Teather on the Arms Industry

5.57.00pm BST (GMT +0100) Thu 3rd Apr 2008

Mar 27] Sarah Teather (Brent East, Liberal Democrat): This has been a very good debate.

There may be only a few speakers here, but they are all very knowledgeable and their contributions have been of high quality. I am conscious of that as I am rather new to this brief, but I have found it fascinating in the last hour or so to listen to speakers who clearly know their subject very well.

This is an excellent report. It seems to me that the committee is always careful to balance justified support for a legitimate and important business in the UK with the question of adequate control and ethics. There is no doubt that the arms industry is important to the UK economy and to Britain's influence abroad. However, our reputation is also dependent on the ethics and practice of those countries with which we trade, and on the transparency and probity of our relationships with those countries.

I will not attempt to deal with everything in the report today; rather, I just want to address a few specific issues that I hope the Minister can clarify. First, I want to say something about the power of the committee itself. It clearly works well. Everyone on it feels that it is an example of cross-departmental work that could be held up as a model for many other areas, where we could do with far more breaking up of silos and a different type of thinking. The committee's reports have all been very thoughtful and the conclusions have been reached through consensus.

Despite those obvious strengths, however, it remains true that the committee has the power to scrutinise licensing of arms exports only retrospectively. It recommends in the report before us that it should have the power to scrutinise particularly sensitive arms transfers. The Government have not dealt with that recommendation in their response, and I wonder whether the Minister might do so today. The committee suggests that a trial period could be established so that such scrutiny could be applied to countries that have previously been under embargo, or in cases where there have been particularly sensitive or precedent-setting licences. I hope that the Government will agree to pilot that use of a trial period, if nothing else.

I want to deal with three specific committee recommendations before making some wider points about enforcement and Government support for the arms industry in general. The first recommendation is on re-export clauses, which other Members have already referred to. The committee recommended that

"it should become a standard requirement of licensing that export contracts for goods on the Military List contain a clause preventing re-export to a destination subject to UN or EU embargo."

In their response to the report, the Government said that they would deal with that recommendation as part of the review of the Export Control Act 2002, but in their initial report they made no mention of that. What is the Government's thinking on this subject, and are they intending to include re-export clauses when they produce their final response to the review of the 2002 Act.

The Chairman of the committee, the hon. Member for Kingswood (Roger Berry), mentioned the transfer of British-made maritime patrol aircraft from India to Burma. The thought of that transfer made us all feel deeply queasy, particularly if one thinks of last autumn, when we watched the oppression in Burma of monks, especially in Rangoon. It makes me very queasy to think that, whatever advances we may have made on control of arms transfers, we seem to have little influence beyond the initial arms transfer.

The second issue relates to extraterritorial jurisdiction. The committee made another very clear recommendation: that

"the Government should bring forward proposals to extend the extra-territorial provisions of the export control legislation to encompass trade in all items on the Military List."

The Government have made significant advances by including light weapons and small arms in the military list. I also acknowledge the point made by the hon. Member for Kingswood that small arms are the current weapons of mass destruction. I thought that that was a very good way of explaining the problem.

However, the right hon. Member for Tonbridge and Malling (Sir John Stanley) made an absolutely devastating critique of the anomalies concerning what is included in the military list at the moment and what is not. I cite the example of what might happen if aircraft and vehicles were sold to Chad. No licence would be required if that sale took place from abroad and those aircraft and vehicles could then be used on the border with Sudan. There is a separate point about whether they could then be re-exported into Sudan. Even if the Government were to adopt the re-export clauses that the committee has been calling for, it would make no difference in that situation, unless the arms or vehicles are already included under a licensing agreement.

The Government's new categories for extraterritorial trade control also raise a number of questions about cluster munitions. I welcome the fact that cluster munitions are now classified as category 1 arms and consequently banned in practice, and that the Government have said that they wish to see a worldwide ban on cluster bombs. However, I agree entirely with both the hon. Member for Kingswood and the right hon. Member for Tonbridge and Malling about the disingenuous distinction between smart cluster bombs and dumb cluster bombs. The right hon. Gentleman gave figures showing that the failure rate was as high as 10 per cent. for M85 cluster munitions in particular, which the Government continue to stockpile even though they say that they wish to see the end of stockpiling of such weapons. That shows the poor distinction between the two types of munitions. Will the Minister say what his intentions are for the forthcoming treaty? What definitions of cluster munitions do the Government intend to use as they seek, I hope, to move toward a worldwide ban later this year?

The third issue that I want to discuss is end-use monitoring. I welcome the view of the Government and the committee that EU-wide end-use monitoring is vital, but the hon. Member for Kingswood made a good point about the need to move toward end-use monitoring of torture equipment from a UK perspective. The Government have already instituted end-use monitoring of some sensitive transfers, and I wonder why they have been so unwilling to introduce a system of end-use monitoring of particularly sensitive contracts. It clearly is not practical to introduce such monitoring on all transfers-that would be impossible-but having a system that dealt with obviously sensitive transfers would be a sensible way forward.

Since the report, there have been several changes to the Government's system of support for the arms industry. The abolition of the Defence Export Services Organisation was largely welcomed by everyone, but the full consequences of its move to UK Trade & Investment have yet to be seen. I hope that it will signal a shift such that the Government's support for the arms industry, which needs to be specialist because of the nature of the industry, will not be substantially greater in value than their support for other industries that are equally or even more important to the UK economy.

Continuing in that vein, the continued underwriting of risk through the export credits guarantee scheme must have had its day. Estimates of the scheme's cost to the UK taxpayer vary from £150 million a year to four times that level by some NGOs. The Government have always justified the ECG by claiming that companies often have to trade with countries that do not have developed insurance markets, but that is surely an outdated view in a well-developed derivatives market. It is difficult to see why the taxpayer should pick up the risk for such deals, given that private companies keep the profits. Similarly, the accounts of the Export Credits Guarantee Department remain somewhat opaque, and that lack of transparency leads to a widespread suspicion of bad practice. I think that the transparency issue was another reason why the committee made several recommendations on combating bribery and corruption.

There is a widespread view that the Government's decision to halt the inquiry into the al-Yamamah arms deal severely damaged the UK's reputation in the fight against corruption. That is certainly the view of the Foreign Affairs Committee; it also my view and that of my party. I shall not rehearse the entire debate at length, as this is not the appropriate time, but I note that this issue underscores the need for the Government to be clear and straightforward about their anti-corruption policies. They must be seen to make progress on that issue because of the impact of that decision on the UK's reputation abroad. The committee recommended that the Government should press for provisions to be included in the arms trade treaty to promote good governance and to combat bribery and corruption. I would strongly support such moves, but there is no reason why such provisions could not already be included in licences. I reiterate the point made by the hon. Member for Kingswood about including criterion 8 as a means of assessment. He asked the Minister to update us regarding the review into that issue, and I, too, hope that the Minister will address that point.

Let me turn to issues of enforcement and practice rather than the need for new laws. According to parliamentary answers given in 2006, there were more than 500 breaches of arms export controls between 2000 and 2005, but just four successful prosecutions. Those cases included export seizures and unlicensed exports that were referred to Her Majesty's Revenue and Customs by compliance officers from the Department of Trade and Industry. In his initial remarks, the hon. Member for Kingswood said that the current, low penalties do not particularly influence or affect behaviour, and seem to be poor at preventing infringement of the law. Will the Minister tell me how many staff currently scrutinise licences in the export control department? There is no point in having great law if we do not have the resources to enforce it, or if we do not ensure that there are significant consequences for breaching it.

The arms industry is highly complex and five Departments are involved in monitoring it, while four Departments are involved in scrutinising it through the committee. There have been incidents of arms exports being approved in apparent breaches of the Government's own international policy priorities. An obvious example is the 2001 deal to sell a military air traffic control system to Tanzania for £28 million. That was an odd decision, given that Tanzania is one of the world's poorest countries. The World Bank described the deal as a waste of money. It is obvious that we need a more joined-up approach within government, and I hope that the Government will consider how to ensure that their internal policies, particularly on international affairs, are being fed through to the scrutiny of licences and, therefore, the transfer of arms. The sale of arms is not a morality-free zone; it differs from other industries in that regard. I acknowledge that the Government have made significant progress in the past 10 years, but significantly more needs to be done.