DEPARTMENT OF TRADE AND INDUSTRY

Presented to Parliament by the President of the Board of Trade
by Command of Her Majesty
July 1998

CONTENTS

FOREWORD BY THE PRESIDENT OF THE BOARD OF TRADE

This White Paper contains the Government’s proposals for a new legislative framework for strategic export controls and improvements to export licensing procedures. As such it responds to the recommendation by Sir Richard Scott in his Report of the Inquiry into the Export of Defence Equipment and Dual-Use Goods to Iraq and Related Prosecutions, that the Government should conduct a thorough review of these areas.

The power to control the export of goods and technology for strategic reasons is vital for any responsible Government committed to preventing the proliferation of weapons of mass destruction, protecting the security of the United Kingdom and of our EU partners and other allies, and generally preventing armed aggression and internal repression. It is equally important in a modern democracy that the Government should be accountable to Parliament for the way it uses such powers. Sir Richard Scott criticised the lack of provision for such accountability in the current legislation governing export controls. We accept the validity of this criticism and propose that, as Sir Richard recommended, the purposes for which strategic export controls can be operated should be set out in legislation and provision made for parliamentary scrutiny of export control orders.

The Government believes that there is also a need to ensure that its strategic export control powers are brought up to date to enable it to deal with modern means of trading, such as transferring information via the Internet, and brokering deals involving the transfer of goods between two other countries.

Finally, the Government is aware that exporters need export licensing procedures that are both clear and consistent and the White Paper accordingly contains a number of proposals which we believe should help achieve this.

We hope that all those with an interest in strategic export controls will take the opportunity to comment on the proposals contained in this White Paper.

STRATEGIC EXPORT CONTROLS

Section 1:  
INTRODUCTION

1.1  The legacy of the Scott Report

1.1.1  Sir Richard Scott’s Report of the Inquiry into the Export of Defence Equipment and Dual-Use Goods to Iraq and Related Prosecutions was published in February 1996. At the heart of Sir Richard Scott’s criticisms was a lack of accountability and transparency in the operation of strategic export controls. The Labour Party’s manifesto therefore included a number of commitments, which could be implemented quickly without primary legislation, intended to ensure that the situation described in the Scott Report could not happen again. Thus we committed a Labour Government to not permitting the sale of arms to regimes that might use them for internal repression or international aggression and to increasing the transparency and accountability of decisions on export licences for arms, while at the same time stating our support for a strong UK defence industry.

1.2  Action already taken by the Government

1.2.1  The Government has made it a priority to act on these commitments. In July 1997, the Foreign Secretary announced the publication of new criteria to be used in considering applications for licences for the export of conventional arms and for the export of dual-use goods when there are grounds for believing that the end user of such goods will be the armed forces or the internal security forces of the recipient country. The Government is also working for similar principles to be adopted internationally as far as possible. We, together with the French, proposed to our European Union (EU) partners, the introduction of a Code of Conduct to govern arms sales within the EU. This was formally agreed on 8th June. Under this, member states have undertaken to use their best endeavours to encourage other arms exporting states to subscribe to the principles of the Code. We have also announced that we will be publishing an Annual Report on UK strategic exports which will set out the state of export controls and report on their application.

1.3  The need for a White Paper

1.3.1  These steps, which do not require primary legislation, will, we believe, do much to improve accountability and transparency in the area of strategic export controls. However, Sir Richard Scott’s report also recommended that there should be a thorough review of the primary legislation governing strategic export controls - the Import, Export and Customs Powers (Defence) Act 1939 (the 1939 Act) - and export licensing procedures, and that the Government should make proposals for “new empowering legislation in place of the 1939 Act and for an export licensing system and export licensing procedures suitable for the peacetime requirements of a trading nation in the post cold war era”. This is what this White Paper sets out to do.

1.3.2  In drawing up our proposals we have taken account of the responses to the previous Government’s consultative document on “Strategic Export Controls” published in July 1996, which was issued in response to Sir Richard Scott’s recommendations. That consultative document also invited comments on a number of issues not mentioned in Sir Richard Scott’s report, which the Government needs to address if it is going to replace or amend the 1939 Act, and these are also covered by this White Paper. There were 38 responses to the 1996 consultative document and, with the exception of two responses for which confidentiality was requested, these were placed in the libraries of the Houses of Parliament and the Department of Trade and Industry (DTI) following the end of the consultation period. In June 1997 the President of the Board of Trade announced that she had arranged for copies of the responses to be available on request from the Export Control Organisation (ECO) in the DTI. Of the 38 responses, just over half were from industry (either representative organisations or individual companies). The rest were from non-governmental organisations (NGOs) concerned with human rights and arms trade issues, from church representatives and from private individuals.

1.3.3  This White Paper covers only strategic export controls - i.e. controls on military and dual-use goods. Dual-use goods are, of course, governed by European Community legislation in the form of the EC Dual-Use Goods Regulation. However, we envisage that any new legislation to replace or amend the 1939 Act should allow for any secondary legislation needed on dual-use goods to be made under it. Export licensing procedures would apply to both dual-use and military exports.

1.4  Related issues not covered in the White Paper

1.4.1  There are a number of controls other than on strategic exports operated under the 1939 Act, namely export controls on heritage items, personal firearms and bovine offal and import controls. These controls are not included in the scope of this White Paper. If the 1939 Act were simply amended to implement the proposals contained in this White Paper, then these other controls would continue as at present. However, if the 1939 Act were to be repealed in full then new legislation would need to make provision for these other controls. This is one of a number of considerations which the Government will be taking into account when deciding whether to amend or replace the 1939 Act.

1.5  Consultation timetable

1.5.1  Views are invited on all the proposals contained in the White Paper. In addition to comments on the substance of the proposals, comments are also sought on the likely cost of compliance with them. In connection with this, a provisional regulatory appraisal of the proposed new legislation is at Annex A.

1.5.2  Written comments on all issues raised in this White Paper should be sent by 30th September 1998 to:

Scott Inquiry Follow-Up Unit
Export Control Organisation
Department of Trade and Industry
Bay 656
Kingsgate House
66-74 Victoria Street
London SW1E 6SW
Tel: 020 7215 8398
Fax: 020 7215 8519    
E-mail: wp.sec@xnpd.dti.gov.uk
(attachments should be in either text (txt) or rich text (rtf) format)

1.6  Publication of responses

1.6.1  The Government will wish to publish views given in response to this White Paper. It will be assumed that respondents are content for their comments to be published unless they indicate otherwise. Consultees who wish their response to remain confidential should make clear whether they wish to protect their identity, the content of their response (or part of it) or both.

Section 2:   ACCOUNTABILITY IN STRATEGIC EXPORT CONTROLS

2.1  Parliamentary scrutiny

2.1.1  In his report, Sir Richard Scott criticised the lack of provision for parliamentary scrutiny in the primary legislation under which strategic exports are currently controlled (i.e. the 1939 Act). He therefore recommended that consideration be given to “the extent to which and the manner in which the exercise of ...[the Government’s] powers should be subject to Parliamentary approbation and control.”

2.1.2  Sir Richard Scott argued that subordinate export control legislation should be subject to Parliamentary approbation. Among those who commented on this issue in response to the 1996 consultation document, there was unanimous support for some form of parliamentary scrutiny of Export of Goods Control Orders (EGCOs), as well as a general recognition that such a process should be introduced in a form which did not impair the Government’s ability to respond quickly to emergency situations.

2.1.3  The Government strongly agrees that new legislation should provide for parliamentary scrutiny of EGCOs made under it.

2.1.4  There are various forms of procedure for parliamentary scrutiny, the main ones being:

• affirmative procedure requiring approval by Parliament before an instrument can come into force;

• affirmative procedure where the instrument can come into force immediately but cannot remain in force after a specified period unless approved by Parliament; and

• negative procedure whereby an instrument will come into force but be subject to revocation if a resolution for annulment is passed within 40 parliamentary days.

The first would not be suitable for amending export control legislation as it would not allow the Government to implement changes urgently. Sir Richard Scott expressed a preference for the second form of affirmative resolution procedure. However, the Government considers that, with the exception of Orders amending the purposes for which export controls can be imposed (see paragraph 2.2.2 below), the negative resolution procedure is the most appropriate form of scrutiny, bearing in mind the frequency of EGCO amendments and the fact that most of these are uncontroversial.

2.1.5  Based on past practice and experience we might expect an average of some 6 amendments a year to EGCOs under the new legislation.^*1 Most of the amendments 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 participates. Amendments of this frequency would impose a significant burden on parliamentary time. It may be that in practice, amendments (other than those needed to deal with an emergency) would be introduced at less frequent intervals than at present, but this would mean delays in implementing changes, resulting in a less effective export control regime. Negative procedure would allow MPs the opportunity to debate and vote on EGCO amendments where they considered this appropriate but would not require such approval for every amendment, including the most routine. The Government therefore regards this as the most appropriate form of scrutiny for export control legislation.

2.1.6  Apart from the question of parliamentary scrutiny of secondary legislation made under a new or amended Act, a number of those responding to the 1996 consultation also made other suggestions for parliamentary scrutiny including scrutiny by a parliamentary committee of individual export licence applications for equipment over a certain value or to certain destinations, the introduction of a report to Parliament and an annual parliamentary debate.

2.1.7  The Government does not consider that there should be parliamentary scrutiny of individual applications either before or after the decision on whether to grant a licence has been taken. Parliamentary scrutiny before licence decisions are taken would inevitably slow down significantly the process of decision-making on those licence applications. Furthermore, any process involving publication of individual applications, whether before or after decisions have been taken would mean identifying companies and the nature of their planned or actual export business which would be likely to harm their competitive position. Overseas Governments would also have a legitimate concern about the details of their purchases of defence-related equipment being made known to, for example, neighbouring countries. There would be a danger that they would seek in future to buy equipment from countries which would not disclose details of individual contracts.

2.1.8  However, the Government is committed to greater transparency in the field of strategic exports and will report annually on the state of strategic export controls and their application. This is consistent with the Government’s proposals for a Freedom of Information Act. It is likely that various Select Committees will wish to examine the annual report which, in turn, may lead to a parliamentary debate on it. In addition, in July 1997, we announced, and have made widely available, new criteria for use in considering individual applications for licences to export conventional arms and dual-use goods where there are grounds for believing that the end-user would be the armed forces or internal security forces of the recipient country.

2.2  Purposes of strategic export controls

2.2.1  In his report, Sir Richard Scott criticised the “absence of any indication in the empowering legislation of the purposes for which export controls can legitimately be used” which, he argued “had led to a dangerous confusion between the law on export controls and Government policy on export controls.” He recommended that “The present legislative structure under which Government has an unfettered power to impose whatever export controls it wishes and to use those controls for any purposes it thinks fit, should in my opinion be replaced as soon as practicable.” In response to the 1996 Consultation there was clear support for Government to set out the purposes of export controls 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.

2.2.2  The Government considers that it is right that the purposes of strategic export controls should be set out in legislation. This will contribute to greater transparency of export licensing policy. However, the Government is also concerned to ensure that it retains the flexibility to respond to unforeseen circumstances, potentially at short notice. We therefore propose that new primary legislation should make provision for the purposes of strategic export control to be set out in secondary legislation. Orders introducing or amending the purposes should come into force with immediate effect, but require approval by Parliament within a set timescale in order to remain in force. This form of affirmative resolution procedure, while enabling the Government to respond quickly to unforeseen circumstances, would also allow Parliament to debate and approve the purposes for which the Government can control strategic exports. The affirmative resolution procedure is appropriate in this instance because the purposes of strategic export controls are fundamental to the legislation. Where this is not so, for example, EGCOs introducing or amending new controls on specific types of goods, the negative resolution procedure is appropriate (see paragraph 2.1.4 above).

2.2.3  We propose that secondary legislation should provide that the purposes of strategic export controls are:

• to adhere to the United Kingdom’s international obligations and commitments, including international arms embargoes and international control regimes;

• to prevent the proliferation of weapons of mass destruction and of missiles and unmanned air vehicles capable of delivering such weapons;

• to safeguard the United Kingdom’s security interests and those of allies and EU partners;

• to avoid contributing to internal repression;

• to avoid contributing to international aggression;

• to avoid damaging regional stability;

• to avoid seriously undermining the economy of the recipient country;

• to avoid contributing to terrorism and crime.

2.2.4  These purposes are consistent with the criteria announced by the Foreign Secretary in July 1997. The purposes are also consistent with the EU Code of Conduct on arms exports, the guidelines for conventional arms transfers agreed by the permanent five members of the UN Security Council and the Organisation for Security and Co-operation in Europe (OSCE) principles governing such transfers.

Section 3:  
POSSIBLE EXTENSIONS OF SCOPE OF EXPORT LICENSING POWERS

3.1  Weapons of mass destruction

3.1.1  The Chemical Weapons Act 1996 (CWA) which implemented the Chemical Weapons Convention in the United Kingdom made it an offence for any person^*2 in the UK or any UK person overseas to develop, produce, use, possess or participate in the transfer of a chemical weapon anywhere in the world or to engage in military preparations or preparations of a military nature, intending to use a chemical weapon anywhere in the world. It is also an offence at common law to aid, abet, counsel or procure such activity, but not if that activity is carried out by a foreigner overseas as it is not an offence in UK law for a foreigner to undertake such activity overseas.

3.1.2  The Government proposes that it should in addition be made an offence for anyone in the UK or a UK person abroad to aid, abet, counsel or procure a foreigner overseas to develop, produce or use a chemical weapon. It is also for consideration whether it would be appropriate to make it an offence for anyone in the UK or a UK person abroad to aid, abet, counsel or procure a foreigner overseas to engage in military preparations or preparations of a military nature, intending to use a chemical weapon. (It would not be necessary to make it an offence to aid, abet, counsel or procure a foreigner overseas to possess or participate in the transfer of such a weapon as it would be enough to prosecute someone for participation in a transfer under the CWA.)

3.1.3  Offences relating to other weapons of mass destruction (i.e. nuclear and biological weapons)^*3 are currently not as comprehensive as those contained in the CWA. However, the Government considers that there is a strong case in principle for creating prohibitions in relation to biological and nuclear weapons which are equivalent to the current prohibitions in the CWA and the extension outlined above. This is on the basis that biological and nuclear weapons (with the exception of those in the five official nuclear weapons states) are, like chemical weapons, subject to international agreements outlawing them. In the case of nuclear weapons, we propose that the legislation should exempt involvement in the official nuclear weapons programmes of countries that are members of NATO.

3.1.4  The proposals outlined above would enable action to be taken, where appropriate, against anyone found to be deliberately helping in any way a weapons of mass destruction programme. However, the Government is also concerned that a UK person or company, might, without being directly involved in an attempt to produce a weapon of mass destruction, nevertheless, provide a service or information which could assist such a programme. The existing end-use control is intended to prevent the export of equipment which might be used in such programmes, but the Government considers that it would be desirable to introduce measures to prevent other ways in which such programmes might be given assistance, such as the transfer of technological information by intangible means or provision of technical services. In view of this, it proposes to make it an offence to do something that would promote or facilitate the development or production of weapons of mass destruction either if the Government has informed someone that what he is doing poses such a risk or if someone knows by other means or has grounds for suspecting that a particular course of action might assist such a programme. It is further proposed that this new offence should apply to certain means of delivery of weapons of mass destruction, namely ballistic and cruise missiles capable of ranges of at least 300 km. Provision would be made in the legislation for the Secretary of State to grant a licence to undertake such activity to allow participation in official nuclear programmes in NATO countries and in certain missile and rocket programmes. It is proposed that the above offence would be introduced by secondary legislation under the proposed new general power to control the transfer of technology by any means, which is described in the following paragraph.

3.2  Transfer of technology by intangible means

3.2.1  The 1939 Act provides the Government with powers to control only tangible exports which means that export licences are currently required for controlled technology only when this is exported in physical form, e.g. on paper or computer disc. Although some intangible transfers might be caught by existing legislation - principally the CWA and the Official Secrets Act which can be used to prevent information about weapons designs being passed to third parties overseas - their scope is limited. The Government therefore proposes that new legislation should provide it with the power to control the transfer of technology, whatever the means of transfer. This power would be used to introduce secondary legislation, which it is proposed should do the following:

• Given the ever increasing ease with which information can be transferred across national boundaries by electronic means, i.e. by fax or e-mail^*4, the Government proposes to provide that documents transferred abroad containing controlled technology should be subject to export licensing requirements, whether exported physically or in electronic form.

• Information can also be passed on in non-documentary form (e.g. orally or through personal demonstration). The proposal to make it an offence to do something which it was known or suspected could assist a weapons of mass destruction or long range missile programme, described in paragraph 3.1.4, would catch transfers of information in non-documentary form. This offence would be implemented under the power to control the transfer of technology by any means. While this power would enable the Government, if need arose, to introduce the same controls on other types of technology, we propose for the time being, to limit this wider offence to technology related to weapons of mass destruction and long-range missiles. The Government considers that it is right that controls on the transfer of information orally or through personal demonstration should be limited to the areas of greatest concern, in view of the difficulties of licensing such transfers, both for applicants and for the licensing authority, and given also that there are sensitivities in relation to free speech and academic freedom.

3.2.2  Intangible technology transfer is also an area being considered by the European Commission and EU member states, in relation to dual-use goods. In particular, the European Commission has proposed^*5 that the Council Regulation on the Export of Dual-Use Goods should be extended to cover electronic transfers. The Government would support in principle an extension of controls on the dual-use side to the transfer of technology by intangible means consistent with the proposals outlined above.

3.2.3  The Government has also given consideration to possible controls on the publication of controlled technology on electronic networks such as the World Wide Web (WWW). Even the comprehensive controls on electronic transfers proposed above would not cover a situation in which sensitive information (which, if exported, would require a licence) was posted on the electronic networks (at which point it would move into the public domain) where it would become accessible to potential proliferators. A possible solution to this would be to add a provision to the weapons of mass destruction-related offences proposed in section 3.1 above, making publication of controlled technology relevant to the development of weapons of mass destruction an offence. This would apply whatever the medium of publication.

3.3   Trafficking and brokering

3.3.1  The 1939 Act gives the Government power only to control physical exports from and imports to the UK. As such, it does not allow the Government to impose controls on the involvement of persons in the UK or UK persons abroad in trafficking in goods between overseas countries or in brokering such deals. By trafficking is meant involvement in buying and/or selling goods. By brokering is meant acting as an agent in putting a deal together between supplier and customer or making the practical arrangements for the supply of the goods. However, the Government does have the powers to control trafficking and brokering under the United Nations Act 1946 where this is necessary to implement a binding United Nations (UN) decision. In addition, the CWA outlawed involvement in the transfer of chemical weapons and the Government’s proposal outlined in paragraph 3.1.3 above would extend this ban to the transfer of nuclear and biological weapons.

3.3.2  The Government believes that it would be right in principle to control the involvement of persons in the UK or UK persons abroad in trafficking and brokering in controlled goods to countries that are the subject of other types of embargo, whether as a result of non-binding decisions of the UN or decisions of the EU, OSCE or indeed the UK Government. We consider that it is objectionable in principle for UK persons to be able, legally, to undermine the operation of such embargoes. The Government also believes that it would be right for it to have the power to impose controls on the involvement of persons in the UK or UK persons abroad in the trafficking and brokering of certain strategic goods, trading in which is the subject of widespread national and international condemnation. In particular, the Government proposes to impose controls on the trafficking of and brokering of deals involving certain types of equipment, the export from the UK of which, has been banned because of evidence that goods of the same type have been used in torture. The Government is also committed to banning the transfer of anti-personnel landmines, although this is likely to be implemented in separate primary legislation. Finally, the Government also proposes to impose trafficking and brokering controls on missiles capable of a range of at least 300 km (trafficking and brokering of weapons of mass destruction would be prohibited, to the extent not already prohibited, by the proposals described in paragraph 3.1.3).

3.3.3  The Government considers that it would be sensible to take the power to control trafficking and brokering in goods for any of the purposes of strategic control as set out in legislation (see section 2.2) . The goods and/or destinations subject to controls on trafficking and brokering would be laid down in secondary legislation that would be subject to the negative resolution procedure as proposed for other export control orders (see paragraph 2.1.4). However, the Government does not propose to use this power to introduce controls on trafficking and brokering of all goods that are subject to export controls. It is right in principle that UK controls on trafficking and brokering should be more limited than on actual exports from the UK as those involved in such activities will also be required to comply with the export control laws of the exporting country. Secondly, enforcement of controls on trafficking and brokering is less straightforward than the enforcement of controls on exports from the UK and it is therefore right that resources for enforcement of such measures should be targeted on the most critical areas.

3.4  Enforcement

3.4.1  To assist in the enforcement of the expanded offences relating to weapons of mass destruction as well as on intangible transfers and trafficking and brokering, the Government proposes that new legislation should give HM Customs and Excise (HMC&E) the powers to require the production of records in respect of such transfers. The Government also considers there would be a case for giving HMC&E the power to require provision of information about supplies on the lines of the powers contained within the Sanctions Orders made under the United Nations Act 1946.

Section 4:   EXPORT LICENSING PROCEDURES

4.1  Prescribing procedures in legislation

4.1.1  Sir Richard Scott recommended that new legislation should include “provision for Government to prescribe procedures whereunder applications for export licences will be dealt with expeditiously and with fairness to exporters.” He made a number of specific recommendations with regard to what these procedures should include and these are dealt with below. On the general question of whether export licensing procedures should be set out in legislation (whether primary or secondary), there were mixed views in response to the 1996 consultation. There was concern that including procedures in primary legislation would introduce inflexibility and some consultees favoured procedures being set out in secondary legislation and others in guidelines. The Government considers that there could be merit in setting out the basic elements of the licensing process in primary legislation but not detailed procedures. The latter are, in the Government’s view, best included either in secondary legislation, or in guidance material as at present, or a mixture of the two.

4.2  Ratings advice

4.2.1  The ECO provides a rating service to advise exporters whether, based on the information they supply, they require a licence for a particular proposed export. Sir Richard Scott recommended that procedures should be established in legislation for dealing with exporters’ enquiries as to whether goods specified by the enquirer are subject to control. In the 1996 consultation, views were sought on this issue, including on whether rating decisions should be made legally binding. Putting rating procedures on a legal basis was not generally supported on the grounds that this would lead to a lack of flexibility and there were mixed views on whether decisions should be legally binding. The Government does not favour setting out detailed procedures in legislation (as mentioned above) and considers that the rating service must remain an advisory service. The Government does, however, consider that there may be a case for decisions given in writing in response to an export licence application that no licence is required (NLR decisions), being made legally binding, but only where the applicant has provided complete and accurate written information and subject to there being no change in the law relevant to the application. If such a proposal were adopted, a recipient of an NLR decision or a third party would be able to rely upon it in civil proceedings, particularly in contractual proceedings where an assertion is made that the contract is illegal because its performance would be in breach of export controls. It would also have the effect of making “licence required” decisions subject to judicial review.

4.3  Power to require information from companies where this is needed to meet the UK’s international obligations

4.3.1  The Government currently has reporting obligations under the United Nations Conventional Arms Register and the Wassenaar Arrangement. The Government considers a statutory requirement for exporters to provide relevant information is essential to ensure the accuracy and completeness of the UK’s reports to international bodies.

4.3.2  We therefore propose that new legislation should enable the Government to require the reporting of information needed to meet international obligations and to pass it on. The power should be framed in such a way that it will allow the Government to meet any future commitments on reporting to international bodies that it may enter into.

4.3.3  In the meantime, we are considering making it a condition of export licences to report to Government information needed to meet our reporting obligations under the Wassenaar Arrangement and the UN Arms Register, as this could be done more quickly than the introduction of new primary legislation. The new legislation would, nevertheless, need to include a power enabling the Government to continue to impose such licence conditions under it.

4.4  Time limits for processing licence applications

4.4.1  The DTI currently aims to turn around export licence applications within set targets (provided that the applicant has submitted all the necessary information). These are 10 days for applications that can be dealt with within the Department and 20 days for applications that need to be circulated to other Government Departments, which is generally the case. These targets are published in ECO information for exporters, but they are not legally binding upon the Government. Sir Richard Scott recommended that export licence applications should be deemed granted unless refused within a prescribed time limit. Views were sought on this issue in the 1996 consultation. A majority of industry responses favoured some form of licensing by default, while a majority of responses from other organisations such as NGOs opposed such a system. The Government has considered this issue carefully and has concluded that licensing by default should not be adopted as it would introduce a risk of licences being granted that were contrary to the UK’s international obligations or the Government’s own policy.

4.4.2  We nevertheless recognise the importance to industry of licence applications being dealt with promptly and are taking steps to improve the turnaround of licence applications and to meet the targets set out above for as many licence applications as possible. These steps include a comprehensive review of the procedures by which the ECO processes licence applications, the main aim of which is to establish how the ECO could process export licence applications more efficiently; an increase in staff numbers and the introduction of an electronic version of Form A (the standard individual export licence application form) by the end of 1998. We anticipate that this last measure will improve the efficiency of both exporters and the ECO in processing export licence applications.

4.5  Giving reasons for refusing export licences

4.5.1  Sir Richard Scott recommended that where an export licence is refused, the reasons for refusal should be given in writing. It is already standard practice for the ECO to give in all cases reasons for refusal which are as full as possible, in accordance with the Code of Practice on Access to Government Information. However, sometimes only the broadest of reasons can be given on grounds of, for example, national security as allowed for in the Code. The Government’s White Paper on Freedom of Information proposes that a requirement to give reasons for administrative decisions should be enshrined in legislation. This would be subject to such disclosure not causing substantial harm to certain specified interests, for example national security.

4.6  Appeals

4.6.1  Sir Richard Scott suggested that “the representations for and against the refusal of [an export licence application] should be made to and considered by a small committee of senior officials from the interested departments (but not including the officials who dealt with the original application). It would be the duty of the committee to make a recommendation to the appropriate Minister”. There was strong support in the 1996 consultation for an appeal procedure that was more structured and formal than the current one operated by the DTI, with some responses favouring a completely independent procedure involving an ombudsman or judge.

4.6.2  The Government agrees that some formalisation of the appeals process is necessary, but considers that Sir Richard Scott’s recommendation of a committee of senior officials is better suited to the area of export controls than the establishment of an appeal mechanism outside Government. An appeal against refusal to grant an export licence needs to be dealt with quickly if it is to be of any use to the appellant, and this is more likely to be achieved if appeals are dealt with by officials with an in-depth knowledge of strategic export controls and the Government’s commitments regarding their application. The Government therefore favours an appeals committee made up of senior officials from the DTI, Ministry of Defence (MoD), Foreign and Commonwealth Office (FCO) and, where appropriate, the Department for International Development (DfID), who are involved in export control in their respective departments, but who were not involved in the original consideration of the specific licence application concerned. Where an export licensing decision had been taken by a minister, the appeal should also be considered at ministerial level. If, once the appeal had been heard, it were to be dismissed, the reasons for the dismissal should, consistent with Government policy on openness, be made known to the appellant in writing. This decision would be final.

4.6.3  The Government believes it would be reasonable to require that any applicant wishing to appeal against a decision to refuse a licence should do so within 28 days of the date of the refusal letter. The Government does not propose to charge appellants for raising an appeal. Nor does the Government propose to grant third parties the right to appeal against a licence being granted.

4.6.4  The Government proposes to make reference in primary legislation to the right of an export licence applicant to appeal against a refusal to grant a licence. It may also be appropriate to prescribe in secondary legislation the general structure of the appeals process. In the meantime we propose to take steps to formalise the existing appeals procedure as set out above, as this does not require primary legislation.

4.6.5  None of the proposals set out above would affect the right to seek judicial review of export licensing decisions, including decisions on appeals.

Section 5:  
OTHER ISSUES NOT REQUIRING PRIMARY LEGISLATION

5.1  Coverage of controls in Export of Goods Control Orders

5.1.1  The 1996 consultation exercise sought views on the technical detail of the goods subject to export control as listed in the Export of Goods (Control) Order 1994 and the Annex to Council Decision 94/942/CFSP on the control of exports of dual-use goods. Attention was drawn in particular to the difficulties, mentioned in Sir Richard Scott’s report, associated with interpretation of the phrase “specially designed.” In the light of the results of the consultation and Sir Richard Scott’s comments, the Government is developing proposals for defining the terms “specially designed” and “specially designed for military use” as used in the EGCO and the Dual-Use and Related Goods (Export Control) Regulations. It is hoped that consulting in Europe and more widely will lead to their adoption internationally.

5.1.2  The Government is also looking at the possibility of introducing some form of military end-use or “catch all” control. In parallel, the European Commission has also made proposals for a military end-use control on exports of dual-use goods to UN-embargoed destinations^*6.

5.2  End-use monitoring

5.2.1  In February 1997, Labour committed itself, if elected, to strengthen monitoring of the end-use of defence exports to prevent diversion to third countries and to ensure that exported equipment is used only on the conditions under which the export licence has been granted. The statement also said that we would seek co-operation to build a common approach on effective monitoring of end-use within the European Union and under the Wassenaar Arrangement. The need for better monitoring of end use was something commented on by a number of those responding to the 1996 consultation. The Government is currently reviewing the options.

5.3  Location of the export licensing authority

5.3.1  Sir Richard Scott considered that Ministerial responsibility for the administration and authorisation of strategic export licensing should go with the primary policy concern related to the controls at issue and he therefore recommended that the responsibility for authorising export licences for the military list should go to the MoD.

5.3.2  In the 1996 consultation, views were sought on these issues. There was no support for responsibility for strategic export licensing being split between different Government Departments. The Government agrees that having two licensing authorities would be less efficient and also less convenient for exporters.

5.3.3  As for the question of where in Government responsibility for licensing should rest, a majority of those responding to the consultation favoured this continuing to be the DTI although some, particularly NGOs, favoured other Departments such as the FCO or HMC&E. The Government has concluded that the licensing authority should remain within the DTI.

5.4  Charging for export licences

5.4.1  The 1996 consultation sought views on whether it would be desirable to introduce charges for export licence applications. Nearly all of those responding to the consultation argued against this on various grounds. The Government accepts in particular the argument that charging would put UK exporters at a competitive disadvantage compared with their counterparts abroad who do not have to pay for export licences. The Government does not therefore propose to introduce charging for strategic export licences.

Annex A:
PROVISIONAL REGULATORY APPRAISAL

1  Title

Replacement or amendment of primary legislation under which strategic export controls are applied.

2  Purpose and intended effect of the measure

Issue
The Import, Export and Customs Powers (Defence) Act 1939 which was introduced as an emergency war-time measure, was criticised by Sir Richard Scott as undemocratic as it lacked provisions for accountability to Parliament. It is also out of date, in that it allows the Government to control only physical exports which does not take account of modern means of transferring information and current concerns about trafficking in goods between third countries.

Objectives

1. To introduce into new legislation parliamentary scrutiny of both the purposes for which the legislation can be used and the secondary legislation made under it. This aspect of the proposal will have no direct impact on business.

2. To prohibit involvement in developing, producing or using weapons of mass destruction. Such activity is already prohibited under the Chemical Weapons Act 1996, and to a large extent the Biological Weapons Act 1974. The new legislation would provide for similar provisions in relation to most nuclear weapons - and biological weapons to the extent not already covered by existing legislation. The purpose of such legislation is to ensure that the Government could act in the event that any such activity took place. This measure should have no impact on reputable businesses or individuals.

3. To enable the Government to impose controls on intangible transfers of technology. At present, certain military and dual-use technology is controlled if exported in tangible form, e.g. on paper or computer disc but the Government does not have the power to control identical information when transferred by intangible means, e.g. by fax or e-mail or orally. The proposal is that new legislation would introduce a new power allowing the Government to control transfers of technology, whatever the means by which the transfer was effected. This power would be used to introduce secondary legislation that provided that all technology in documentary form that was currently controlled when exported tangibly, should also be controlled when exported intangibly. It would also be used to provide for very limited controls on non-documentary transfers - e.g. oral transfers of know-how, where these might be in connection with weapons of mass destruction and long-range ballistic and cruise missiles.

4. To enable the Government to impose controls on trafficking and brokering of deals in certain goods exported between third countries. At present such activity can be controlled only where this is required by a binding resolution of the UN Security Council requiring States to impose trade sanctions or an arms embargo. The new powers would be used to impose similar controls on trafficking and brokering of: (i) arms and military equipment to countries which are the subject of any other arms embargo adopted by the UK; (ii) on certain types of missile; and (iii) on certain types of equipment for which there is clear evidence of their use in torture.

5. To make various changes to export licensing procedures. Most of these are not regulatory. An exception is making it a legal requirement for exporters to give Government the information necessary to meet its international reporting requirements, rather than it being voluntary as at present. This would pose no extra burden on exporters who currently comply with the Government’s requests for information.

As objectives a), b) and e) will have at most a minimal impact on normal business activity, these are not discussed further in this regulatory appraisal.

Risk assessment
Without the proposal to impose the same export controls on documents containing technology exported by electronic means, as by tangible means, there is a risk of existing export controls on technology being increasingly undermined, particularly as the use of e-mail via the Internet is likely to continue to grow rapidly as a means of communication. The proposals for still more comprehensive controls on all types of technology transfer relating to weapons of mass destruction and certain missiles are intended in particular to reduce the risk of countries of proliferation concern developing indigenous production capabilities. So far as trafficking is concerned, without the proposal outlined above, it would continue to be possible to arrange to supply military equipment to countries subject to arms embargoes (other than binding UN embargoes), provided it was not exported from the UK. This would both undermine the purpose of the embargo and risk harming the UK’s international reputation.

3  Options

1. Leave extent of the Government’s powers the same as under the 1939 Act, allowing Government to control physical exports only.

2. Proposals as outlined above.

4  Benefits

The proposed legislative changes will enable the Government to take appropriate action to help prevent the transfer of sensitive technology, particularly that relating to weapons of mass destruction and increase controls on the supply of military equipment to destinations which are the subject of an arms embargo so helping prevent the supply of arms to countries at civil war or in conflict with other countries.

5  Compliance costs for business

Imposition of controls on intangible transfers of technology (ITT)
In 1997 the DTI’s Export Control Organisation (ECO) received 232 Standard Individual Export Licence Applications (SIELAs) relating to the tangible transfer of military and dual-use technology. This accounted for 1.9% of the total number of SIELAs received (12,191) in the same period. However, the export of much controlled technology is permitted to many destinations under two Open General Licences (OGLs) covering technology relating to military and dual-use goods respectively.

The ECO is occasionally consulted by firms planning to export technology by intangible means, on the basis that they wish to comply with the spirit as well as the letter of export controls. However, it is difficult to make an accurate assessment of the extent to which UK firms may be exporting technology intangibly without consulting the Government. Although it may be that only a very small proportion of technology transfers are currently made by intangible means, such transfers are likely to become more frequent in the future, in view of the increasing ease of electronic communication.

The extension of controls to transfers of technology by intangible means would therefore impose an increased burden on exporters. Although the transfer of technology by intangible means would be permitted under any OGLs covering technology in force at the time (i.e. they would cover transfers of technology by tangible and intangible means), there would still be some transfers of technology by intangible means for which SIELAs would be required. In addition, it is also likely that controls on intangible transfers, and particularly those relating to weapons of mass destruction, would lead to companies seeking additional ratings advice from the ECO, particularly in the period immediately after the introduction of such controls.

However, on the basis that the number of SIELAs received for the tangible export of technology is currently less than 2% of the total number which the ECO receives, the increased requirement for export licences resulting from extending controls to transfers of technology by intangible means is unlikely to impose a significant burden on industry, particularly as it would be spread over a large number of companies.

Imposition of controls on trafficking and brokering
Where the UK has adopted an arms embargo, a licence to export arms from the UK would be granted only in exceptional circumstances (e.g. equipment for peacekeeping forces) and where this would not be inconsistent with the embargo. Accordingly, the main effect of the proposal to extend controls to the trafficking and brokering of arms to all destinations subject to arms embargoes other than binding UN embargoes (under which trafficking and brokering is already controlled), would be to prohibit the activities in question. This should not have any significant impact on reputable businesses or individuals.

The proposals to control trafficking and brokering in certain types of missile and types of equipment for which there is clear evidence of their use in torture would be likely to impose an equally insignificant burden on reputable businesses or individuals.

6  Other costs

The processing of the slightly increased number of SIELAs, as well as the inevitable increase in rating enquiries, would impose an additional resource requirement on the main Government Departments involved in the licensing process (i.e. FCO, DTI and MoD), but in view of the small size of the projected increase, the impact on these Government Departments as a whole would be limited. DTI estimates that the extra resources required within ECO would be equivalent to one new member of staff at the licence processing level at a total cost of £25,000 per annum. The resource implications for the other Government Departments involved in the licensing process are likely to be at either a similar or lower level than this.

As the proposals on transfers of technology by intangible means and trafficking and brokering would entail additional enforcement activity, HM Customs and Excise would also require some additional resources, estimated as likely to be in the region of £500,000 per annum.

7  Results of consultation

The possibility of legislative provisions of the type discussed above was raised in a public consultation in 1996. Industry responses generally favoured the principle of extending controls to the transfer of technology by intangible means, though some doubts were expressed about the practicalities of enforcement. The main concern expressed on the issue of placing controls on trafficking and brokering was whether it was appropriate to seek to control activities taking place outside the UK, although such controls are already imposed in the case of binding UN arms embargoes.

Although not specifically asked to comment on the cost of compliance, no responses raised this as a concern. Views are being sought on compliance costs in the White Paper on Strategic Export Controls of which this is an Annex.

8  Summary and recommendations

The proposals are aimed at bringing export control legislation up to date to deal with the development of electronic means of communication, preventing the transfer of information that could assist weapons of mass destruction programmes, and preventing arms embargoes from being undermined by trafficking in arms from third countries. The additional costs to industry and to Government should be reasonably limited, and it is recommended that these are worthwhile in view of the very serious risks posed by proliferation of arms and related technology.

9  Enforcement, sanctions, monitoring and review

The offences outlined in objectives c) and d) above would carry the same penalty as current export licensing offences, namely up to seven years’ imprisonment. Enforcement would be the responsibility of HM Customs and Excise. The impact of export controls which have been imposed by means of Export of Goods (Control) Orders (EGCOs) on industry and Government is kept under review generally. The same will apply to all future controls imposed by means of an EGCO.

Notes:

*1 - There have been 12 amendments since the EGCO currently in force was introduced in 1994. There have also been 6 amendments since 1996 to the Dual-Use and Related Goods (Export Control) Regulations. (Although this is made under the European Communities Act, as explained in paragraph 1.3.3, it is proposed that all secondary legislation on strategic export controls should be made under the new primary legislation.)  

*2 - By person is meant natural or legal person - i.e. either an individual or a corporate body.

*3 - The Biological Weapons Act 1974 makes it an offence for any person to develop, produce, stockpile, acquire or retain (i.e. possess) a biological weapon in the UK. The Nuclear Explosions (Prohibitions and Inspections) Act 1998 makes it an offence knowingly to cause a nuclear weapon test explosion or any other nuclear