."[12] Proposals are being considered for some form of joint consideration, which we hope will bear fruit in due course. We have therefore refrained in this Report from anticipating the possible outcome of such joint inquiry, and from attempting to lay down in advance of its publication a detailed template for the first Annual Report. The experience we have gained of the process of licensing as a result of this inquiry will however be of obvious assistance in scrutiny of the Government's Annual Report in due course.

Multilateral controls

27. From our examination of the White Paper, the responses made to it and the evidence submitted to us, it is clear that it would be foolish to examine the UK system of controls in isolation from those of our allies and partners. Although there remain a few areas where the UK pursues a purely national policy — such as the arms embargoes on Argentina and Iran, or in subjecting some goods to dual - use controls beyond those in multilateral regimes[13] — or where there is within an international embargo a significant degree of national discretion — notably the rather loosely phrased EU arms embargo on China — for the most part UK controls operate as part of an array of interlocking and overlapping multilateral regimes, under the auspices of the EU, OSCE and UN. The EU's role has significantly expanded through adoption, albeit only as a Council Declaration rather than a legally binding Joint Action or Common Position, of the Code of Conduct on Arms Exports. The Wassenaar Arrangement, formally launched in July 1996, with the aim of promoting transparency and greater responsibility in transfer of conventional arms and dual - use goods and technologies, offers great opportunities for concerted international action not yet fully realised. The 33 participating states include several states implicated in recent cases of UN sanctions breaches. Other arms exporters such as China, Brazil and South Africa are not participating. We hope that the Annual Report will include details of work underway within the Wassenaar Arrangement, including efforts to increase the number of participating states, and to pursue cases where there would seem to have been a failure of control by participating states.

28. Such internationalisation makes the system far stronger, but also more rigid, since any change has to be agreed by a large number of other national and international authorities. It also facilitates constructive comparison with arrangements in other nations. Evidence from non-governmental organisations (NGOs) referred to arrangements for parliamentary scrutiny in the US, Canada and Sweden: to rules on registration of dealers in Germany: to the operation of licensing by default in France: and to end - use controls operated by Belgium and other countries.[14] If, as we envisage, there develops a coherent form of UK parliamentary scrutiny of strategic exports, it will hopefully be possible to learn from such examples, and to develop a constructive relationship with similar bodies in other national parliaments.

II. LEGISLATION AND PARLIAMENTARY SCRUTINY

The 1939 Act

29. Strategic export controls are operated under powers given under the Import, Export and Customs Powers (Defence) Act 1939 — "the 1939 Act" — as amended by the Import and Export Control Act 1990. Section 1 provides for the Board of Trade (now DTI) to make by order "such provisions as it thinks expedient" for prohibiting or regulating, in all cases or any specified classes of cases the import or export of all goods or goods of any specified description. Orders under the Act are not subject to any parliamentary procedure, and are not even laid before Parliament. As the Scott Report pointed out, it was explicitly intended that the Act should continue in force only until the end of the emergency.[15] No Order as was envisaged by Section 9 (3) of the Act was however laid to repeal the Act, and Governments have continued to use what the then Mr Douglas Hurd described in 1980 as "a block - buster within the field that it covers".[16] The Scott Report sets out in detail the sorry story of the failure over many decades of successive Governments, and of Parliament, to set this right.[17] The situation was then made safer at law, but worse in equity and common sense, by the passage of the 1990 Import and Export Control Act, which in effect rendered permanent the granting in 1939 of temporary emergency powers. As the Scott Report put it — "The impropriety in using in peacetime wartime powers of subordinate legislation without Parliamentary control became entrenched de jure."[18] Sir Richard was highly critical of the failure to use this opportunity to import into the Act some provision for Parliamentary scrutiny of Orders made under the 1939 Act, despite consideration of this possibility by Ministers, officials and, apparently, Opposition front - benchers. The question of parliamentary scrutiny of Orders made under the 1939 Act and its eventual successor is therefore of central concern both because of a sorry history of 60 years of failure by Government and Parliament in this regard, and in the light of the attention devoted to it in the Scott Report. Parliament must be vigilant to ensure that new arrangements do not replicate the mistakes of the past.

New or amending legislation

30. The Scott Report recommended "new empowering legislation in place of the 1939 Act". The 1996 Green Paper announced that "the Government has no concluded view on the desirability of introducing new legislation to replace the 1939 Act", noting that the Court of Appeal had recently confirmed the technical propriety of continuing to rely on the Act. The 1998 White Paper confirms the Government's view that new primary legislation is desirable but leaves open the question as to whether this should be by amendment or repeal and replacement. The practical advantage of amending the Act is that other controls relying on the 1939 Act — such as those on heritage items, personal firearms and bovine offal — would remain in place.[19] Much of the 1939 Act has however been repealed or is not used or relied on. While it may be a nuisance to seek new legislative authority for other export (and import) controls, it can hardly come as a surprise to those concerned. For example, as long ago as October 1991 the Review on controls on the export of works of art concluded that it was "curious" that the legal framework for such controls was based on the 1939 Act, and strongly urged specific legislation. In June 1997 the Reviewing Committee on the Export of Works of Art noted in its Annual Report that "The need for legislation relating to the export of works of art not only arises from the fact that the world has changed a great deal since 1952, but also because some people who have appeared before us have questioned whether the same willingness to respect the spirit of the system as well as its letter remains universal." In its October 1998 Annual Report it stated "Times have changed and there is a need for new legislation .... . A legislative slot will be bid for in due course ....".[20] The Ministry of Agriculture, Fisheries and Food (MAFF) have used the powers under the 1939 Act, most recently in 1994 and 1995 to prohibit the export of various specified categories of bovine offal; but these powers have been largely superceded by powers under other Acts, and we understand that in recent emergencies MAFF has judged that these powers are sufficient. It would be in the general interest to have proper new legislative authority for export and import controls, not only for strategic exports, but in other areas as well. We consider that it would in principle be desirable to repeal the 1939 Act and replace it with wholly new legislation, rather than seeking to amend it.

Secondary legislation

31. The Scott Report devoted considerable space to criticising the absence of parliamentary scrutiny of the Orders made under the 1939 Act. Indeed, as long ago as December 1988 our predecessors on the Committee recommended an annual debate on the Cocom Order made under the 1939 Act.[21] The 1996 Green Paper stated the then Government's initial view that "any new legislation should allow for formal parliamentary consideration of rules and orders made under it."[22] In response to unanimous support for some form of scrutiny, the White Paper proposes that the negative procedure should be used, whereby an instrument comes into force immediately but is subject to revocation by Parliament within 40 sitting days.[23] The Scott Report explicitly proposed a form of modified affirmative procedure, whereby an instrument comes into force immediately but lapses after a specified period if not explicitly approved. This would allow for Government to react urgently, while ensuring that every change was debated in both Houses, however briefly. The Government based their rejection of this proposal on grounds of the frequency of amendments of the lists of controlled goods, which would "impose a significant burden on parliamentary time" if requiring approval in every case, and the fact that most amendments were uncontroversial and technical.[24] There have been 12 Orders since 1994 amending the Export of Goods Control Order (EGCO) made in April 1994; and 6 since 1996 to the Dual - Use Regulations made in February 1995, subject to negative procedure. None of these six amending Orders subject to negative procedure has been "prayed against" (the formal mechanism by which any Member may indicate a desire to have a debate on such a document). None of the 18 documents would seem to have been controversial. For example, one recent Order involved the raising of a computer CTP Threshold: the deletion of controls on certain machine tools: and the creation of defined exceptions for specified categories of nuclear - grade graphite. Nor do any of them seem to have been urgent.[25] As the White Paper confirms, most "are needed to update the lists of controlled goods to take account of changing technology, often as a result of changes agreed in the various international regimes on export control in which the UK participate".[26] Most amendments to the Dual - Use Regulations follow at least several weeks after the related decision taken within the EU Common Foreign and Security Policy (CFSP).

32. We are not unduly persuaded by the argument that the form of affirmative scrutiny proposed in the Scott Report would be unduly burdensome on Parliament, nor by the suggestion in the White Paper that, in order to avoid excessive numbers of Orders, amendments would be introduced less frequently, leading to a "less effective export control regime". We do however accept that the substance of changes to the lists are for the most part uncontroversial, and that the modified affirmative procedure would be likely to lead to further very brief and pointless meetings of Delegated Legislation Committees in order to debate wholly technical and uncontroversial measures. In order to ensure that significant changes are not slipped through Parliament without debate, we recommend that (a) drafts of Orders under the new Act be made available to this Committee in advance of their being made; and (b) that the Government undertake to find time for a debate on an Order if at least 6 Members so desire. On this basis, we consider that the negative procedure for orders laid under the new legislation will be found acceptable.

33. Eight Orders amending the 1994 EGCO have been made since the Scott Report's publication in 1996. None has been particularly momentous. None has been laid. While technically available on request, this means that they are notably less conspicuous to Members and others. We recommend that should Ministers wish to make any further Orders under the 1939 Act prior to the passage of new legislation, they give consideration to laying the relevant Order before the House.

Parliamentary scrutiny of primary purposes

34. The Scott Report stated that the absence of any indication in legislation of the purposes for which export controls could legitimately be used had led "to a dangerous confusion between the law on export controls and the Government's policy on export controls," and set out six suggested purposes.[27] We discuss the purposes further in paras 25 - 26 below. The 1996 Green Paper sought views on whether it would be desirable to set out the purposes of export control in legislation: and set out ten suggested purposes on which it invited comment.[28] The 1998 White Paper records "clear support" for the purposes being set out, "with most consultees favouring their inclusion in legislation", although some suggested including them in guidelines "in order to provide flexibility for Government to respond to changing situations". The Government proposes that the new primary legislation should make provision for the purposes of strategic export control to be set out in secondary legislation, subject to the modified affirmative resolution procedure. The Government's concern is to retain "the flexibility to respond to unforeseen circumstances, potentially at short notice".[29] The White Paper then sets out eight suggested purposes to be included in this secondary legislation.

35. It is evident that careful thought has gone into drawing up these proposed purposes. The 1996 Green Paper added counter - proliferation, consideration of the economy of recipient countries, preservation of stability and avoidance of diversion to the Scott Report purposes. The 1998 White Paper further refines the 1996 list, omitting separate reference to human rights abuses, and the reference to achieving "the least diversion for armaments of human and economic resources." In a parallel process, national criteria for export licensing and an EU Code of Conduct have been promulgated, covering similar ground. There have now been 3 lists of possible purposes for inclusion in the legislation, with some significant additions, deletions and re-draftings along the way. It can reasonably be assumed that there are no wholly distinct purposes omitted through ignorance or neglect.

36. We are very far from persuaded that there could be a need to respond urgently to unforeseen circumstances such as to require the immediate entry into effect of a new purpose, presumably to provide legislative authority to block a particular class of goods. If such a new purpose were to be thought desirable — for example, to prevent environmental damage, or to avoid the spread of offensive material — we accept that it would be reasonable for it to have immediate effect, subject to subsequent ratification by Parliament. The list of purposes for which export controls can legitimately be used is at the heart of the proposed new legislation, as the White Paper explicitly recognises.[30] The primary purpose in enshrining export controls in new legislation is to give Parliament the opportunity to debate and decide on the broad purposes for which controls should and should not be used. If the procedure put forward by the Government were adopted, it would be impossible for Parliament to amend the list of purposes. There are genuine and important questions over the phraseology which Parliament is entitled to scrutinise and amend if it thinks fit: otherwise Parliament would in practice be repeating its flawed grant of powers given 60 years ago in an emergency. Even Charles I might have blushed at asking Parliament for powers and proposing to set out later the purposes of such powers in subsequent secondary legislation. We welcome the opportunity to be provided soon for parliamentary scrutiny of the purposes of export controls, and urge Ministers to go the extra distance to provide an opportunity for proper examination and debate. We recommend that the principal list of purposes be set out in the primary legislation: and that power be given to Ministers to amend that list by secondary legislation subject to subsequent ratification by Parliament using the modified affirmative procedure as proposed in the White Paper for agreeing the original list.

Scrutiny of destination of exports

37. Orders made under the 1939 Act, and the Dual - Use Regulations made under the European Communities Act, set out in exhaustive detail the categories of goods which require an export licence, as will the combined Orders envisaged as being made under new legislation. They are however generally silent as to permitted or prohibited destinations. The 1994 Order includes one curious heading — former Group 3 of Part I of Schedule 1 — prohibiting the export of various heavy vehicles to the former Yugoslavia and other provisions relating to controls on the export of aircraft and some other goods to specified countries including Libya, Iran and Iraq.[31] In general, however, control of destinations is composed of several different but overlapping layers, subject to widely varying degrees of parliamentary scrutiny.

(a) United Nations binding sanctions regimes are normally given effect in the UK and Crown Dependencies and Dependent Territories by Orders in Council under the United Nations Act 1946.[32] Such Orders are laid before Parliament but are subject to no parliamentary procedure. There are eight currently in force.

(b) Sanctions decided upon by the EU under its Common Foreign and Security Policy, of which there are currently seven, of varying levels of complexity, are generally first given effect by EC Regulations and then brought into UK law by secondary legislation. In the most recent case, the imposition of an EU embargo on the Federal Republic of Yugoslavia in relation to equipment which might be used for internal repression and a moratorium on export credit, one statutory instrument was made under the 1939 Act prohibiting the export of certain goods specified in the relevant EC Regulation, and was of course not laid before Parliament. A second instrument, making it an offence to infringe that prohibition and providing for a licensing and enforcement regime, was made and laid under the European Communities Act, subject to negative procedure.[33] The recent amendments to the system for handling European Business should in due course ensure some possibility of parliamentary scrutiny of EU decisions to impose sanctions, albeit we suspect often after they have been decided.[34]

(c)There are two embargoes as a result of OSCE decisions, on Armenia and Azerbaijan, subject to no parliamentary scrutiny.

(d)The UK and other nations also operate embargoes at a national level, such as the arms embargo on Argentina in force since April 1982, now under review. In July 1998 it was also announced in a Written Answer that all export licence applications for dual - use items on the Nuclear Suppliers Group List would be denied to nuclear and nuclear - related end - users in India and Pakistan, as well as other goods.[35] None of these national embargoes has required legislation or parliamentary authorisation.

38. In seeking an appropriate degree of parliamentary scrutiny of secondary legislation on export controls, the absence of any equivalent level of scrutiny over the geographical application of controls comes sharply into focus. At a simple level, it is not easy to discover what embargoes are in place, let alone what policies exist in relation to particular countries. The Scott Report reveals the reasons behind the delay in publishing to Parliament the Guidelines on defence sales to Iran and Iraq. We do not know how many similar guidelines are currently in force. If recent amending Orders had been laid and subject to parliamentary scrutiny, Parliament would at least have had a theoretical opportunity to consider matters such as the lifting of the ban on aircraft exports to South Africa and Syria. Were it, to be decided however, to lift or modify the embargo on Argentina, or to adjust the application of the embargo on one (or both) of the countries subject to an OSCE embargo, Parliament would we hope be informed by Written Answer, but would have no more of a formal role than it had over the imposition of an embargo. There are gaping holes in the system of parliamentary accountability governing the framework within which licences are granted, and in particular the geographical application of controls. Replacement of the 1939 Act will go only some way towards improving the situation.

Parliamentary scrutiny of operation of system

39. The 1996 Green Paper sought suggestions for improvements in the information published on strategic export controls, and drew attention to the results of the MOD review of information provided to Parliament on the export of arms and defence - related equipment.[36] Beyond that, it did not envisage any significant changes in parliamentary scrutiny or the provision of information. The responses included a number of proposals for greatly enhanced scrutiny, including for systems of prior scrutiny by Parliament and others of applications for licences, through some form of public register of such applications. Many drew on equivalent systems of prior scrutiny and approval in the USA and Sweden.[37] Exporters on the other hand expressed concern at the prospect of information on planned exports being made publicly available, principally because overseas customers often express a wish for their purchases not to be revealed.[38] The 1998 White Paper announced the Government's view that there should not be "parliamentary scrutiny of individual applications either before or after the decision on whether to grant a licence has been taken."[39]

40. The voluntary sector expressed in its submissions to the DTI following the White Paper and in oral evidence to us its disappointment at the rejection by the Government of proposals for some form of prior scrutiny of licence applications, and by implication a power of approval or disapproval. AIUK suggested that in cases such as the supply of armoured personnel carriers to Indonesia "there should have been a very good informal public debate before any licence application was granted."[40] Saferworld emphasised the potential deterrent effect on officials and Ministers of the possibility of having to justify a decision to Parliament, leading them to "err on the side of caution".[41] The DMA on the other hand was relieved that there would not be "opportunities for unrepresentative pressure groups unduly to influence policy or decisions", avoiding "being swept along by the idealistic and emotive arguments of a vocal minority". It felt that the White Paper had "exactly the right balance of openess and Parliamentary scrutiny".[42]

41. We accept the Government's view that a system of registration of, and parliamentary and public access to, the thousands of applications every year would not only be administratively onerous, but of doubtful value. It would be unusual within the existing informal division of powers between Parliament and the Executive for casework of this sort, much of it by its nature containing commercially and diplomatically sensitive material, to be seen in advance by Parliament. There would also be some risk that Parliament could be presented in some way as having at least tacitly endorsed an application technically laid before it, and on which it had failed to register any reservations. On the sort of hard cases referred to in oral evidence to us we doubt if it would be helpful to have a formal parliamentary input prior to decisions. We are content at this stage to continue to leave individual decisions on export licences to Ministers who are accountable to Parliament, in accordance with constitutional conventions.

42. Ministers can however only be properly held to account for their decisions if Parliament is in possession of the full facts, and has access on request to detailed casework on decisions taken by Ministers and those responsible to them. That requirement is not met by a statistical abstract of decisions, however useful that may be in providing a broad picture of the licensing process. Such figures, which have been published annually for some years in the Annual Report of the ECO, form no more than the necessary starting - point for parliamentary scrutiny. Nor can Parliament depend on answers to a random series of parliamentary questions from individual Members. What is required is a system of parliamentary scrutiny which combines the greatest possible access to the details of decisions taken — licences granted, refused and delayed — with safeguards to protect commercial confidentiality in the interests of individual exporters and customers legitimate demands for confidentiality. As BASIC put it in its 1996 submission "The Government has itself set guidelines for arms exports; it should make it possible for those outside the executive to judge whether those guidelines are being followed."

43. We cannot therefore accept the bald proposition advanced in the White Paper that there should be no parliamentary scrutiny of individual applications after a decision has been taken. It must be open to Parliament, preferably through some form of committee, to test individual licences, or refusals of licences, against the Government's own criteria, the EU Code of Conduct and indeed any other criteria it wishes. That need not lead to public identification of individual companies, or indeed individual overseas destinations. It is also important that any system should not disadvantage UK exporters as against their competitors. The EU Code provides for a remarkable degree of communication at a confidential level between Governments. It would be useful if it could be extended to provide for a common standard of transparency within each state, to assuage the anxiety expressed in the White Paper that countries "would seek in future to buy equipment from countries which would not disclose details of individual contracts."[43]

44. We do not propose in this Report to seek to establish in detail either the desirable content of the forthcoming Annual Report, nor the extent to which, or means by which, detailed information could be made available to Parliament. In conjunction with other Select Committees, we have proposed on an experimental basis a system of joint inquiry by select committees on the first Annual Report (see para 5 above). The Report of that Committee can be expected to make detailed proposals, based on experience, as to how the exercise should be managed next time around. It is however likely that any system will have to allow for access, sometimes on a basis of confidentiality, to details of

- licences refused, on at least the same basis as details circulated to all EU member states
- appeals and their outcome
- licence applications which have raised particularly knotty points
- licences in particular categories, or in relation to particular countries, as identified by the Committees.

The aggregated information will also have to be disaggregated below the main headings used in the current Military List, and similarly in the listing of Dual - Use Goods, so that needless effort is not devoted to pursuing details of licences of little or no sensitivity.[44]

24. Parliament and the public are entitled to have full confidence that the licensing system is working as intended.[45] The fundamental requirements include a system of access by parliamentary committees to confidential information, and a means of reporting the results of scrutiny of that information to Parliament without breaching confidentiality. We share the view expressed that the existence of a robust system of parliamentary scrutiny can act as a useful prompt to officials and Ministers. We are confident that such a system can and will be developed.

III PURPOSE AND SCOPE OF CONTROLS

Purposes and Criteria

General

25. The Scott Report, the 1996 Green Paper and the 1998 White Paper each set out proposals for defining the purposes of strategic export controls as set out below . Parallel with these are the detailed principles to be applied to licence applications set out in July 1997 — "the Cook criteria" — and the EU Code of Conduct of June 1998. There would be evident advantage both to those administering the system and those monitoring it if the various points of slight contradiction or difference of emphasis could be resolved in a common text. It is also unfortunate that the Cook criteria and the EU Code should have preceded parliamentary legitimisation of the basic principles from which they might in logic have been expected to flow. We have sympathy with those who question whether there is not some incoherence among these lists.

PROPOSED PURPOSES OF STRATEGIC EXPORT CONTROLS

Scott Report | Green Paper | White Paper
(i) complying with international treaty obligations | (a) to adhere to the UK's international obligations and commitments, including international arms embargoes | To adhere to the UK's international obligations and commitments, including international arms embargoes and international control regimes
| (b) to prevent the proliferation of weapons of mass destruction and of missiles and unmanned air vehicles capable of delivering weapons of mass destruction | To prevent the proliferation of weapons of mass destruction and of missiles and unmanned air vehicles capable of delivering such weapons
(ii) protection of our armed forces | (c) to ensure the security of the UK, its dependencies and its armed forces abroad, and of allied countries | To safeguard the UK's security interests and those of allies and EU partners
(iv) avoidance of assistance to human rights abuses in foreign countries | (f) to avoid contributing to human rights abuses |
| (d) to avoid contributing to internal repression and instability within the country of destination of the licensed goods | To avoid contributing to internal repression
| (e) to take into account the economic and technical capability of the recipient country, and to achieve the least diversion for armaments of human and economic resources | To avoid seriously undermining the economy of the recipient country
(vi) avoidance of assistance to aggression by foreign countries | (g) to avoid contributing to the prolongation or aggravation of existing armed conflicts between states | To avoid contributing to international aggression
| (h) to preserve international and regional stability | To avoid damaging regional stability
(v) avoidance of assistance to serious crime in foreign countries | (i) to avoid contributing to terrorism and serious crime | To avoid contributing to terrorism and crime
(iii) prevention of terrorism |  |
| (j) to avoid re - export or diversion of goods, likely to prejudice purposes (a) to (i) |

26. Sir Richard Scott's remark accompanying his original list of six purposes that "the case for the inclusion of additional purposes remains, in my view, to be made out"[46] is a warning against too ready an assumption that the latest list is perfect. Three particular concerns have been raised:

- (a) the omission of the reference to human rights at (f) of the Green Paper list, on the grounds that the fourth purpose of the 1998 list, "to avoid contributing to internal repression", covers avoidance of human rights abuses: some see this latter phrase as potentially ambiguous and in danger of permitting exports of equipment which would fall foul of a "human rights" principle.[47]

- (b) the omission of the purpose set out at (j) of the Green Paper list, relating to avoidance of re - export or diversion:[48]

- (c) the phraseology of the purpose of the 1998 list relating to the economy of the recipient country, in view of the differences in the similar passages relating to the economies of recipient countries between the Cook criteria and the EU Code of Conduct.

July 1997 criteria

27. The new Government came to office committed not to permit the sale of arms to regimes that might use them for internal repression or international aggression, and to work for the introduction of a European Code of Conduct. The former commitment was met by the publication in July 1997 of new criteria to be used in considering arms export licence applications.[49] The criteria are to be applied to all military and dual - use exports, including exports by the Government, which do not require a licence.[50] These criteria have no statutory force. They are open to amendment by Government at any time. As we explain at para 5 above , we have not set out to establish how these new criteria have been applied: that will arise in the course of scrutiny of the Annual Report. We do however emphasise to the House the Foreign Secretary's statement that it was not "realistic or practical" to revoke any of the 20,000 valid licences outstanding.[51] Licences under consideration may indeed have been held up close to the point of approval: but the system is such that exports will potentially still be continuing under licences granted prior to May 1997.

28. Before July 1997 there was no clear and comprehensive public statement of arms export licensing policy. FCO desk officers used a guidance booklet listing 13 factors to be taken into account in considering applications: a copy was placed in the Library of the House of Commons in March 1997 and was available to the public on demand.[52] The Memorandum from the FCO printed with this Report sets out in helpful fashion some of the changes in the criteria from these immediately preceding ones. These include —

- a "lowering of the burden of proof" when considering the possibility of use of equipment for internal repression or international aggression from "likely" to "might";
- guidance on judging what equipment might be so used, including a reference at para 6 to "armoured personnel carriers specially designed for internal security", and three tests of the risk of international aggression
- the introduction of more detailed guidance on the criterion relating to regional stability, on which the UK has recently introduced a paper in The Wassenaar Arrangement.[53]

These national criteria will probably have to be adapted in light of the EU Code of Conduct, and of experience gained in their application to the hard realities of difficult cases. We welcome the publication of criteria for the grant of arms exports licenses hitherto only technically accessible, providing the necessary yardstick against which to judge licenses granted or refused. Comparison of the new criteria with their predecessors suggests however that the July 1997 criteria represent a rather less radical break with past policy than is sometimes represented to be the case. As before, Ministerial interpretation of the criteria in difficult cases is the touchstone of their real significance.

EU Code of Conduct

29. The national criteria have since been edited and merged with the pre - existent 8 EU Common Criteria for Arm Exports into the EU Code of Conduct formally adopted on 8 June 1998, with a "no - undercut" mechanism bolted on. The FCO Paper sets out some of the relatively minor differences between the UK national criteria: the Anglo - French draft circulated to partners in January 1998: and the finally agreed version.[54] The differences include

- exclusion from the EU Code of the specific exemplification in the UK national criteria and the Anglo - French draft of "protection of members of security forces from violence" as an example of legitimate end - use of potentially repressive equipment:
- exclusion from the EU Code of the caveat in the UK national criteria (and the Anglo - French draft) relating to international aggression, that "a purely theoretical possibility" of items being so used will not of itself lead to a refusal;
- replacement of a reference to an export "seriously undermining the economy of a recipient country" in the UK national criteria (and the Anglo - French draft) with "seriously hamper[ing] the sustainable development of the recipient country" and addition of consideration of relative levels of military and social expenditure.

The FCO paper notes that "The Code is one of the major common Foreign and Security Policy achievements of the UK's EU Presidency ........the Code should help to ensure a level playing field for UK exporters while ensuring that our own licensing policy should remain basically unchanged."[55]

30. Crucial to the Code are the "no - undercut" provisions set out in operative paragraphs 3 and 4 under which a Member State circulates to all Member States outlines of licences refused and the reason for such refusal. Before a Member State grants a licence for an "essentially identical transaction", it will consult the denying State(s). If it nonetheless proceeds to grant a licence — as any Member State is entitled to do — it will notify the denying State or State(s) with a detailed explanation. The FCO told us that the UK and Germany have circulated first tranches of denial notifications, others have not yet done so. The UK has not been involved in any discussions on potential undercuts.[56]

31. There are self - evident weaknesses and uncertainties in the Code's procedures, many of which have been criticised by the NGOs concerned.[57] The FCO told us that the UK was "not aware" of any consultations between other Member States on potential undercuts. Because consultations are usually bilateral, they have no reason to know.[58] There is however an annual review process, in which the UK intends to play a leading role. It is to be hoped that some of the potential weaknesses identified can then be addressed. We also hope that the countries applying for EU membership are taking active steps towards not only "aligning themselves with the criteria"[59] but also enforcing them: it has to be observed that some Associated States still seem to trade in arms with scant regard to UN or other embargoes.

32. The Minister confirmed in evidence to us that the Code and the national criteria were complementary, but that officials would naturally work to the national criteria.[60] The FCO paper referred to the criteria as "broadly similar" and noted that consideration was being given to adopting a single set of criteria based on those in the Code.[61] We strongly favour the adoption of a slightly modified set of national criteria so long as it was clear that it was no more restrictive than the current set in its practical implementation. We would also welcome confirmation that any proposed changes to the EU Code of Conduct should be subjected to the new parliamentary scrutiny procedures for Common Foreign and Security Policy proposals.

New Controls

Trafficking and Brokering

33. The 1996 Green Paper referred briefly to "growing concern about trafficking or brokering activities" and sought views on future legislation.[62] The 1998 White Paper proposes to extend the controls already in the Chemical Weapons Act to cover assistance by a UK person to a foreigner overseas, and to extend these enhanced controls to any activities in relation to weapons of mass destruction (WMD) programmes, and associated ballistic or cruise missile programmes, except the "official nuclear weapons programmes of NATO members" and "certain missile and rocket programmes".[63] These proposals have not attracted much comment. Evidence from BASIC questioned the legality under the Non Proliferation Treaty of the proposed exemption of NATO nuclear weapons programmes.[64] The legislation on extension of the scope of controls over participation in programmes of weapons of mass destruction could usefully be accompanied by clarification of the legal position under the Non Proliferation Treaty, and of the precise scope of the exemptions it is intended to permit by licence.

34. The White Paper also proposes to take power to exercise some control over trafficking and brokering in conventional weapons. Recent examples which have raised concerns include the brokering by UK companies of torture equipment such as electro - shock batons, the activities in relation to Rwanda of the Isle of Man registered company Mil-Tec, and most recently the arrangement by Sandline to transfer weapons from Bulgaria to Sierra Leone.[65] For conventional weapons, the only current UK controls relate to powers under the United Nations Act in relation to implementing a binding UN decision. The White Paper proposes to extend this control to cover trafficking and brokering in —

- (a) controlled goods to countries subject to other embargoes, such as non - binding UN decisions, EU, OSCE or national government embargoes:

- (b) controlled goods "trading in which is the subject of widespread national and international condemnation," such as torture equipment: and

- (c) missiles capable of a range of at least 300 km.

The "goods and/or destinations" subject to these controls would be laid down in secondary legislation subject to negative resolution procedure. To the extent that this increases current levels of parliamentary control, it is indeed welcome, particularly if it provides an opportunity for greater accountability over prohibited destinations as well as goods. It would for example render illegal the brokering of arms to the Democratic Republic of Congo, allegations of which have been made in recent weeks.

35. The voluntary sector would like to see these selective proposals for controls on trafficking and brokering extended, in some cases to produce a system of registration of dealers.[66] The DMA supported the Government's efforts to try to do something about brokering, while warning that the scope of any controls would have to be carefully defined, and that there would be difficulties in effective enforcement.[67]As the December 1996 Interdepartmental Committee following the Rwandan arms dealing furore put it — "The principal problems with new legislation to prohibit trafficking generally seem likely to concern enforceability. The offending events will take place principally overseas and there can, therefore, be little or no Customs & Excise regulatory control in the UK to detect illicit activity. Enforcement would be heavily dependent on intelligence - often after the event - about breaches, and evidence to sustain a prosecution might not be easily available in the UK or from abroad. International action might therefore be required to develop effective enforcement against trafficking." We welcome the limited proposals on trafficking and brokering, and recommend that their extension be considered only once experience has been gained of enforceability.

36. In late 1996 in the wake of the Mil - Tec affair and concerned that the Government might be "rushed into introducing some hastily and ill - thought out legislation", the DMA submitted a paper to DTI suggesting that consideration be given to statutory registration of brokers involved in shipping a clearly defined range of lethal goods, and to an obligation of prior notification. The DMA paper recognised that there were responsible and irresponsible brokers, and that some kind of controls was needed, to enable the Government to prosecute transgressors if they had broken the law.[68] The value of a registration system is partly deterrent, to the extent that the availability of criminal sanctions may deter the otherwise irresponsible or indifferent. An obligation on a licensed dealer to notify could conceivably have alerted Sandline — if the directors of that company were genuinely unaware and if they had been licensed — of the stringent nature of the UN sanctions regime on Sierra Leone. Any system would have to be more than merely national; evidence to us suggested that the German system of registration and notification is readily by - passed.[69] It will, as the Minister noted, be difficult to police.[70] We welcome the proposals for new controls on trafficking and brokering, and call on Ministers to explore further within the EU and the Wassenaar Arrangement the benefits and potential pitfalls of some multilaterally agreed form of licensing or registration of arms dealers.

Transfer of Technology by Intangible Means

37. Technology has been subject to some degree of export control under the 1939 Act, but limited to tangible transfers, by paper, diskette or similar.[71] Transfers of technology by fax, e- mail or word of mouth are not covered. The dangers of uncontrolled transfer of technology by intangible means were raised in the 1996 Green Paper.[72] The 1998 White Paper proposes new legislation to make electronically transmitted documents transferred abroad, whatever their form, subject to licensing requirements, if "containing controlled technology": and to support the proposal of the European Commission to extend controls on dual-use goods to cover electronic transfers.[73] There is an irrefutable logic in the proposal which nearly all involved accept; there is no argument in favour of the principle of explicitly exempting such transfers from the licensing regime. Grave doubts have however been expressed as to the practicality of the proposals and fears raised as to their consequences if implemented.

38. There is no clear idea of the extent of the problem which this proposal seeks to address. The Minister told us "There clearly is a gap here which does need to be plugged .... it is difficult for us to give you an exact (category) of how much information we are talking about because it is simply impossible to judge it ..".[74] The White Paper states that "it is difficult to make an accurate assessment of the extent to which UK firms may be exporting technology intangibly without consulting the government ..... such transfers are likely to become more frequent in the future ...".[75] In 1997 there were only 232 individual applications for licences for tangible transfer, much of which is permitted under two existing Open General Export Licences. DTI assume that the increased requirement as a result of the new controls "is unlikely to impose a significant burden on industry particularly as it would be spread over a large number of companies".[76] Existing open licences would permit intangible transfer as they currently permit tangible transfer. Transfer of classified information by any means would potentially be a breach of the Official Secrets Act: the White Paper is therefore intended to catch technology not caught thereby.[77]

39. Defence exporters have made clear their concerns over the potential burden on them, in having to consider for a much wider range of transactions than at present whether they should be seeking licensing, and over the enforceability of the controls. The DMA felt that the proposal required a lot more thought, warning that activities such as "post - sale servicing and maintenance of software, providing update and support of on - line instruction manuals" could be affected. It called for study of the equivalent system in operation in the US and for delay in introduction to provide time for detailed consultations and for international discussions so that any new controls were implemented in concert.[78] The SBAC suggested on the basis of an informal survey among its members that the ratio of intangible transfers to tangible was "very conservatively 4:1, suggesting a major potential burden on firms.[79] One manufacturer, GKN Westland, set out the problems in enforcement — for example, over high technology seminars — and suggested that any legislation would be impossible to enforce.[80] Evidence from Sir Brian Tovey on behalf of JETSECC emphasised the need for multilateral agreements and the impossibility of enforcement without the active co-operation of those involved.[81]

40. Responses to the White Paper also came from a variety of academic sources, fuelled by concerns that the proposals could have serious and possibly unintended effects on the academic research community and on teaching of overseas students, since the transfer of any information with potential applications to a WMD programme would be made subject to licensing. The Committee of Vice - Chancellors and Principals (CVCP) claimed that the proposed extension "poses an unacceptable threat to the operation and standing of UK higher education" and that it "fails to acknowledge that almost any advanced technology has a potential weapons application".[82] The possible threat applies to teaching in a wide range of subjects, not just nuclear physics and chemistry, but all those branches of medicine relevant to a potential chemical and biological weapons programme, and virtually all computer science research, much of which is cooperative. As one respondent put it, "The restrictions that previously only applied to physical hardware objects will be extended to the software used to design, test, control or operate them, or to integrate them into larger systems." It was also implied by some respondents to the White Paper that the proposed extension of controls was a somewhat sneaky attempt to control the transfer of "strong" cryptography. The USA has apparently tried and failed to prevent such transfers. It has also been implied that the new controls sought will be unenforceable unless the Government's agency has access to the necessary decryption, and that this will be used as a justification to obtain sweeping decryption powers: an implication firmly rejected by the Minister.[83]

41. On 14 May 1998 the Commission presented a proposal for a Council Regulation on dual - use export controls, which sought to extend the current authorisation requirement for the export of dual - use items to cover "transmission of technologies via electronic media, telephone and fax", but excluding "the supply of services or the transmission of technology requiring cross - border movement of natural persons."[84] The document is under discussion in a Council Working Party Group, and it is understood that a final version is unlikely to be agreed until the second half of 1999. We have been surprised to discover that the document, specifically referred to in the White Paper, has not apparently been deposited in Parliament, and so has not been through the scrutiny process. Given the degree of controversy raised over the proposals in the White Paper, there can be no question of the United Kingdom agreeing to an extension in the EU's dual - use regime, under whatever legal power, until a consensus has been arrived at on the way forward on controls of intangible transfer of technology generally.

42. We would be disturbed if there were good grounds for suspecting that licensable information was being transferred by intangible means in order to circumvent existing controls: but we understand that there are no such grounds. If there is deliberate evasion, it will remain exceedingly difficult to detect, let alone prevent.[85] The proposed extension might deter deliberate evaders by the distinct threat of a subsequent prosecution, while imposing a burden on industry substantially greater than seems to be recognised by the Department. It presents at worst a real nuisance to the academic world. The Government's proposals are in two legs: the proposal on non - documentary transfer and on publication of controlled technology on the internet is limited to WMD programmes, in view of difficulties of administration and enforcement and given "sensitivities in relation to free speech and academic freedom".[86] The Government should consider limiting the proposed extension of licensing requirements to electronic transfer of documentation to technology related to weapons of mass destruction.

Coverage

43. There are, in simple terms, two classes of goods requiring licences to export: military goods as set out in Part III of Schedule 1 to the Export of Goods (Control) Order as the "Military List", and dual - use goods, set out in Schedule 2 to the Dual Use and Related Goods (Export Control) Regulations 1995.[87] The range of goods covered is vast: from main battle tanks to chemical storage tanks. The Military List is 10 pages long. The relevant part of the Dual - Use Regulations is around 145 pages, with an index of 36 pages. The ECO makes laudable efforts to assist intending exporters through this maze, including an Internet web site which contains a full list of goods subject to export control and the text of OGELs.[88] The 1996 Paper sought comments on "any points of technical detail" on the range of goods subject to export control.[89] The 1998 White Paper refers only to work on agreeing a common definition of the much - used phrase "specially designed" and to the possibility of military end - use "catch - all" control. [90]

44. AIUK seek extension of controls to a wider range of military security and police goods and services than is presently the case, in particular dual - use equipment not hitherto covered which could be used for repressive internal security. Examples given included firearms training systems for the Indonesian police: traffic control cameras used for internal security in China and Tibet: and computers such as those used in the past to automate pass law enforcement in South Africa.[91] A number of bodies seek coverage of training and other non - goods transfers, and of licensed production overseas.[92]

45. Exporters raised a number of issues where the need for licensing is far from self - evident. It is, of course, true that "just because a thing is controlled does not mean to say it is always going to be refused:"[93] but the complaint of exporters is that they should not be obliged to seek licences for some categories of equipment currently covered. One such category is purely defensive equipment. We received evidence from RBR International Ltd, who export ballistic helmets and shields, and, quite apart from fury at losing orders through delays, question why "non - aggressive equipment which saves lives" need be licensable. The "protection of members of security forces from violence" is a specifically excluded area under the Cook criteria, although not under Heading 2 of the EU Code (see para above). An application for a licence to export helmets and face shields to China was, after several months of consideration, refused on grounds of an "unacceptable risk of diversion for use for the purposes of internal repression".[94] An appeal against the refusal was turned down at ministerial level. In written evidence to us, DTI state that "it was concluded that the arguments in favour of allowing the export for the protection of members of the security forces were outweighed by the clearly identifiable risk that the goods might be used represively, for example in the violent suppression of an incident such as Tiananmen."[95] This is not only a peculiarity of policy, but has to be read in the context of the removal in June 1994 by an amending Order of "anti - riot helmets" from the scope of licensing under PL5001.[96] "Military helmets" however require a licence under heading ML13.c. of the Military List, except for conventional steel helmets, and those manufactured before 1945. It seems that "anti-riot helmets" can be exported without a licence, while those designed to stop bullets cannot; but then a licence is refused for military helmets in case they are used as anti - riot helmets.

46. The other categories of equipment whose need for licensing is not obvious is that designed to provide defence against chemical or biological warfare. Such equipment is sought by countries deciding to embark on prohibited programmes of such warfare; but a growing number of countries are increasingly seeking such equipment. In response to the 1996 Green Paper, Graseby Dynamics, a major producer of such equipment, suggested that the Government should be actively promoting the sale of defensive NBC equipment: Stella - Meta, who manufacture water purification equipment, questioned as to why it was licensable: and STI, a major manufacturer of self - injecting syringes including those providing antidotes to nerve and chemical agent poisoning, while not questioning the licensability of such equipment, did call for a simplified system. The DMA repeated in 1998 its 1996 questioning of the need for such rigorous control of purely defensive equipment.[97] More generally, it expressed disappointment at the absence from the 1998 White Paper of any sign of reduced coverage or clearer categorisation as sought in 1996, for example, by the Chemical Industries Association. Responses to the 1998 White Paper also emphasised the sense of dissatisfaction among the NBC community at the requirement for licensing.

47. There are difficulties — as the 1996 Green Paper warned — in contemplating any change to the coverage of strategic export controls, since they are agreed in the EU and other fora, including among the 33 states within the Wassenaar Arrangement. The Minister warned that changes could bring the UK into conflict with internationally agreed standards.[98] As the Director ECO told the Managing Director of RBR, the text of the Military List "has been agreed internationally through the Wassenaar Arrangement, and to include any exemption would require agreement by all 33 Wassenaar parties. This would obviously be a very long term matter — if indeed it was to prove possible".[99] Unilateral national decontrols are evidently undesirable, and purely national controls are of doubtful efficacy. That should not however, lead to a position where the lists are inflexible.[100] The Dual - Use list has been amended on several occasions over recent years, as has the Military List. It may be that there is a need for a more active mechanism within the Wassenaar Arrangement for ongoing technical review and revision. The production of a unified list covering military and dual - use goods under the new Act and the revision within the EU of the basis for dual - use controls present an opportunity for review of the present coverage.

48. We have some sympathy with the concerns expressed by voluntary bodies over the freedom with which licensed production arrangements can be set up overseas for the production and re - export of goods whose export from the UK would have required licensing and which might well have been refused.[101] The two examples most frequently given are of Land Rovers produced in Turkey and exported therefrom as Otokars: and firearms to be produced in Turkey under licence from Heckler & Koch. There must in practice be some controls over the export of the necessary technology and other intellectual property, although if the production is to take place in many countries it will be covered by an open licence. In our view, this concern underlines the need for closer co - ordination within the Wassenaar Arrangement of destinations to which export of sensitive equipment is likely to be prohibited, and for a forum where decisions taken by nations within that Arrangement can be publicly challenged and indeed publicly defended, in a spirit of transparency. We recommend that the question of controls on licensed production of arms and dual - use goods be addressed within the Wassenaar Arrangement.

End - Use Control

49. Controls on the ultimate destination and use of goods licensed for export are intended to prevent diversion to third countries, through re - export, or use within the original country of destination outside any conditions under which a licence has been granted. Licence applications have to be accompanied by "full supporting documentation". The ECO gives guidance on the nature of such documentation under different circumstances, including specimen wordings for consignees to use, such as "the goods are for our own use at (full address of location) and will not be re - exported or sold for export".[102] Reference to end - use "certificates" is unintentionally misleading, since it suggests a degree of formality and commonality of format unfortunately absent. There still seems to be a high degree of flexibility in determining what is required by way of end - user certification.

50. The end - user control regime has been extensively criticised, notably as a result of the revelations in the Scott Report and in our predecessors' BMARC Report. The Scott Report contained evidence to suggest that a number of countries had been notoriously willing to act as conduits for onward re - export to Iraq, so that end - user certification from some countries was effectively meaningless.[103] The Select Committee's inquiry revealed that in the late 1980s most export licence applications had evidently inadequate supporting documentation.[104] Procedures have been tightened. In 1996 the Select Committee expressed satisfaction at the institution of procedures to increase the likelihood of detecting diversion. It recommended, reflecting the Scott Report, that applicants be required "to distinguish between the potential and actual uses of military and dual - use goods". DTI consulted on this; industry concerns as to its practicality led to it not being introduced in the present form. There will however be a reminder to applicants in the new electronic format form to provide as much information as possible about end - use.[105] The Committee also recommended, following the failure in the 1980s to make the necessary connection between BMARC and Oerlikon, that ways should be found of making checks on third parties.[106] We have been briefed in confidence on this during our visit to the ECO, and in writing, and commend DTI for its positive response to this recommendation.

51. The 1996 Green Paper invited views on "the subject of end- use control generally".[107] The 1998 White Paper refers to the Labour Party's Manifesto commitment to strengthening end - use monitoring and to seeking "co - operation to build a common approach on effective monitoring of end - use within the European Union and under the Wassenaar Arrangement": but offered nothing concrete beyond the statement that "the Government is currently reviewing the options".[108]

52. The voluntary sector respondents who had made a number of proposals in their responses to the 1996 Paper, and had variously described existing arrangements as "badly flawed" and "woefully inadequate", are naturally disappointed at the absence of concrete proposals.[109] In earlier submissions, they had made various proposals largely designed to enable either UK authorities or some acceptable independent body to audit end - user certificate compliance, using inspection as a means of verification. Some also sought the introduction of so called "catch - all" military end - use control, similar to the system in operation in Germany, whereby the current obligation on an exporter to refer to any grounds for suspecting that dual - use goods may be used in programmes of weapons of mass destruction is in effect, extended to any military end - use in certain sensitive destinations. They reiterate demands for an internationalised system, based on the allegedly more proactive system used in Belgium and elsewhere for checks in the receiving state.[110] Tapol state that "In the case of Indonesia, there has been no attempt to monitor the use of equipment despite clear breaches of assurances by the Indonesian Government that equipment would not be used for internal aggression".[111] There is indeed no practicable or internationally accepted verification or enforcement regime.

53. Exporters also have a number of reservations about end - use, while sharing the preference expressed for a common internationally accepted format. The DMA suggested in its 1996 response that there might be scope for a WEU harmonised format, noting that the "suggested form" in use was totally unlike any other nation's, and reflecting a view of several firms that the requirements of the statement varied from one individual official to another.[112] The DMA also suggested that an end - user statement should be a condition of the use of a licence, rather than a prerequisite for its grant. Several respondents emphasised the difficulties confronting exporters of components who might well be unaware of the identity of the ultimate end - user or of manufacturers of relatively common products exported by the laboratory supply industry principally to dealers.[113]

54. The principal concern of exporters is that the burden of monitoring end - use should not fall on them, but on Governments, with far greater resources, and that there should not be such a burden of intrusive verification in a recipient state as to lead such states to place orders elsewhere.[114] The DMA stated that companies "should not be held responsible for what use is made of their goods after delivery".[115] EEV, for example, stated that — "We do all we can to make sure that our customers are bona - fide, but ultimately we have no control over what a foreign company or country does".[116] As Lucas Varity candidly observed, an end - user undertaking is ultimately "a piece of paper supplied by the customer stating the intended end use of a product. It guarantees nothing ....".[117] SBAC noted that "it guarantees nothing and should goods be diverted or misused government has no extra - territorial powers to prosecute the customer".[118] Particular dislike was expressed by Sir Brian Tovey of the optional provision in the 1994 EU Dual - Use Regulation, taken up only by the UK and Germany, to require that goods require a licence if the exporter has "grounds for suspecting" that they may be used in connection with a weapons of mass destruction programme — the so - called "catch - all" clause. He suggested that legal advice might unnecessarily discourage firms from exporting, and that firms were being asked to exercise the sort of intelligence function which was the Government's responsibility.[119] It is of course open to Government to refuse to grant a licence.

55. A few well - publicised cases apart, generally dating back a decade or more, no evidence has been forthcoming of widespread breaches of end - user certification. While it is for example possible that both the Indian and the Pakistani nuclear programme may have benefited at some level from British equipment, exported under dual - use licenses, we have seen no evidence to that effect. There is however much to be said for a general EU, or preferably, wider agreement on mutual end - use verification, and systematic certification based on the prevailing best practice. The Minister told us that it was a "very, very difficult issue" and that it was being taken forward within the EU:[120] she reasserted the Government's absolute commitment to taking it forward. Without introducing extra - territorial controls, there are limits on what can realistically be achieved. We share the sense of disappointment that there should as yet be nothing to show on the work done on creating a more effective end - use regime.

IV ADMINISTRATION OF SYSTEM

Departmental responsibility

56. The DTI's particular responsibility in strategic export licensing is for the integrity of the system, as the Minister responsible emphasised to us in oral evidence.[121] Other Government departments, principally FCO, MOD and DFID, but also the intelligence and security agencies and others with technical expertise, have advice to offer on specific applications: it is DTI who hold the ring, and issue licences. The system is administered by the Export Control Organisation, consisting of around 135 staff, over half of whom are in the Licensing Group devoted to processing applications and providing technical advice.[122] The ECO is located in the DTI office in Kingsgate House, Victoria Street. Members of the Committee paid a most instructive informal visit there in early November 1998, and were able to see the practicalities of licence processing.

57. The Scott Report raised the question as to where in Government responsibility for administration of export licensing should lie, expressing the view that administration of controls ran counter to a principal departmental interest of DTI in promoting exports. In their BMARC Report, our predecessors also recommended a review of current export licensing responsibilities, in particular as to which department should have the lead responsibility.[123] The 1996 Green Paper sought views on this matter.[124] The responses favoured either an independent authority or body giving an "extra degree of objectivity" or maintenance of the status quo but with an enhanced status and closer cooperation between the various players.[125] The 1998 White Paper announced the Government's conclusion that "the licensing authority should remain with the DTI",[126] a conclusion which has naturally disappointed those seeking change.

58. It is for general convenience that there should be some form of central point to which all licence applications can be made, whether covering military or dual - use goods. There is something to be said for it covering all export licensing, including works of art and animal products, with advice being sought in each case from expert departments. Those processing the application within the Government structure should be able to have access to the full range of expert advice. Those providing such advice are only able to do so authoritatively and with a degree of independence because of their daily involvement with work other than export licensing. The strength of the present system lies in its access to, for example, FCO Desk Officers profoundly familiar with a particular country and MOD technical experts on a relatively narrow area of technology. No independent authority could match that, without an absurd waste of resources. There is also a requirement for Ministerial involvement across departments, and for one identifiable Minister to take responsibility for decisions reached. Although we heard that only about 3 per cent of applications reach Ministers, and that only a handful of those few hundred lead to active inter - Ministerial discussion[127] this involvement is the necessary keystone of the system. Licensing of strategic exports is as much a matter of political judgement of risk as of technical assessment. It is logical to retain the central processing unit in that Minister's department.

59. We concur with the conclusion of the White Paper that the DTI is indeed the appropriate department. We have detected no excessive championing of intending exporters by the ECO: such is certainly not the impression given by their representatives. Transfer to the FCO, or separation from the DTI, might lead to an excessively negative regime of licensing. There are some grounds for seeking greater institutional recognition of the special nature of the ECO within DTI, and closer integration at a working level with HM Customs and Excise. The priority at present is however not to jiggle around with allocation of Ministerial responsibility for the licensing process, but to raise further its quality and speed.

Work of the ECO

General

60. It should be recorded at the outset that the ECO is praised as well as criticised for its performance.[128] One company responding to the 1998 White Paper stated that most of the officials were "courteous and helpful but like ourselves prisoners of a bureaucracy which is cumbersome and overly secretive". The management of ECO has shown an admirable recognition of the need for improvement in some areas. It must also be recorded that applicants do not always do themselves any favours in the way in which applications are submitted with evidently incomplete supporting material. The relationship between applicants and a licensing authority is not and should not be stress - free. The ECO is engaged in a formal process, ultimately subject to judicial review. We are encouraged by the prospect of closer liaison between the ECO and its clients, and of constructive co - operation in improving current weaknesses.[129]

Delays

61. The principal complaint about the licensing system is the inordinate length of time it can take to get a licence. Very few are refused: there were 89 refusals of basic Standard Individual Export Licences (SIELs) between August 1997 and August 1998.[130] This of course understates the real effect of controls, since some proposed exports will be turned down on the basis of a Form 680 rejection and others will simply not be sought in the first place. On 24 June 1998, however, there were at least 450 SIELs which had been awaiting decision for at least 2 months.[131] The ECO does not at present maintain details of what has been described as the "tail" of undecided applications, so that it cannot easily be discovered how many in this waiting list have been there for many months. The annual rate achieved hovers around 50 per cent, with a severe recent dip in performance attributable to uncertainty and the subsequent introduction of tighter controls in July 1998 following the nuclear tests conducted by India and Pakistan. Some 15 per cent of circulated applications in October 1998 were for exports to India or Pakistan; staff time devoted to these apparently had an unquantifiable knock - on effect on the processing of other licences.[132] Performance in 1997 was also affected by the need to adapt to the new July 1997 criteria, leading to a very high rate of referrals to Ministers of doubtful cases.[133] The target of 70 per cent achievement of 10 working days (2 weeks) for non - circulated applications has now been reached. Given the circumstances, it is perhaps disappointing that any non - circulated applications should still take more than 2 weeks. The ECO fails by some distance to meet its own target of processing within 20 working days 70 per cent of those applications requiring circulation to other departments: this covers most applications received.[134] It is possible to gain a snapshot view of how long licence applications have been waiting on a specified date: but DTI are "seriously considering whether we cannot find a means of recording timings in every case in order to be able to give a better more easily recoverable, picture of how long licence applications take to process."[135] We recommend that vigorous steps be taken to give a rounded picture of the ECO's performance not only in relation to its own targets, but showing the full extent and nature of the waiting - list of applications.

62. We received anecdotal but compelling evidence from witnesses of the reality behind the figures. Mr Douglas Garland, Managing Director of RBR International, a leading manufacturer of personal protection equipment (body armour, helmets, shields etc) had received only one licence within the 20 day target out of 9 applications made in the past year.[136] The Minister has accepted in subsequent evidence to us that a decision on a May 1997 application to supply helmets to UNHCR in Afghanistan had indeed taken too long: no decision had been made by the time the order was cancelled in July 1997.[137]Mr David Evans, Managing Director of Chemring plc, manufacturers of military pyrotechnics and other products, told us that, of 140 licences sought since January 1998, 40 per cent had taken over 50 days and 14 per cent over 100. One, for the export of stun grenades to Colombia, had been given provisional clearance through the Form 680 procedure, and a licence was submitted on 29 October 1997; it still awaits a decision, although the order has now been lost.[138] From subsequent evidence forwarded, it would seem that after several months consideration the FCO recommended refusal and that other departments, including MOD, sought a review of this decision. Other applications seem to have taken equally long. Some were for CS gas to understandably sensitive destinations.[139] Others included an application to export one 30 mm multi - purpose gun to a laboratory in an EU/NATO country for use in testing; this took almost a year. An application to export passive air defence countermeasures to another EU/NATO nation took 6 months. Mr Evans described the length of time for most of his company's applications as "unacceptable".[140] A company responding to the White Paper recorded an average time of 84 days for applications to be decided, and 3 applications taking between 18 and 23 months. These were for rifle and mortar parts to a South Asian country, including a safety device for the extraction of jammed mortar rounds. We can only hope that these examples are not typical.

63. The Scott Report proposed that the target time limits used should be formalised, and specifically that there should in effect be licensing by default in the absence of a decision within a prescribed time limit. The 1996 Green Paper sought views as to whether there should be such limits and if so how they might operate.[141] The 1998 White Paper turned down the idea of licensing by default, given the self - evident risk that licences might as a result be granted "contrary to the UK's international obligations or the Government's own policy", and set out steps being taken to improve the speed and efficiency of processing for decision.[142] The DMA felt that its arguments in favour of licensing by default had been unduly summarily dismissed.[143] While that may be the case, we can see little merit in it. It is clearly important to avoid creating a system which would artificially encourage a refusal, as a means of reaching a decision. We could not accept a system which carried with it the inherent risk of inappropriate export.

64. The time taken to process applications circulated to other departments depends to a significant degree on the speed with which those departments respond. Within MOD, applications are circulated by the Defence Export Services Secretariat to a range of expert advisers "in order to produce the agreed MOD recommendations". Within FCO, the Non - Proliferation Department is similarly tasked.[144] There is apparently an "informal" target of 10 working days for these departments to reach an agreed departmental view.[145] The extent to which they achieve that target has not hitherto been published.[146] The DMA and others have the strong impression that it is to consideration of licences by the FCO that most of the delay can be attributed.[147] If so that may well be for good reason, such as the need to seek information and advice from overseas posts on the end - user.[148] Annex E to the 1997 Guidance for FCO desk officers noted that 10 days is "a target, not a deadline" and that "speed is not the same as efficiency": it also acknowledged that "unnecessary delays in processing an ELA can lose the applicant company money or even a contract. Unexplained delays in the FCO damage our reputation." It would be pointless for DTI to take steps to speed up that part of the process for which it bears direct responsibility only to find that applications linger in other Whitehall in - trays. We recommend that some analysis be carried out and published of the reasons for other Government departments failing to meet a 10 working day target on export licence applications, and of steps which could be taken to improve performance.

65. In addition to delays, evidence from those doing business with the ECO has in the past expressed frustration with various bureaucratic problems —

- The absence of reliable information as to the stage in the system which an individual application has reached, leading some applicants to believe that their application had been in effect lost in what one company described as "a black hole";
- The onus being put on the applicant to chase up progress, rather than the officials concerned taking steps to hasten matters;
- The inaccessibility for informal discussion or explanation of those in other departments — primarily FCO and MOD — engaged in reviewing applications;
- Officials from different departments, or different divisions of the same department, seeking additional information which is unnecessary or which has already been provided, or failing to understand that which has been provided.

From our visit to the ECO and other sources, we are satisfied that some steps are being taken to address these matters. Applicants should be informed what is happening to an application which will not be decided within the time limit: be offered the opportunity to make direct representations in response to objections raised: and be assured of a decision one way or the other within an agreed further timescale

Appeals

66. There are relatively few appeals against refusals of licences: 15 in the most recent 12 - month period.[149] Following a recommendation in the Scott Report, the 1996 Green Paper sought views on the creation of a formal appeals procedure against export licensing decisions.[150] In response, the 1998 White Paper proposes a statutorily established formal system of appeals, not however independent as sought by the DMA and others but comprising senior expert officials.[151] Where a decision — primarily a refusal — has been taken by a Minister, the appeal would also be at Ministerial level. The right sought by some voluntary bodies for third parties to be able to appeal against grant of a licence has not been ceded, to their chagrin: but, as the 1998 White Paper observes, there is always the possibility of seeking judicial review of export licensing decisions.[152] There should be a time limit for determination of appeals as there is for giving notice of appeal. It is also our intention to ensure that appeals are subject to a degree of subsequent parliamentary scrutiny by select committee.

Judicial review

67. The system of export licensing has always been subject to judicial review. The Scott Report records the sobering effect on the DTI of the eventually unsuccessful case brought in 1983 by Chris International Foods Ltd of a refusal by the Secretary of State to licence the import of 200 tons of bananas from dollar area countries.[153] It was noted by several respondents to the 1996 Green Paper that the introduction of formal statutory purposes would make judicial review a livelier prospect, not only of refusals and grants of licences, but also of other stages in the process. The 1998 White Paper notes explicitly that making preliminary advice that no licence is required (NLR decisions) legally binding would have the effect of making "licence required" decisions subject to judicial review.[154] The proposal to set out some of the procedures in primary or secondary legislation, or even in statutory guidance, does in our view raise the spectre of judicial review to an as yet unappreciated degree. The DMA accepted that there was some prospect of a more litigious approach.[155] At least one company responding to the 1998 White Paper actively sought judicial review as an option. We understand that there has been a recent successful challenge in the German courts to the refusal by the authorities there of an export licence.

Open Licences

68. Whilst most licences granted are standard individual licences, much of the volume of trade in controlled goods is carried on under open licences. There are two types of open licences —

- Open Individual Export Licences (OIELs) are specific to individual exporters, covering multiple shipments of specified goods to specified destinations: records have to be kept for 3 years (4 years for military list OIELs), open to inspection by ECO Compliance Officers.[156] There are currently around 1000 OIELs granted each year, valid for two years.
- Open General Export Licences (OGELs) remove the requirement for licencing for specified goods to specified destinations, requiring only that the exporter register with the ECO its intention to make use of these derogations. There are 24 DTI OGELs in force; copies are publicly available.[157]

The system of open licensing grew in the late 1980s as a means of reducing the administrative burden on frequent exporters of making large numbers of "repeat" licence applications for export to standard destinations, and on the ECO in processing them.

69. The Scott Report noted that goods had been exported in the 1980s to, for example, Jordan under open licences, and had subsequently been diverted to Iraq, and concluded that "the grant of these OIELs left open a gaping hole in the procedural fences erected for the purpose of policing the Guidelines on defence - related exports to Iraq....".[158] Our predecessors' BMARC Report expressed concern at the use of open licences and recommended a review of their availability in view of possible diversion.[159] The system of compliance inspection has been substantially strengthened since the events on which earlier criticism was based. DTI told us indeed that "it may become increasingly appropriate to put more emphasis on self - regulation by making increasing use of OIELs ....", while accepting that it remained difficult to identify potential diversionary procurement routes at the moment of imposing an embargo.[160] OIELs are not exactly swift to procure. One company wrote that "we have found that DTI are keen to suggest that we apply for an Open Individual Export Licence in certain cases but that these have taken 6 - 12 months to be granted which somewhat nullifies the benefit of their offer."[161] Nor does the compliance record suggest that there are many breaches of the system.[162] It is obviously necessary to strike a balance between reducing the burden of unnecessary individual applications and retaining a degree of detailed control. We counsel caution in moving too rapidly towards yet greater use of open licences, and Open Individual Export Licences in particular: and look forward to detailed reporting of the nature of such licences granted in the Government's Annual Reports.

Electronic transfer

70. In its response to our predecessors Report on Exports to Iraq, the DTI announced that an integrated ECO - wide computer system was to be in place in 1993. It was in fact introduced in March 1995.[163] Our predecessors also noted that MOD had developed its own computer system incorporating data from ELAs, and that there was no mutual access between these departments. The Committee recommended that "the three departments (DTI, FCO, MOD) allow mutual access to their computerised information relating to export licensing and that the DTI export licensing database be developed for the benefit of all three departments."[164] The Government Reply accepted that there would be merit in more co - ordinated use of IT and reported that the scope for downloading licence data from the DTI's ECLIPS system was under consideration.[165] Such efforts were not however fruitful.[166] In addition to procedural difficulties, it became apparent in late 1997 that the ECLIPS database was in some respects seriously deficient.[167] Efforts are now therefore being concentrated on a new project, ELATE, designed to provide for —

- submission of applications in electronic form, at first by posting a completed diskette, but eventually electronically[168]
- transmission by DTI of this and associated data to other government departments, at first on diskette and, once a Government Secure Intranet is established, electronically
- electronic transmission of completed licences to Customs and Excise, as well as to the applicant[169].

71. We have seen a hard copy and an electronic on - screen version of the proposed new application form, which should in theory save much time and repetitive work, as well as overriding the need for manual typewriters. Having been trialled it is due for introduction shortly.[170] Several of the companies in the trials are pressing for the introduction of down line transmission rather than postage of a diskette. Some notes of caution must be sounded. The past track - record does not give great cause for confidence that there will be a trouble - free introduction of ELATE. The associated material, notably end - user certificates provided from abroad and in particular technical documentation, may not be readily transmissible electronically, although applicant companies may already have digitalised versions of technical information. There are also issues of security between Government and applicant as well as within Government: of validation of electronic signatures: and of the requirement to keep records of transactions, not least for purposes of audit and parliamentary accountability. We are pleased to note the degree of progress made; the days of ever - thicker files of applications winding their weary way up and down Whitehall may be drawing to a close. We recommend vigorous pursuit of the programme of bringing the export licensing system into this decade before we embark on the next.

SUMMARY OF RECOMMENDATIONS AND CONCLUSIONS

Legislation

(a) We note that the Queen's Speech makes no reference to the Bill. Given that almost 3 years have passed since all parties accepted the strong recommendation in the Scott Report that there should be a new legislative framework for strategic export controls, and that controls are still being operated under a barely refurbished piece of emergency legislation from 60 years ago, we hope that time can be found for such largely uncontroversial legislation. While it may be a nuisance to seek new legislative authority for other export (and import) controls, it can hardly come as a surprise to those concerned. We consider that it would in principle be desirable to repeal the 1939 Act and replace it with wholly new legislation, rather than seeking to amend it (paragraphs 3 and 9).

Annual Report and parliamentary scrutiny

(b) We hope that the Annual Report will include details of work underway within the Wassenaar Arrangement, including efforts to increase the number of participating states, and to pursue cases where there would seem to have been a failure of control by participating states. If, as we envisage, there develops a coherent form of UK parliamentary scrutiny of strategic exports, it will hopefully be possible to learn from overseas examples, and to develop a constructive relationship with similar bodies in other national parliaments (paragraphs 6 and 7).

Parliamentary scrutiny of secondary legislation

(c) The Scott Report devoted considerable space to criticising the absence of parliamentary scrutiny of the Orders made under the 1939 Act. The question of parliamentary scrutiny of Orders made under the 1939 Act and its eventual successor is therefore of central concern both because of a sorry history of 60 years of failure by Government and Parliament in this regard, and in the light of the attention devoted to it in the Scott Report. Parliament must be vigilant to ensure that new arrangements do not replicate the mistakes of the past. In order to ensure that significant changes are not slipped through Parliament without debate, we recommend that (a) drafts of Orders under the new Act be made available to this Committee in advance of their being made; and (b) that the Government undertake to find time for a debate on an Order if at least 6 Members so desire. On this basis, we consider that the negative procedure for orders laid under the new legislation will be found acceptable. We recommend that should Ministers wish to make any further Orders under the 1939 Act prior to the passage of new legislation, they give consideration to laying the relevant Order before the House (paragraphs 8 to 12).

Parliamentary scrutiny of primary purposes

(d) We welcome the opportunity to be provided soon for parliamentary scrutiny of the purposes of export controls, and urge Ministers to go the extra distance to provide an opportunity for proper examination and debate. We recommend that the principal list of purposes be set out in the primary legislation: and that power be given to Ministers to amend that list by secondary legislation subject to subsequent ratification by Parliament using the modified affirmative procedure as proposed in the White Paper for agreeing the original list (paragraph 15).

Parliamentary scrutiny of geographical application

(e) In seeking an appropriate degree of parliamentary scrutiny of secondary legislation on export controls, the absence of any equivalent level of scrutiny over the geographical application of controls comes sharply into focus . There are gaping holes in the system of parliamentary accountability governing the framework within which licences are granted, and in particular the geographical application of controls. Replacement of the 1939 Act will go only some way towards improving the situation (paragraph 17).

Parliamentary scrutiny of licences

(f) We are content at this stage to continue to leave individual decisions on export licences to Ministers who are accountable to Parliament, in accordance with constitutional conventions. Ministers can however only be properly held to account for their decisions if Parliament is in possession of the full facts, and has access on request to detailed casework on decisions taken by Ministers and those responsible to them. We cannot therefore accept the bald proposition advanced in the White Paper that there should be no parliamentary scrutiny of individual applications after a decision has been taken. What is required is a system of parliamentary scrutiny which combines the greatest possible access to the details of decisions taken — licences granted, refused and delayed — with safeguards to protect commercial confidentiality in the interests of individual exporters and customers legitimate demands for confidentiality. We share the view expressed that the existence of a robust system of parliamentary scrutiny can act as a useful prompt to officials and Ministers. We are confident that such a system can and will be developed (paragraphs 20 to 24).

National criteria and Code of Conduct

(g) We welcome the publication of criteria for the grant of arms exports licences hitherto only technically accessible, providing the necessary yardstick against which to judge licences granted or refused. Comparison of the new criteria with their predecessors suggests however that the July 1997 criteria represent a rather less radical break with past policy than is sometimes represented to be the case. As before, Ministerial interpretation of the criteria in difficult cases is the touchstone of their real significance. We strongly favour the adoption of a slightly modified set of national criteria so long as it was clear that it was no more restrictive than the current set in its practical implementation. We would also welcome confirmation that any proposed changes to the EU Code of Conduct should be subjected to the new parliamentary scrutiny procedures for Common Foreign and Security Policy proposals (paragraphs 28 and 32).

Controls over weapons of mass destruction programmes

(h) The legislation on extension of the scope of controls over participation in programmes of weapons of mass destruction could usefully be accompanied by clarification of the legal position under the Non Proliferation Treaty, and of the precise scope of the exemptions it is intended to permit by licence (paragraph 33).

Trafficking and brokering

(i) We welcome the limited proposals on trafficking and brokering, and recommend that their extension be considered only once experience has been gained of enforceability. We call on Ministers to explore further within the EU and the Wassenaar Arrangement the benefits and potential pitfalls of some multilaterally agreed form of licensing or registration of arms dealers (paragraphs 35 and 36).

Intangibles

(j) Grave doubts have been expressed as to the practicality of the proposals relating to transfer of technology by intangible means and fears raised as to their consequences if implemented. Given the degree of controversy raised over the proposals in the White Paper, there can be no question of the United Kingdom agreeing to an extension in the EU's dual - use regime, under whatever legal power, until a consensus has been arrived at on the way forward on controls of intangible transfer of technology generally. The Government should consider limiting the proposed extension of licensing requirements to electronic transfer of documentation to technology related to weapons of mass destruction (paragraphs 37 to 42).

Review of coverage

(k) The production of a unified list covering military and dual - use goods under the new Act and the revision within the EU of the basis for dual - use controls present an opportunity for review of the present coverage (paragraph 47).

Licensed production

(l)We recommend that the question of controls on licensed production of arms and dual - use goods be addressed within the Wassenaar Arrangement (paragraph 48).

End - use controls

(m) We share the sense of disappointment that there should as yet be nothing to show on the work done on creating a more effective end-use regime (paragraph 55).

Departmental responsibility

(n) There is something to be said for a central department to cover all export licensing, including works of art and animal products, with advice being sought in each case from expert departments. We concur with the conclusion of the White Paper that the DTI is indeed the appropriate department . The priority at present is not to jiggle around with allocation of Ministerial responsibility for the licensing process, but to raise further its quality and speed. The priority at present is not to jiggle around with allocation of Ministerial responsibility for the licensing process, but to raise further its quality and speed (paragraphs 58 and 59).

Administration and delays

(o) We are encouraged by the prospect of closer liaison between the ECO and its clients, and of constructive co-operation in improving current weaknesses.The principal complaint about the licensing system is the inordinate length of time it can take to get a licence. The ECO fails by some distance to meet its own target of processing within 20 working days 70 per cent of those applications requiring circulation to other departments. We recommend that vigorous steps be taken to give a rounded picture of the ECO's performance not only in relation to its own targets, but showing the full extent and nature of the waiting - list of applications. We recommend that some analysis be carried out and published of the reasons for other Government departments failing to meet a 10 working day target on export licence applications, and of steps which could be taken to improve performance. Applicants should be informed what is happening to an application which will not be decided within the time limit: be offered the opportunity to make direct representations in response to objections raised: and be assured of a decision one way or the other within an agreed further timescale (paragraphs 60 to 65).

Appeals

(p) There should be a time limit for determination of appeals as there is for giving notice of appeal. It is also our intention to ensure that appeals are subject to a degree of subsequent parliamentary scrutiny by select committee (paragraph 66).

Open licences

(q) We counsel caution in moving too rapidly towards yet greater use of open licences, and Open Individual Export Licences in particular: and look forward to detailed reporting of the nature of such licences granted in the Government's Annual Reports (paragraph 69).

Electronic transfer

(r) We are pleased to note the degree of progress made [in the introduction of electronic document transfer]; the days of ever - thicker files of applications winding their weary way up and down Whitehall may be drawing to a close. We recommend vigorous pursuit of the programme of bringing the export licensing system into this decade before we embark on the next (paragraph 71).

MINUTES OF PROCEEDINGS RELATING TO THE REPORT

WEDNESDAY 2 DECEMBER 1998

Members present:

Mr Martin O'Neill, in the Chair

Mr Roger Berry Mr Lindsay Hoyle Mr Bob Laxton | Linda Perham Mrs Helen Southworth

The Committee deliberated.

Draft Report (Strategic Export Controls), proposed by the Chairman, brought up and read.

Ordered, That the draft Report be read a second time, paragraph by paragraph.

Paragraphs 1 to 71 read and agreed to.

Resolved, That the Report be the Second Report of the Committee to the House.

Ordered, That the Chairman do make the Report to the House.

Ordered, That the provisions of Standing Order No. 134 (Select committees (reports)) be applied to the Report.

Several papers were ordered to be appended to the Minutes of Evidence taken before the Committee in the last Session of Parliament.

Ordered, That the Appendices to the Minutes of the Evidence be reported to the House.

[Adjourned till Wednesday 9 December at Ten o'clock.

Trade and Industry - Minutes of Evidence

Here you can browse the Minutes of Evidence which were ordered by the House of Commons to be printed 2 December 1998.

MINUTES OF EVIDENCE TAKEN BEFORE THE TRADE AND INDUSTRY COMMITTEE TUESDAY 10 NOVEMBER 1998

Members present:

Mr Martin O'Neill, in the Chair

Mr Tony Baldry Mr Roger Berry Mr John Butterfill Mr Jim Cunningham Mr Lindsay Hoyle | Mr Bob Laxton Mr Alasdair Morgan Ms Linda Perham Helen Southworth

CONTENTS

Memorandum submitted by Amnesty international UK

Memorandum submitted by Saferworld

Examination of Witnesses

FIONA WEIR, Amnesty International UK and MR P EAVIS, Saferworld, examined.

Question Numbers:

1 - 19

20 - 30

Memorandum submitted by The Defence Manufacturers' Association (DMA)

Annex B

Annex D

Annex E

Examination of Witnesses

MAJOR GENERAL A SHARMAN, Director General, MR B SALZMANN, Director, Market Information, MR D EVANS, Managing Director, Chemring Group PLC, MR N PREST, Chairman & Chief Executive, Alvis PLC and MR D GARLAND, Managing Director, RBR International, Defence Manufacturers' Association (DMA), examined.

31 - 39

40 - 59

60 - 71

Memorandum submitted by The Joint Electronics and Telecommunications Security Export Control Committee (JETSECC) of the Federation of the Electronics Industry.

Examination of Witness

SIR BRIAN TOVEY, Chairman of the Joint Electronics and Telecommunications Security Export Control Committee (JETSECC) of the Federation of the Electronics Industry and Chairman of CBI Export Control Group, examined.

Question Numbers:

72 - 82

Memorandum submitted by The Department of Trade and Industry

Annex A

Annex B

The Export Control Organisation - Diagram

Processing Licence Applications - Diagram

Annex E

Supplementary Memorandum submitted by The Department of Trade and Industry on Computer Systems in the Export Licensing Process

Examination of Witnesses

MRS BARBARA ROCHE, a Member of the House, (Under Secretary of State), DR R HEATHCOTE, Director, Export Control and Non Proliferation and MR A MANTLE, Director, Export Control, Department of Trade and Industry, examined.

Question Number:

83 - 99

100 - 119

120 - 130

Trade and Industry - Minutes of Evidence

Here you can browse the Minutes of Evidence which were ordered by the House of Commons to be printed 2 December 1998.

CONTENTS APPENDIX 1 - Confederation of British Industry's submission on the White Paper on Strategic Export Controls presented to Parliament by the President of the Board of Trade July 1998 (Cm 3989) APPENDIX 2 - The Response of EEV Limited to the Proposals Contained in the Department of Trade and Industry's White Paper on "Strategic Export Controls", Published Wednesday 1 July 1998

APPENDIX 3 - Memorandum submitted by RBR International Ltd

APPENDIX 4 - Memorandum submitted by Terry Palfrey, Leeds Business School

APPENDIX 5 - Memorandum submitted by TAPOL: The Indonesia Human Rights Campaign

APPENDIX 6 - Memorandum submitted by the Campaign Against Arms Trade

APPENDIX 7 - Memorandum submitted by the UK Working Group on Arms

APPENDIX 8 - Memorandum submitted by the Foreign and Commonwealth Office

Annex A

Annex B

Annex C

Annex D

Annex E

Annex F

APPENDIX 9 - Supplementary Memorandum submitted by The Foreign and Commonwealth Office

APPENDIX 10 - Memorandum submitted by the World Development Movement

APPENDIX 11 - Response from Committee of Vice Chancellors and Principals of the Universities of the UK on the consultation on the DTI Strategic Export Controls White Paper

APPENDIX 12 - Memorandum submitted by Oxfam GB

APPENDIX 13 - Memorandum submitted by the Society of British Aerospace Companies Ltd.

APPENDIX 14 - Memorandum submitted by British American Security Information Council (Basic)

APPENDIX 15 - Memorandum submitted by Dr Ross Anderson, University of Cambridge

APPENDIX 16 - Memorandum submitted by BLWA Ltd

APPENDIX 17 - Supplementary memorandum submitted by the Department of Trade and Industry

APPENDIX 18 - Supplementary memorandum submitted by The Foreign and Commonwealth Office

APPENDIX 19 - Supplementary memorandum submitted by Saferworld

ANNEX

APPENDIX 20 - Supplementary memorandum submitted by the Department of Trade and Industry

APPENDIX 21 - Letter from Mrs Barbara Roche MP, Parliamentary Under Secretary of State for Small Firms, Trade and Industry to the Committee

APPENDIX 22 - Memorandum submitted by the Ministry of Defence

APPENDIX 23 - Supplementary Memorandum submitted by the Foreign and Commonwealth Office

APPENDIX 24 - Memorandum submitted by the Department for International Development

APPENDIX 25 - Supplementary Memorandum submitted by the Defence Manufacturers Association

NOTES

1 Second Report 1991 - 92, HC 86 Back

2 Third Report of 1995 - 96, HC 87 Back

3 HC 115 of 1995 - 96 Back

4 Cm 3349 Back

5 HC Deb, 20 February 1997 col 725w: HC Deb, 5 June 1997, cols 236 - 7w: URN 97/752 Back

6 They are referred to by reference to the respondent and date as e.g. "AIUK, 1996" Back

7 Cm 3989 Back

8 HC Deb, 30 November 1998, col 55w Back

9 Qq 83ff Back

10 HC Deb, 21 January 1997, cols 536 - 7w: Report of the Sierra Leone Arms Investigation, HC 1016 of 1997 - 98 Back

11 Cm 3989, 2.1.7 Back

12 HC 675, para 62 Back

13 Ev, p149 , A1 Back

14 See in particular evidence from Saferworld, Ev, pp 154 - 6 Back

15 Scott Report, C.1. 26 - 27 Back

16 Quoted at ibid, C.1. 33 Back

17 ibid, C.1. 37ff Back

18 ibid C.1. 67 Back

19 Cm 3349, 1.6: Cm 3989, 1.4.1 Back

20 Cm 4056, para 25 Back

21 Trade with Eastern Europe, Second Report of 1988 - 89, HC 51, para 65 Back

22 Cm 3349, 2.6.1 - 2.6.2 Back

23 Cm 3989, 2.1.4 Back

24 Ibid Back

25 The prohibition of the export of microlight aircraft to any non - EU destination in June 1995, by SI, 1995, No 1424, may have been seen as "urgent" Back

26 Cm 3989, 2.1.5 Back

27 K2.1:K2.17 - 18 Back

28 Cm3349, paras 2.2.1 - 2.2.4 Back

29 Cm3989, 2.2.1 - 2.2.2: Qq 89 - 91 Back

30 Cm 3989, 2.2.2 Back

31 Ev, p149, A1 Back

32 See eg Report of Sierra Leone Arms Investigation, HC 1016, paras 3.24 - 3.26: and Inter - departmental Committee Report on Trafficking in Arms: Controls and Procedures, December 1996 (not published) Back

33 SIs Nos 1530 & 1531, 1998 Back

34 We are, for example, aware that the Foreign Affairs Committee is pursuing a recent problem over the EU ban on flights to and from the Federal Republic of Yugoslavia Back

35 HC Deb, 10 July 1998, cols 687 - 8w Back

36 Cm 3349, 2.8 Back

37 Eg Qq 3ff, 10 - 11: Ev, p6: p103, 2 - 6: Back

38 Eg Ev, pp48 - 50, Annexes B & D Back

39 Cm 3989, 2.1.7 Back

40 Q2 Back

41 Qq2, 12 Back

42 Ev, pp29, 32 Back

43 Cm 3989, 2.1.7

Back

44 Ev, p4: p102, 18 Back

45 see eg Ev, p100, para 6 Back
46 K2.18 Back

47 Ev, p7: p20: p101, para 12 and Qq 19ff: Appendix 26, see Qq 92 - 3 for Ministerial response and Ev, p111, para 1.4.5 Back

48 Ev, p35: p127, para 1.3 Back

49 Ev, p110 Back

50 Ibid p40, para 1.3.2 Back

51 Ibid, para 1.3.3 Back

52 Ev, p151: House of Commons Library Deposited Paper 3/5026 Back

53 Ev, p110 - 112 Back

54 Ev, pp112 - 114 Back

55 Ev, p113, para 2.4.1 Back

56 Ev, p114, para 2.5.2 Back

57 For a full critique, see Ev, p107 - 110: also pp128 - 9 Back

58 Ev, p108, para 3.1 Back

59 Ev, p114 , 2.5.1 Back

60 Qq 87ff Back

61 Ev, p114 , para 2.5.5 Back

62 Cm 334, 2.3.6 - 8 Back

63 Cm 3989, 3.1.1 - 3.1.4 Back

64 Ev, p141, 3.1.3 Back

65 See eg Ev, p134, 2.3 Back

66 egEv, p21 & Q13: p104, 13 - 16: Ev, p143 Back

67 Ev, pp38 - 9 Back

68 Ibid Back

69 Q14 Back

70 Qq 123 - 126 Back

71 Q60 & Ev, p150, A3 Back

72 Cm 3349, para 2.3.6 Back

73 Cm 3989, para 3.2.1 - 3.2.3 Back

74 Q72 Back

75 Cm 3989, p25: also Ev, p 68 Back

76 Ibid, p26 Back

77 Cm 3989, para 3.2.1; Q60,; Ev, p151, A3 & p70, fn 25 Back

78 Ev, p38: Q60. Also Ev, p58 Back

79 Ev, p135 Back

80 1998, GKN Westland: not printed Back

81 Qq72ff: Ev, p58, para 5 Back

82 Ev, pp131 - 3 Back

83 Q120 Back

84 Com (1998) 257 final, Article 3 Back

85 For a legal perspective, see Ev, pp93 - 100 Back

86 Cm 3929, 3.2.1 Back

87 For details, see Ev, pp69 - 70 , Annex A. There is a third category potentially covering any goods which the intending exporter has grounds for suspecting may be used in connection with a weapons of mass destruction programme Back

88 Ev,p66, para3.3.3 Back

89 Cm 3349, 2.3.3. Back

90 Cm 3989, 5.1 Back

91 Ev, p12 Back

92 eg Ev, p106, 24ff Back

93 Q100 Back

94 Ev, p , & Q46 Back

95 Ev, Appendix 20 Back

96 SI, 1994, No. 1632 Back

97 Ev, pp45 - 6 Back

98 Q94 Back

99 Ev, p93 Back

100 Ev, p69: p89, 5.1 Back

101 Ev, pp13 - 14: 22: 145 Back

102 Ev p64, para3.2.2 Back

103 Scott, passim; quoted by AIUK,1996,p9. Back

104 BMARC Report, paras 39 & 70-72 Back

105 Ev, p64, para 3.2.2 and footnote Back

106 HC87, paras 85 - 86 Back

107 Cm 3349, 2.3.5 Back

108 Cm 3989, 5.2.1 Back

109 Ev, p12: p21: p102, paras 19 - 22: p105, paras 17 - 19: p135, para 2. 4 Back

110 eg, Qq 24ff & Ev p21: p135, para 2 . 4 Back

111 Ev, p102, para 19 Back

112 DMA,1996,p15 - 16: EEV,1996,p3: Lucas,1996 Back

113 eg Ev, p46 & p59: GEC - Marconi 1996, 3: Ev, p149 Back

114 Ev, p46 Back

115 DMA,1996,14: also CBI,1996,p2: Ev, Appendix 25 Back

116 EEV,1996,3 Back

117 Lucas Varity,1996,3 Back

118 Ev, p137, para 5.2 Back

119 Qq 75ff and Ev, p58: also p37 and Appendix 26 Back

120 Qq 107 - 8 Back
121 Qq 109 - 110 Back

122 See Ev, p72, Annex C Back

123 BMARC Report, paras 91 - 93 Back

124 Cm 3349, 2.7.1 - 2.7.3 Back

125 Eg Q29: Ev, p13 Back

126 Cm 3989, 5.3.3 Back

127 Qq 112 - 3 Back

128 Qq 103 - 6 and Ev, Appendix 21: see eg Q38 Back

129 See eg Ev, p32 Back

130 Ev, p65, paras 3.2.7 & 3.2.9 Back

131 HC Deb, 24 July 1998, col 741w Back

132 Ev, p151, A4 Back

133 Ev, p65, para 3.2.12: Qq 101,103 Back

134 Ev, p65, 3.2.10 and p74, Annex E Back

135 Ev, p151, A5 Back

136 Q46 Back

137 Ev, Appendix 21 Back

138 Qq 33ff: Ev, Appendix 20 Back

139 Eg Qq55 - 6: and for use of CS gas in Kenya, Ev, p14, fn15 Back

140 Q40 Back

141 Cm 3349, 2.4.9 - 10 Back

142 Cm 3989, 4.4.1 - 2 Back

143 Q32 & Ev, pp42 - 3 Back

144 Ev, pp66 - 67, paras 4.2.1 & 5.2.3 Back

145 Qq 102, 114 - 5: Appendices 22 etc. Back

146 MOD show an average of 77 per cent cleared within 10 working days over the past 12 months: Ev, Appendix 22. FCO have an average of 70 per cent: Ev, Appendix 23. DFID does not keep detailed figures but "all applications received are replied to within 10 working days": Ev, Appendix 24 Back

147 Qq34, 37: Ev, Appendix 25 Back

148 Ev, p67, para 5.3.1 Back

149 Ev, p65, 3.2.9 Back

150 Cm 3349, 2.5.1 - 2.5.3 Back

151 Cm 3989, 4.6.2; Ev, p44 Back

152 Cm 3989, 4.6.1 Back

153 Scott Report, C l. 50ff Back

154 Cm 3989, 4.2.1 Back

155 Qq 48 - 9: see also Ev, p102, paras 16 - 17 Back

156 Ev, p63, paras 2.3 - 2.4 Back

157 Ev, p67, para 2.5 and p71 Back

158 E 8.3 Back

159 HC 87 of 1995 - 96, para 67 Back

160 Ev, p69: p63, para 2.7 Back

161 Ev, p89 (EEV Ltd): also Ev, Appendix 25 Back

162 Ev, p150, A2 Back

163 BMARC Report, para 73 Back

164 Ibid, para 75 Back

165 HC 713 of 1995 - 96, pvii Back

166 Ev, p75, para 3 Back

167 HC Deb, 30 October 1997, cols 870 - 1w: ibid, para 4 Back

168 Ev, p68 Back

169 For details, see Ev, pp75 - 6 Back

170 Cm 3989, 4.4.2:Ev, p , para 6 Back

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