Return to an Address of the Honourable the House of Commons
dated 18 July 1996 for the Appendices to the Report of the Inquiry into the Export of Defence Equipment and Dual-Use Goods to Iraq and Related Prosecutions laid before The House on 15 February 1996*

Volume One
Section D Arms and Defence-Related Exports to Iraq
Chapter 1 The Howe Guidelines

Excerpt:
SALES TO IRAQ

D1.10 The problems regarding defence sales to Iraq were of a different order from those which applied to Iran. Iraq, unlike Iran, had not in the pre-war years been a significant customer for British defence equipment, or indeed for equipment from the other NATO defence equipment manufacturers. The traditional suppliers of defence equipment to Iraq, after the assassination of King Feisal in 1968 and the establishment of the Ba’ath Party regime, had been the Soviet Union and the other Eastern bloc countries. Misgivings about the possible diversion of NATO technology from Iraq to the Soviet bloc may have been an impediment to defence sales to Iraq. With the outbreak of war, however, the opportunities for defence sales to Iraq increased. There was every reason to believe that Iraq would require equipment for its own purposes. The risk of diversion to Soviet bloc countries diminished. Defence sales to Iraq were encouraged by the Government. At a meeting of the Overseas and Defence Committee of the Cabinet (OD) on 29 January 1981, Ministers had agreed that although lethal arms and ammunition would not be supplied to either side, “every opportunity should be taken to exploit Iraq’s potentialities as a promising market for the sale of defence equipment; and to this end ‘lethal items’ should be interpreted in the narrowest possible sense, and the obligations of neutrality as flexibly as possible.” *6 This recommendation of flexibility in the interpretation and application of publicly espoused criteria is, as will be seen, a recurring theme. It is also a question whether this attitude to defence sales to Iraq was consistent with the public stance of impartiality and even-handedness.

D1.11 Lord Howe has given the following explanation of the manner in which the policy of “neutrality, impartiality or even-handedness” was viewed. His explanation was expressed in regard to the position after the adoption of the Howe Guidelines but would I think, have been equally applicable before their adoption. He said this: “...this principle, however precisely defined, clearly could not be fulfilled with precision. Impartial application was more than likely to produce uneven results: for example, the relative size of existing contracts was very different. Equally clearly, more trade was being done with Iraq than with Iran. The Guidelines applied equally to Iran and Iraq, but such fluctuations and differences in the trading balance were bound to and did exist or arise; and these would not and should not have been made public. This was because it was very important that we should not be perceived in Iran or Iraq or elsewhere in the world as having departed, consciously or inadvertently, from a position of neutrality, impartiality or even-handedness. Any such perception would have been extremely damaging to foreign relations with a number of countries. This correct approach was taken for the promotion of the United Kingdom, and not party political, interests.” *7 This explanation needs to be kept in mind both in regard to recommendations that the obligations of neutrality should be interpreted as flexibly as possible and also in regard to the public avowals of the Governments policy of neutrality, impartiality or even-handedness that were from time to time made.

D1.12 United Kingdom exports generally to Iraq had risen from £201 million in 1979 to £322 million in 1980, £624 million in 1981 and £874 million in 1982. These sales were mainly on a cash basis. Export Credits Guarantee Department (ECGD) support for these exports was limited to the provision of credit insurance for cash and short term credit transactions. Following the outbreak of war, however, Iraq’s previously strong economic position started to deteriorate and, accordingly, Iraq asked that credit facilities be provided to support existing contracts already covered by ECGD. In order to avoid certain losses on business already transacted, this support was agreed.

D1.13 A further deterioration in Iraq’s economic position was caused by the 1982 collapse in oil prices and, in 1983, the Iraqis requested credit facilities for new business. Ministers agreed and, under a series of Financial Protocols negotiated at successive UK/Iraqi Joint Commissions, tranches of medium term credit were provided. The credit provided for 1983 was £250 million and for 1984 another £250 million.

D1.14 The Financial Protocols were originally intended to finance civil development programmes and, under the first £250 million tranche, no support was given for any defence- related contracts. For the second £250 million tranche, however, the Export Guarantee Committee agreed, following representations by the Iraqis and by UK defence equipment manufacturers, strongly backed by DESO, that contracts for ancillary, non-lethal defence equipment could be supported up to a limit (set in August 1985) of £25 million. This limit, the so-called “defence allocation”, was increased in December 1985 to £50 million, i.e. 20% of the total facility of £250 million.

D1.15 Exports to Iraq did not present the same political difficulties as those presented by exports to Iran. Important Middle Eastern Countries, such as Saudi Arabia, Jordan and the Emirates, supported Iraq in the war. Opposition from Washington to defence-related exports to Iran had no counterpart for exports to Iraq. And Iraq was seen by UK exporters, including manufacturers of defence-related equipment, as a potentially important and growing market. Over the first four years of the war substantial sales to Iraq of defence-related equipment had been made. Defence-related exports to Iraq to a value of not less than £184 million at least compared with exports to Iran of no more than £13 million over that period. These figures demonstrate the extent to which Iraq had, in contrast to the previous pre-war pattern, superseded Iran as a market for United Kingdom defence-related exports.

D1.16 The scope for sales of defence-related equipment to both sides was, however, so far as licensable items were concerned, limited by the lethal/non-lethal criterion on which the Government’s expressed policy was based.

Endnotes
*6 - see Mr Haskell’s submission dated 13 April 1984 (FCO/2.3.171) and paragraph D1.22 infra

*7 - Lord Howe’s written comments dated 3 July 1995, paragraph 55

* The Full report is available from The Stationery Office Ltd., PO Box 276, London, SW8 5DT.