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 2 Applications of The Guidelines in the period
December 1984 to August 1988

Excerpt:
Specific Cases - (ii) Hovercraft

D2.126 At the 5 December 1984 IDC meeting it was agreed that no applications for the supply of new or second-hand hovercraft to Iran or Iraq would be approved. *182 It was pointed out however, that the export of hovercraft under 1000kg in weight was authorised by an Open General Licence (OGEL). The MOD agreed to examine the operational significance of hovercraft of that size. At the MODWG meeting held on 13 December 1984, it was agreed that the MOD would recommend that Iran and Iraq be removed from the list of countries, export to which was authorised under the OGEL. The recommendation was duly made at the IDC meeting on 18 December 1984. The DTI, however, was opposed to an increase in the restrictions on hovercraft sales to Iran and Iraq. A Note dated 6 November 1984 from Mr Lynch (SPB2A) to Mr Petter (OT5/1) had drawn particular attention to the possible adverse consequences to the manufacturer, British Hovercraft Corporation (BHC), and to its employees of any further restrictions. *183 The particular hovercraft contracts that DTI were anxious to preserve were contracts for supply to Iran. These contracts faced, therefore, the familiar political difficulty presented by United States opposition. At the IDC meeting held on 18 December 1984, the MOD, while recommending the amendment of the OGEL so as to exclude Iran and Iraq, raised no objection on operational grounds to the supply of a limited number of hovercraft to Iran. But it seems to have been agreed at the meeting that it would be very difficult to specify the number of hovercraft that would cross the “significant enhancement” threshold. The FCO officials would not agree that any number of hovercraft could be allowed to go to Iran. Their reasons were political and presentational. It was agreed at the meeting that the OGEL would be amended and that the issue whether a limited number of hovercraft under 1000kg would be allowed to go to Iran would be put to Mr Luce. *184 Mr Collins put up a submission dated 7 January 1985 to Mr Luce. *185 The submission recommended that no hovercraft of any size should be supplied. The issue was discussed again at the IDC meeting on 9 January 1985. The FCO’s Summary Record records that “the Committee agreed that in the light of the MOD’s judgement that hovercraft could exacerbate the conflict, all licences should be refused, no matter what size the hovercraft.” 186

D2.127 However, in a Note dated 10 January 1985 to senior DTI officials from Mr Stanley (SBP), who had been one of the DTI representatives at the IDC meeting the previous day, Mr Stanley referred to the Committee decision that hovercraft licences should be refused and said that he had informed the Committee that, as a result, the manufacturer might have to close down and that the DTI “could not... agree to export licences being refused”. He suggested that DTI Ministers might be invited to enter the fray and added: “I guess that there would be a huge political row if this country lost its main hovercraft manufacturing facility.” At the IDC meeting of 8 February 1985 the DTI fears for the future of the manufacturing company were put to the IDC and Mr Beale (SBP2) “reserved the right to return to DTI Ministers on this question.” *187

D2.128 This issue illustrates a recurring feature in the application of the Guidelines. The “significant enhancement” view formed by the MOD was adverse to the grant of a licence. The hovercraft were “defence-related” but not lethal. The DTI, mindful of the economic consequences of a refusal on the manufacturer and of the employment consequences of a refusal for the company’s employees, was unwilling to accept that the licence should be refused and continued, notwithstanding the “significant enhancement” assessment, to press for the grant of the licence.

D2.129 On 13 February 1985 Mr Lavender submitted to the Minister (DP) a paper on the hovercraft issue. *188 The paper said that “The consensus between MOD and FCO officials has been that the military use of Hovercraft could be significant in the Gulf conflict and that they should not be supplied to either combatant or repaired in this country on their behalf...”

D2.130 An ELA for the export of hovercraft spares to Iran and Iraq was, accordingly, refused. The company, BHC, appealed, i.e. its ELA was re-submitted, on the ground that it had, in 1984, accepted a contractual obligation to provide the spares. *189 At the IDC meeting held on 27 June 1985, it was agreed that DTI and DESO representatives would look into the contractual position: “It was crucial to establish whether the provision of spares could be regarded as falling within existing contracts.” *190 The question was whether the case could be brought within guideline (ii).

D2.131 On 12 July 1985 Mr Spencer (RM2b of DESO) reported to Sec. (D.Sales) that BHC had indeed accepted orders for spares both for Iran and for Iraq. Mr Spencer recommended that “... in order to maintain the UK foot-hold in Iranian military business, we suggest that approval be given to the supply to Iran of the BH7 spares currently on order, with the qualification that such clearance does not guarantee the issue of further export licences and that the company should not enter into further contractual commitments of any sort without prior consultation with HMG.” *191

D2.132 At the MODWG meeting held on 9 August 1985 “it was agreed that BHC appeared to have a contractual obligation to supply spare parts for hovercraft already delivered and that there was no objection on military grounds to purely replacement spares being supplied.” *192 The MODWG recommendation was accepted by the IDC. At the IDC meeting held on 15 August 1985 “the Committee agreed it was important that long term contractual commitments should be honoured.” *193 FCO Ministers and MOD Ministers agreed that the ELAs for spares could be granted. It was emphasised however, that “the embargo on new hovercraft should remain in force.” *194

D2.133 In December 1985 BHC made a further ELA seeking approval for the refurbishment of two hovercraft for Iran. The application prayed in aid an existing contract *195 and in a letter dated 30 January 1986 to DSO, BHC stressed the importance the order would have for employment prospects in the Isle of Wight. *196

D2.134 The FCO was firmly opposed to the refurbishment application. Reference was made to the agreement between Mr Luce, Mr Channon and Mr Butler in November 1984 that the then current refurbishment work could be completed but that no further refurbishment work would be allowed. It was pointed out that the hovercraft could be of use to the Iranians in their offensive in the marsh areas of Iraq. *197 The MOD, however, had assessed the work as representing no more than an insignificant enhancement to Iranian capability and they and the DTI “considered that there were strong industrial arguments for allowing the work to go ahead.” *198 On 10 March 1986 Mr Clark wrote to Mr Renton seeking his agreement “on an exceptional basis” to the grant of a licence allowing the export of the refurbished hovercraft. *199 Mr Lamont, while agreeing that “a decision to go ahead would not break the guidelines in military terms...”, supported the FCO on the ground that the export “could damage our defence relations with the Gulf States.” *200 Mr Renton remained adamant in opposition to the ELA. *201

D2.135 The matter was discussed at the IDC meeting held on 18 March 1986. Agreement was not reached. It is interesting to notice that the FCO bolstered their case by referring to the Prime Minister’s remark to Mr Tariq Aziz on 4 December 1985: “Given that Ministers had agreed following the meeting between [Mr Tariq Aziz] and the Prime Minister that we should be very strict in our application of the guidelines...” *202 The FCO’s reliance on the Guidelines as justifying its opposition to the grant of the ELA does not stand much examination. The MOD’s assessment had been that the refurbished hovercraft would not “significantly enhance” Iran’s military capability. The case was not a “grey area” case. So there was no permissible interpretation of the Guidelines that would bar the grant of the ELA. The FCO opposed the ELA for political and presentational reasons that owed nothing to the Guidelines. *203 The insistence of many witnesses in their evidence to the Inquiry that the Guidelines were not exclusive of other policy reasons that might bear upon approval or refusal of ELAs was, as I have already said, well founded; but the tendency to treat the Guidelines “strictly interpreted” as justifying any and every refusal of an ELA was, in my opinion, as inappropriate as the tendency, evident at a later period, to treat the Guidelines “liberally interpreted” as justifying the grant of any ELA it was desired to approve. This essentially presentational use of the Guidelines is a recurring feature. The IDC meeting on 18 March 1986 provides an early example of it.

D2.136 On 19 June 1986 the three Ministers met to discuss, inter alia, the hovercraft issue. It was agreed that “it was probable that [the hovercrafts’] prime purpose was as logistic support for military operations” *204 and “Sir D Miers pointed out that he had given specific assurances to the Saudis that the hovercraft would not be refurbished in this country.” The impasse between the Ministers had the result that the ELA could not be granted. The only recourse left to the DTI was to refer the case to the Cabinet OD in the hope that FCO and MOD opposition might then be overruled. *205

D2.137 On 1 August 1986 Mr Beston (OT2/3) put up a submission on the issue to Mr Clark and the Secretary of State, Mr Paul Channon. He suggested that of the three cases discussed at the 19 June meeting, namely, small boats, helicopters and hovercraft, the DTI’s hovercraft case was the strongest. He noted that “the sole objection is based upon an assumption of a hostile reaction from the Saudis” but suggested that “... the problem of Saudi reaction... reduces itself to one of presentation rather than substance.” *206

D2.138 Based on Mr Beston’s submission, Mr Channon wrote to the Foreign Secretary, Lord Howe, a letter dated 8 August 1986 inviting the agreement of OD to the grant of an export licence to BHC to enable the refurbishment of the two hovercraft to be undertaken. The letter rehearsed the arguments to which I have referred and concluded with the expression of Mr Channon’s belief “that the industrial importance and commercial advantages of this order, given that it does not breach the Guidelines, argue strongly for allowing this business to go ahead.” *207

D2.139 The FCO response was, as before, that “The difficulty .... is mainly presentational”. It was so stated in a letter dated 21 August 1986 from Baroness Young (replying in Lord Howe’s absence). *208 Mr Channon’s letter had been copied to all OD members and, accordingly, had come to the attention of the Prime Minister. Her response, expressed in a letter dated 19 August 1986 from her Private Secretary, was that “... we must adhere rigidly to the normal guidelines in these matters”. The intention was, clearly enough, to rule against the grant of the ELA. The language was, however, somewhat ambiguous in that there was broad agreement that the dispatch to Iran of two refurbished hovercraft would not have “significantly enhanced” Iran’s military capability. Mr Channon, with some justification, described the reply as “of Delphic quality.” *209 Nonetheless, the reply from No.10 settled the issue. The ELA was to be refused.

Endnotes
*182 - see FCO/2.4.9 at paragraph 3(a)

*183 - see DTI/27.117 and DTI/39(A1).1710 and 1711

*184 - see FCO/2.4.1 at paragraph 4(iii)

*185 - see FCO/2.4.94 at paragraph 3(b)

*186 - see FCO/2.4.91 at paragraph 6

*187 - see FCO/2.4.81 see also the Summary Record of the IDC meeting of 15 March 1985: FCO/2.4.75 at paragraph 3

*188 - see MOD/8.1.102 at p. 106

*189 - see MOD/8.2.49

*190 - see MOD/8.2.195 at paragraph 6

*191 - see MOD/8.2.283

*192 - see MOD/8.2.319 at paragraph 2(d)

*193 - see MOD/8.2.333 at paragraph 12

*194 - see MOD/8.2.423 at paragraph 3(c)

*195 - see MOD/8.4.175

*196 - see MOD/9.1.183

*197 - see FCO/2.4.206

*198 - see MOD/9.2.1 at paragraph 2(b)

*199 - see DTI/36.920

*200 - see Mr Lamont’s letter dated 27 March 1986 to Mr Renton: DTI/36.932

*201 - see Mr Renton’s letter dated 16 April 1986 to Mr Clark DTI/36.943

* 202 - see FCO/2.4.197 at paragraph 4

*203 - see Mr Collins’ Note dated 20 March 1986: “The proposal would send the wrong signals to our Arab friends and might undo much of the goodwill created by Mr Renton’s visit to the Gulf”. FCO/2.4.195

*204 - see DTI/36.955 at paragraph 6, DTI/36.959 at p. 960 and FCO/13.1.53 at paragraph 5

*205 - FCO/2.4.192

*206 - see DTI/36.983 at paragraph 8

*207 see DTI/155.13338 at p. 13339

*208 - see DTI/36.1000

*209 - see the transcript of Mr Channon’s oral evidence Day 7, 19 May 1993, p.114

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