Volume One
Section D Arms and Defence-Related Exports to Iraq
Chapter 3 Defence Sales Policy after the Cease-Fire

Excerpt:
THE IRAQ NOTE

D3.152 It was against this background that Mr Nicholas Ridley, Secretary of State for Trade and Industry, sent the Prime Minister a Minute dated 21 June 1990 *228 calling for a thorough review of British policy towards exports to Iraq “which would take into account the policy and political arguments in favour of export controls, the commercial consequences for British industry and the financial risks for ECGD of continuing friction in our relations with Iraq.” The Minute advocated the “need to reconsider the rationale of the Guidelines for defence sales to Iraq (and Iran) in the light of evidence of moves on each side towards peace negotiations *229 and in the light of impending liberalisation of export controls with COCOM partners, and the trading practices of our competitors.” The Prime Minister responded by asking the Foreign Secretary, Mr Hurd, to chair an ad hoc meeting of Ministers on the subject of defence sales to Iraq and to report the outcome to her. *230 The meeting took place on 19 July 1990. To assist the meeting a paper on the issues to be discussed was prepared. Each of the interested Departments, the FCO, the MOD and the DTI, contributed to the paper (the Iraq Note). The contents of the Iraq Note and the discussions which led to its final form provide a number of interesting insights into the attitude of the respective Departments to the Guidelines and to Government policy on defence sales to Iraq.

D3.153 Mr Ridley’s Minute of 21 June 1990 to the Prime Minister was preceded, and prompted, by a submission of 20 June 1990 put up to him by Mr Petter (OT4/1). The submission said that Customs investigations into exports to Iraq were having a serious effect upon trade and that the position would be exacerbated by further inquiries that were to be made. Retaliation by Iraq “against ECGD” was feared. Mr Petter recommended the Secretary of State to seek the Prime Minister’s agreement to “an urgent review by OD of the continued justification for and the commercial and financial implications of current trade policy towards Iraq.” *231 The submission set out the argument in these terms:

“Argument

8. The potential implications of continuing C&E investigations into trade with Iraq are clearly extremely serious both for our export trade, but perhaps more immediately for ECGD. Whilst we would not question the need to enforce the Export of Goods Control Order the continued action against Iraq is, as the Iraqis would argue, beginning to look very much like a campaign. In a number of areas, machine tools in particular, it is also perhaps questionable whether we should continue to exercise export controls particularly when for example the latter product is shortly to be released from COCOM controls, and are in any case freely available to Iraq from our competitors who generally take a more pragmatic view on their trade with that country. Our failure to renew licences previously issued of machine tools to Iraq would certainly be seen by the Iraqis as confirming their suspicion of a UK campaign to disrupt non defence sales. 10. There is a need to look urgently at the wider implications of present policy and to balance the legal and moral implications behind it with recognition of the commercial and financial issues. The Iraqi Government reject our denials of interference with civil trade and of prompting other countries to do the same. They remain to be convinced by our actions rather than words that we mean what we say in wanting to resume normal bilateral trade links. Several Departments are concerned and an urgent interdepartmental review under Cabinet Office auspices would be the best solution.”

Mr Ridley’s Minute to the Prime Minister followed the terms of a draft Mr Petter had provided.

D3.154 The preparation of the Note to be placed before the ad hoc Ministers’ meeting was co- ordinated by Mr Reeves, Cabinet Office. It was arranged that particular departments would be responsible for the preparation, after consultation with other departments, of specific parts of the Note. The FCO, for example, was detailed to draft, after consultation with the MOD, a section to be entitled “Policy on military exports”. *232A meeting at the Cabinet Office on 11 July 1990, chaired by Mr Appleyard and attended by representatives of all the interested departments, discussed the draft Note. It was stressed by Mr Appleyard that the aim of the Note “was not to make firm recommendations but to present the arguments and options in a dispassionate and balanced fashion.” Mention was made of a paper “which would very shortly be issued by the [JIC] on Iraq’s military procurement programme, the preparation of which was most timely.” Members of the Cabinet Office’s Assessments staff gave the 11 July meeting a summary of the intended contents of the JIC paper, which would aim “to provide an indication of the scale and complexity of Iraqi military procurement activity, to which great effort and ingenuity were devoted. It would touch on President Sad[d]am Hussein’s three-pronged policy of seeking a high state of military preparedness; the development of strategic weapons; and economic reconstruction. Industrial development was largely driven by military considerations.” *233 It was agreed at the 11 July meeting that the drafting of the Note would be finalised at a meeting to be convened the following day and that the Note would be submitted to Ministers under a covering Minute to be prepared by the Chairman.

D3.155 The Iraq Note was dated, and distributed to Ministers on, 13 July 1990. 234 It has a number of paragraphs of relevance and importance to this Inquiry. It is convenient to refer to them in turn: 234 FCO/62.11.2351

(i) Paragraph 3: “Civil Exports”

“3. Iraq is an important export market for the UK, though she continues to experience severe payment difficulties. UK visible exports to Iraq totalled £450m in value in 1989. Invisible exports were also important. The trade balance has been consistently in the UK’s favour in recent years. Since the ceasefire in the Gulf War in August 1988 Iraq has announced ambitious plans for industrial expansion and investment in which British industry would be well placed to participate. Further details are at Appendix 2.”

“Appendix 2

UK visible exports to Iraq were £450 million in 1989. Invisibles, particularly consultancy, were also important. Iraq was our 3rd largest Arab market in 1989 and 28th worldwide. The UK was Iraq’s 4th largest supplier providing 12 per cent of Iraqi imports from OECD in 1989. UK exports to and imports from Iraq have fluctuated in recent years but the trade balance has remained positive. In 1989 the UK surplus on visible trade was £350 million. Principal UK exports were general industrial machinery and equipment, power generating and metal working machinery, electrical machinery, apparatus and appliances, and medical and pharmaceutical products.”

(ii) Paragraph 4: “Military Exports”

“4. Government policy on the export of military equipment to Iraq and Iran over the last decade has been shaped by the Gulf conflict, which began in September 1980. In the early years of the war the Government refused the sale of lethal equipment to both sides. Formal guidelines on the sale of arms were announced to Parliament by Sir Geoffrey Howe, then Foreign Secretary, on 29 October 1985; these are reproduced at Appendix 3. Despite the 1988 ceasefire the guidelines have remained in force. The Government’s position has been that it would be unwise to alter the guidelines until there has been significant progress towards a final peace settlement. However, in December 1988 there was interdepartmental agreement to interpret the guidelines more flexibly, particularly with regard to Iraq.More recently, in view of worsening relations with Iraq the interpretation of the guidelines has become more even-handed.”

It is this paragraph of the Iraq Note that was particularly relied on by a number of witnesses as evidence that the 1985 guidelines had remained in force and not been changed. Appendix 3 to the Note consisted of a copy of the Hansard record of Lord Howe’s reply of 29 October 1985 to Mr Steel’s PQ. The paragraph does not, in my opinion, come close to providing an accurate summary of what the junior Ministers had agreed between December and May 1989. It does not mention the agreement between them that revised guideline (iii) would be applied to Iraq. They did not come to a general agreement to interpret the guidelines more flexibly. They came to a specific agreement that, in the case of Iraq, the “flexible interpretation” would consist of the application of revised guideline (iii) and that, in the case of Iran, the “flexible interpretation” would consist of the refusal of virtually all defence related equipment. The uninformed reader of this paragraph of the Iraq Note would not have known that guideline (iii) had been, with the concurrence of the junior Ministers, re-written and applied in its re-written form to applications for licences for defence related exports to Iraq from, at latest, April 1989. They would not have understood that the statement “Despite the 1988 cease-fire the guidelines have remained in force” was not true of guideline (iii) except in the highly artificial sense that the revised guideline (iii) could be regarded as merely a flexible interpretation of the original guideline (iii).

(iii) Paragraphs 6 and 7: “Iraq’s arms procurement programme”.

“6. Iraq’s position as a major military power in the Middle East has been confirmed and reinforced by the Gulf War, and she is plainly determined to extend the range of her military capabilities. Her nuclear weapons programme could lead to an operational capability in the second half of the 1990s. She already has an advanced chemical warfare (CW) capability, as demonstrated during the Gulf War, and is fast progressing towards a biological warfare (BW) capability. In the conventional field, the long-range gun project is only the most striking of a range of enhancements she is seeking. She aims to be self-sufficient by obtaining transfers of technology in order to set up factories, initially to assemble defence equipment, and later to manufacture it. The Hawk aircraft already mentioned are one example of this; another is communications equipment. Iraq is also involved in a wide variety of missile and space development projects. Currently most of these are based on imported missile systems, notably the Soviet Scud B. She is however moving quickly to establish her own missile development and production capability. She has also participated in the CONDOR programme, well publicised, and has a project for a 3-stage ballistic missile. Behind these strategic programmes lies a wealth of tactical weapons activity, including armoured vehicles and heavy artillery.

7. Iraq’s policy is to supplement the resources of her indigenous defence industries, and achieve the technology transfer she seeks, through imports from the developed world, East as well as West, if necessary by clandestine means. To this end she has developed an extensive arms procurement network in Europe and North America, which includes directly owned companies. Within the UK, the Iraqi-owned Technology Development Group (TDG) of Chiswick owns the machine tools manufacture Matrix Churchill; was involved in the abortive attempt last year to obtain Government assistance for the former Lear Fan factory in Northern Ireland; and earlier this year emerged as a potential backer for a management buy-out of the Armadale Steel Works in Edinburgh. Specific Iraqi import transactions identified in recent months, successful or attempted, include components for the long-range gun; the capacitors intercepted at Heathrow in March, which were probably intended as components for a triggering device for a nuclear weapon; transputers with a missile application; and fuzes for artillery shells. In the last two cases, both of which involved British companies, the ostensible destination was Jordan. It appears that Iraq systematically uses Jordan as a cover for her procurement activities, almost certainly with the connivance of senior figures in the Jordanian administration.”

The last sentence of paragraph 7 of the Note was entirely consistent with the contents of a number of intelligence reports and assessments.

(iv) Paragraph 8

“8. All the specific products mentioned in the previous paragraph are subject to strategic export controls under the Export of Goods (Control) Order. Ministers have allowed the supply of some Matrix-Churchill machine tools, for ad hoc reasons of an intelligence nature. If a licence to export any of the other products to Iraq had been applied for, and assuming they had been correctly described, DTI would have refused it.”

A draft of the Note had not been provided in advance to the intelligence agencies but, after distribution of the Note to Ministers and after the meeting on 19 July had already taken place, a copy was sent by Mr Ball, of the Cabinet Office, to Mr T2, a senior officer in SIS. He responded by a letter dated 24 July in which he took exception to the statement that “Ministers have allowed the supply of some Matrix-Churchill machine tools for ad hoc reasons of an intelligence nature”. Mr T2 said this:

“As I read it, the implication of this is that ’intelligence’ considerations influenced Ministers to allow exports of machine tools from Matrix-Churchill, and without such considerations, no such exports would have been permitted. Assuming that the ’intelligence’ connection refers to our own interest in the firm’s activities, I think it worth placing on record that our understanding of the situation is somewhat different. At an early stage of our coverage of Iraqi procurement activities in the UK, we did indeed express some reservations about a proposal to take action against Matrix- Churchill in the context of its exports of machine tools to Iraq, on the grounds that it might compromise our operational interest in the matter. However, we later withdrew our reservations, and made it clear to those concerned in other Departments that provided due regard (as in all such cases) was paid to safeguarding the security of any information we had provided, we had no objection to Departments taking whatever actions they might think fit on any applications for export licences by Matrix- Churchill. These discussions took place some 18 months to 2 years ago.” *235

In a letter to Mr T2 dated 10 August 1990, Mr Ball said that MOD and DTI had been content with the formulation in paragraph 8 of the Note and that in view of the Iraqi invasion of Kuwait “our inclination is to allow the paper to stand, whilst noting you[r] helpful gloss, if only because it seems fairly unlikely that Ministers will be looking to relax their approach to exports to Iraq in the forseeable future!” Mr Ball added that he “would not propose to re-open discussion on this point with DTI and MOD unless machine tools again became a ‘live’ issue.” Mr Ball’s pragmatic approach to the inaccuracy in paragraph 8 of the Note seems to me entirely reasonable. By 10 August there were other things to think about. But the correspondence between Mr T2 and Mr Ball is interesting for two reasons. It is interesting, first, because the inaccuracy pointed out by Mr T2 follows a fairly long line of inaccuracies regarding intelligence which found their way into submissions to Ministers regarding the export to Iraq of machine tools. Secondly, Mr T2’s immediate correction of the inaccuracy is in stark contrast with the failure of SIS officers to correct comparable inaccuracies in FCO submissions to Ministers. *236

(v) Paragraphs 10 and 11: “The boundary between civil and military exports.”

“10. The 1985 guidelines ban the supply of ‘lethal defence equipment’ and equipment which would ‘significantly enhance the capability of either side to prolong or exacerbate the (Gulf) conflict’. This poses problems of definition involving judgments that are to some extent subjective. Problem areas include industrial goods which can be used in the production or maintenance of military equipment. These in turn include not only finished goods (e.g. machine tools which can be used to manufacture civil or military products) but also spares. In themselves spares may be quite innocuous (e.g. tyres), but the 1985 guidelines have consistently been interpreted as requiring refusal of components for spares for lethal equipment, such as tank and ship spares and parts for fighter aircraft.

11. Goods which are not military, but are used to produce, repair, test or monitor military equipment, include machine tools, super-computers and transputers and high speed cameras. Unless the export of such goods is prohibited on nuclear non- proliferation, missile technology control or CW grounds, the general rule is that licence applications are granted for both Iraq and Iran unless there is any suspicion pointing towards a military end use. If there is such a suspicion, assurances on civil end use are sought; the validity of these has to be assessed, and complete certainty is usually lacking...”

The first sentence of paragraph 10 reproduced the original guideline (iii). This had not, since at latest April 1989, been the guideline applied to defence exports to Iraq.

Paragraph 11 of the Note was, in my opinion, if compared with actual practice when ELAs were under consideration, misleading in more than one respect. The first sentence was unexceptionable. The statement regarding the prohibition of goods on nuclear non- proliferation, missile technology control or CW grounds was fair and accurate. However, the statement that as a general rule ELAs were “granted for both Iraq and Iran unless there is any suspicion pointing towards a military end use” carried the clear and untrue implication that “any suspicion” of a “military end use” would normally result in the refusal of the ELA. This may have been true of ELAs for Iran but was certainly not true where Iraq ELAs were concerned. *237 If “any” suspicion of military end use would have sufficed to justify a refusal, the difficulties regarding licences for the export of the Matrix Churchill machine tools would never have arisen. In respect of each tranche of machine- tool ELAs there was, on any showing, suspicion of intended military end-use. As to the statement that ”if there is such a suspicion, assurances on civil end-use are sought,“ the statement bears no relation to actual practice. In regard to the machine-tool ELAs, the only explicit assurances that were sought were, first, the request for further information about proposed use which led to Matrix Churchill’s letter of 27 April 1989 to the DTI in which it was said that the machine tools would be used in “one of the first civilian projects for which [Cardoen] have contracted since the cease-fire”, second, the request for further information about Project 1728 *238, third the assurance which Lord Trefgarne sought from Mr Henderson at their meeting on 26 September 1989, *239 and, fourth, the assurance which Mr Steadman sought on 19 July 1990, at his meeting with Mr Merriman of Matrix Churchill. *240 There was a large number of machine tool ELAs between 1988 and 1990 in which the “Precise purpose for which the goods are to be used” question was answered in general, imprecise terms with no attempt by the DTI to clarify the intended use or to seek any assurances. The statement in paragraph 11 of the Note about “assurances on civil end use” was, if applied to the machine tool ELAs over the period since the cease-fire, an inaccurate representation of DTI practice. *241 The first draft of paragraph 11 seems to have been provided by Mr Coolican, Mr Beston’s successor as head of OT2/3 at the DTI. *242 In his evidence to the Inquiry Mr Coolican explained that he “believed that the description of the procedures was accurate, but since [he] was not involved in detailed licence casework during the period, [he] could not base this on direct personal knowledge.” He said that he “understood the assurances on civil end use would most normally take the form of an end user certificate.” *243 It was, plainly, Mr Coolican’s unfamiliarity with export licensing procedures that led him to confuse end use with end user. End user certificates, giving assurances against re-export (a familiar COCOM guard against technology transfer), were common. They provided no assurance as to the use, civil or military, to which the user would put the goods, nor were they intended to do so. It would have been better had the passage dealing with licensing procedures been prepared, or at least checked, by an official with personal experience of the procedures.

(vi) Paragraphs 13, 14 and 15 These paragraphs described the export control policy to Iran and Iraq applied by Britain’s main Western competitors. Nearly all of them banned exports of goods covered by the NNPT or by the MTCR. But several Western countries had either no, or weak, restrictions on other military exports to Iraq. In relation to exports of dual-use goods several Western countries had no formal restrictions at all. Paragraph 15 drew attention to the fact that “... it is clear from published details of contracts for military equipment awarded by Iraq that, despite credit constraints, our major competitors, particularly France, have continued to win substantial contracts”, and that “The value of Iraq’s defence orders forgone by the UK through application of the 1985 Guidelines cannot be assessed precisely, but is clearly substantial.”

(vii) Paragraphs 16, 17 and 18: “Iraq reaction to UK actions”. These paragraphs described the consequences to British trade with Iraq of Iraqi reaction to the British response to the execution of Mr Bazoft and to the action taken by the authorities over the Supergun incident and the Euromac capacitors. Details were given of a number of substantial contracts with Iraq which, it was believed, British companies had lost as a result of the deterioration in relations between Britain and Iraq. An estimate of £170 million of lost business was given. The ECGD exposure was described as follows:

“18. ECGD’s exposure in Iraq is about £1 billion, and payments currently overdue are approximately £120m on short and medium-term credits. £19m has been repaid within the last month. The Iraqi Ministry of Trade have confirmed their continuing desire to avail themselves of the credit lines from Britain. The present high level of arrears is probably due to a mixture of factors: the financial strains arising from lower oil revenues and Iraq’s mounting debt burden, together with a virtual cessation of payments for several weeks during the current period of political coolness. However, Britain is still in a much better position than most other western creditors with whom Iraq has already rescheduled bilaterally.”

(viii) Paragraphs 19 and 20 of the Note referred to the current outstanding ELAs for Iraq, including the Matrix-Churchill ELAs, and to the “apparently false end user information... given to DTI several times by Matrix-Churchill in respect of two licences issued for machine tools in March 1989.” I shall leave until a later section of the Report an analysis of the “false information” referred to. *244

(ix) Paragraph 21, “Policy on control of exports to Iraq - options for the future”, identified, “on the assumption that an internationally agreed set of rules restricting exports to Iraq and Iran [was] not a practical possibility..., three basic options”. The assumption was a realistic one but the mention of it shows, in my opinion, a well justified lack of enthusiasm for unilateral export restrictions. The “basic options” were (a) to maintain the guidelines “perhaps reformulated to reflect the ceasefire” (b) to replace the guidelines “with more limited and clearly-defined controls” and (c) to abandon the guidelines “and apply no special controls to Iraq or Iran”. The paragraph then continued: “Whichever option is chosen we will continue to have international obligations under the MTCR and the NPT and in respect of CW and BW. We would also continue to deny exports which might result in increased risk to the ARMILLA patrol, and would deny exports of classified equipment.”

(x) Paragraph 22 dealt with the consequences of adopting options 2 or 3.

“It would be necessary to treat Iraq and Iran equally whichever option were chosen. The present guidelines have been applied to both sides. A public relaxation of the guidelines for Iraq but not Iran would have adverse consequences for our relations with Iran, would make the restoration of diplomatic relations more difficult and would threaten the prospects for the release of the hostages. There might also be repercussions on our civil trade with Iran (£290 million in 1989). Conversely, a tilt in favour of Iran would pose similar dangers for our relationship with Iraq; and the possible effects on the two British detainees, Mr Ian Richter and Mrs Daphne Parish, have to be considered. It follows that a loosening of restrictions in favour of both countries under Option 2 or Option 3 would be a helpful factor in the negotiations with Iran over the pre-revolution contracts which have just resumed. The release to Iran of currently embargoed items, or the prospect of future supply, could improve the outlook for a negotiated agreement, the alternative to which may be a potentially very expensive arbitration settlement.”

(xi) Paragraph 23 set out the pros and cons of Option 1. The “main arguments” in favour of maintaining the guidelines were as follows:

“despite the ceasefire, our guidelines remain relevant because of the lack of progress towards a formal peace settlement.

they are broadly in line with those applied by the majority of our Western partners.

our increasing concern for the stability of the region particularly following recent Iraqi belligerence.

the nature of the Iraqi regime has not changed.”

Those against were

“- after two years of ceasefire the Gulf war is an increasingly irrelevant basis of policy (Reformulation to reflect the ceasefire would therefore be desirable even if the guidelines themselves remained unchanged.)

-the guidelines are vague and difficult to interpret -they are ineffective because they do not prevent Iraq from meeting her needs from elsewhere, particularly as regards industrial goods.

-they deny UK companies specific export opportunities and risk destroying the existing flow of civil orders.”

Paragraph 24 contained the comment that:

“It would be possible under Option 1 to interpret the guidelines more liberally as was done between December 1988 and the execution of Mr Bazoft. The practical effect of doing so would be marginal and the difficulty of assessing licence applications would be increased.”

(xii) Paragraph 25 expanded upon Option 2.

"This option would involve a continued ban on the export of lethal equipment, with the difference that henceforward this term would be clearly and publicly defined. A number of alternative definitions are possible, depending on how restrictive or otherwise Ministers wished to be. The ban could apply to:

a. weapons designed to kill, e.g. rifles, artillery, naval guns or aircraft cannon;

b. as for a. plus weapon platforms, e.g. armoured vehicles, vessels or aircraft;

c. as for b. plus equipment ancillary to the platforms, e.g. sonars or communications equipment;

d. as for c. plus spares for any of the above.

All equipment which did not fall within the chosen definition of lethal equipment would be exportable to Iraq and Iran; this would include machine tools.”

If (a), (b), (c) and (d), as described in paragraph 25, were all included in the lethal equipment ban, it is difficult to identify, save in respect of machine tools, *245 much difference between Option 2 and the Guidelines as currently, or at least pre-Bazoft, applied to Iraq. Option 1, applied as suggested in paragraph 24, and Option 2, applied as suggested in paragraph 25 would, in my opinion, have been indistinguishable.

Paragraph 27 set out the pros and cons of Option 3. The arguments in favour of abandonment of the Guidelines were, in summary, the commercial advantages to British trade and the futility of unilateral restrictions. This point was made also in paragraph 29 which referred to the imminent COCOM changes under which a number of licensable machine tools would be released from COCOM control. The changes would need to be reflected in amendments to the EG(C)O 1989 but, as it was put in paragraph 29, “If Iraq and Iraq were to be excluded, the exclusions would have to be spelt out in the Order.” and “We would then need to explain to Parliament why such goods should be denied to those countries even though they will henceforth be obtainable in Eastern Europe and thus readily capable of diversion.” The arguments against abandonment included diplomatic (opposition from the USA, Israel and certain other countries) and domestic (“there would be strong criticism from public opinion at home.”) considerations. *246 The basis on which critical public opinion would, presumably, have been expected, namely, the repulsive nature of the Iraqi regime, was not mentioned but would, no doubt, have been obvious to readers of the Note.

(xiv) Paragraph 30: “Publicity”.

“If Option 2 or 3 were chosen it would be necessary to inform Parliament that the 1985 guidelines had been superseded. The change could be linked to the cease-fire in the Gulf War. The statement to Parliament could refer to the general principles informing the Government’s approach to arms sales, for example that sales should not be made to regimes which might use them against us, or for internal repression.”

The acceptance that if option 2 or Option 3 were chosen Parliament would have to be informed, contrasts with the decision of the junior Ministers in April 1989 that no public announcement would be made of the new approach to exports to Iraq that had been decided upon. *247 Mr Waldegrave distinguished the 1989 decision from the publicity contemplated by paragraph 30 by saying that “the flexibility under the existing guidelines (which produced ‘a marginal effect’ even for Iraq in the flexible period) was light years away in significance from the change of policy represented by Options 2 and 3.” *248 I accept the distinction so far as Option 3 is concerned and, in relation to Iran, Option 2. It does not, however, seem to me a tenable distinction if Option 2 with its (a), (b), (c) and (d) adjuncts is compared to the position agreed upon for Iraq in April 1989.

D3.156 The JIC paper which, with the Iraq Note, was to be placed before Ministers for the purposes of the 19 July 1990 meeting was dated 12 July 1990. The paper was concerned with “the progress Iraq has made in developing what it considers to be ‘strategic’ weapons systems, i.e. ballistic missiles, ‘superguns’, chemical and biological, and - we believe - nuclear weapons.” and with “the ways in which [Iraq] has been acquiring industrial capacity, components and technology for the various systems” (paragraph 1). The paper was not concerned with and did not deal with the acquisition by Iraq of conventional weapons and defence equipment or of an indigenous system for production of conventional weapons. The paper contained a number of references to Iraq’s industrial development but placed this development firmly in its military context, e.g. “Industrial development has been - and still is - largely driven by military imperitives” (paragraph 3). This priority had been identified by a number of intelligence reports. *249 The paper concluded that Iraq was “determined to develop a full range of weapons to fulfill its strategic requirements” and commented “We see no sign that its programmes are seriously constrained by lack of funds; rather, we judge that if necessary, there would be cuts in the resources allocated for civil reconstruction” (paragraph 40). And, finally, the conclusion was expressed that “... even if Western governments try hard to restrict Iraqi procurement, they will, at best, only be able to slow down the development of the main strategic weapons projects” (paragraph 45).

D3.157 A draft of the JIC paper had been the subject of discussion at a meeting of the Current Intelligence Group (CIG) on 9 July. The meeting had been attended by representatives from a number of Departments and agencies, including the DTI, the FCO, SIS, and DIS. A note of the meeting was provided to Admiral Sir John Kerr (the then CDI) by one of the DIS representatives. *250. Paragraph 5 of the note records as follows:

“There was lengthy discussion on the details of the paper but no major contested issues. However a point of dispute emerged concerning the statement that numerically controlled machine tools exported from Matrix Churchill were probably for military purposes. The DTI representative did not want this statement to be included in the paper because his department’s decision to allow the export was based on the MOD advice that they were not necessarily for military purposes. However the statement in the paper is based on intelligence not available at the time of export.”

In the event, paragraph 22 of the JIC paper referred to Matrix Churchill having become “a major supplier to Iraq, probably for military purposes.”

D3.158 The DTI objection, if correctly recorded, was misplaced for more than one reason. First, the MOD had never given the advice in question. Mr J of DIS had consistently been objecting to the grant of licences on the ground of probable use of the machine tools for military production. The DIS objections had, however, not always been conveyed by DESS to the Minister (DP). A more fundamental criticism of the DTI objection, however, is that it misrepresented DTI’s attitude to the machine-tool ELAs. In a letter dated 5 October 1989 to Mr Waldegrave, Lord Trefgarne had said, inter alia, that “Even if the lathes had been intended for the manufacture of munitions... there was no longer sufficient reason under the Guidelines to prevent export.” *251 Lord Trefgarne explained in his written evidence of 18 March 1994 that “[his] view about the weakness of the case for prohibiting exports of general purpose industrial equipment for fear that it might be put to military use was based on the fact that the ceasefire had been in place for 13 to 14 months and [he] believed it was more likely that the exports would be used for civil purposes. Further, the letter [of 5 October 1989] was being written in the context of Matrix Churchill ELAs and [he] had received assurances from Mr Henderson that the Matrix Churchill goods would be for civil use.” *252

D3.159 The Ministerial meeting on 19 July 1990 was chaired by the Foreign Secretary, Mr Hurd, and attended by Mr Lilley (Secretary of State for Trade and Industry), Mr Clark (Minister (DP)), Mr Waldegrave (Minister of State, FCO), Lord Trefgarne (Minister for Trade) and Mr Ryder (Economic Secretary, Treasury). A briefing for Mr Waldegrave dated 13 July was prepared by Mr Hope (MED). *253 The recommended FCO line was to press for the “present guidelines to remain in place until there is substantial and lasting progress towards a final peace settlement in the Gulf conflict, and until there are real changes in Iranian and Iraqi policies.”, but to “change the emphasis of our present guidelines on arms sales to reflect more clearly our concerns for stability in the region as a whole rather than Iran and Iraq alone”. In the event that some relaxation was thought desirable, the FCO “should endeavour to keep the guidelines as restrictive as possible”. As part of the “Background” Mr Hope described the agreement between the junior Ministers in 1988/89 in this way:

“Following the ceasefire, a more liberal interpretation of existing guidelines was agreed by Ministers in December 1988. In practice, this meant more flexibility over sales to Iraq. Recent difficulties with Iraq have led to a tightening of our restrictions and the balance between the two countries is again more even.”

The briefing commented on the options set out in the Iraq Note. It is interesting to notice that Mr Hope said that Option 2, coupled with the adjuncts (a), (b), (c) and (d), “In effect,... hardly differs from the present guidelines.” I agree. I have already remarked upon Mr Waldegrave’s opinion that “the flexibility under the existing guidelines... was light years away in significance from the change of policy represented by Options 2 and 3.” Mr Hope’s perception of Option 2 was more accurate. Mr Hope did, however, add: “However, it would permit the sale of some equipment, notably less sophisticated machine tools, which we are presently trying to prevent Iraq acquiring where evidence exists that it would be put to a military use.”

D3.160 In paragraph 9, Mr Hope’s briefing set out “powerful arguments for the maintenance either of our present guidelines on Iran and Iraq or of a modified regime which continues to limit strictly the granting of export licences.” The arguments included:

“i) the nature of the Iraqi regime has not changed. It is repressive and belligerent. It has an aggressive policy of arms procurement, and development of its own missile and nuclear weapon capabilities....”

“ii) ...no substantive progress towards a [Iran/Iraq] settlement has been made...”

“iii) A change would contradict our expressed concern on arms proliferation and would require us to abandon criteria we have used and repeatedly confirmed since 1984.”

“iv) A more liberal UK regime on arms sales to Iran and Iraq would be out of step with most of our Western partners. Similar restrictions to our own are in force in the United States, Japan, Italy, West Germany and the Netherlands. The only major exception is France.”

“v) Iran and Iraq continue to have human rights records among the worst in the world.... Arbitrary arrests, suppression of political dissent, torture and summary execution are all regular occurrences. Iraq’s treatment of its Kurdish minority is unenviable....”

“vi) ....The moderate Arab nations, particularly Saudi Arabia and the other Gulf states, would be unhappy to see the military capability of Iraq or Iran enhanced. A significant change in our arms sales to Iran would provoke public disquiet, and to Iraq private dismay, among our Middle East friends.”

“vii) It would prove difficult to justify a shift in position on Iran and Iraq while maintaining strict guidelines on other countries ...”

“viii) The Iraqis would interpret any liberalisation now as proof that their pressure and threats over the last few months have been effective ...”

“ix) A change in policy, which would have to be announced, would provoke hostile public comment, for the reasons set out above, and because of the UK’s considerable efforts to persuade Partners to cooperate in preventing military equipment from reaching Iraq. A change in the UK’s arms sales policy would send a strange signal to the countries to which we have expressed our continued concern on this matter ...”

These were, as Mr Hope described them, powerful arguments. There is no reason to doubt that they had underlain FCO thinking in the discussions about the Guidelines that had taken place since the cease-fire. Mr Hope set out, also, the “arguments in favour of a liberalisation...” These were (i) the irrelevance of the Guidelines two years after the cease-fire, (ii) the vagueness of the Guidelines, the difficulty of interpreting them and the cumbersome nature of the licensing machinery, (iii) the obstacles the guidelines presented to British exporters and (iv) the encouragement to civil trade that would be produced by a relaxation of restrictions on defence sales. These were, broadly, the DTI and MOD arguments.

D3.161 Mr Gore-Booth strongly supported Mr Hope’s recommendation (although querying the practicability of looking for “real changes in Iranian and Iraqi policies”). *254 Mr Hope had, in paragraph 12 of the briefing, emphasised the need to treat Iran and Iraq equally. He said:

“The need to treat Iran and Iraq equally over the sale of defence equipment reinforces the need for caution. A public relaxation of the guidelines for Iraq but not Iran would have adverse consequences for our relations with Iran, would make the restoration of diplomatic relations more difficult and would threaten the prospects for the release of the hostages. There might also be repercussions on our civil trade with Iran... A tilt in favour of Iran would pose similar dangers for our relationship with Iraq. We have also to consider the possible effects of such measures on the British detainees, Mr Richter and Mrs Parish.”

Mr Gore-Booth agreed, making the comment that “quite unaccountably the DTI/MoD are keen on arms sales to Iraq: we should have to allow the same latitude to apply to Iran - which would immediately increase the threat to Armilla.”

D3.162 A speaking brief for the Minister (DP), dated, 17 July, was provided by Mr McDonald, Head of DESS. *255 In the brief the “MOD Preferred Option” was “No special export controls on either Iraq or Iran”. In support of this option, the brief made the points that “The guidelines are penalising our exports over a wide range of equipments. (1989 export licences refused for Iran to the value of £70m and for Iraq £20m - not counting prospects of sale of Hawk to Iraq or other prospects debarred from coming forward because of the guidelines)” and that “The guidelines are unilateral. No hope of multilateral agreement. Our competitors are ‘cashing in’”. The brief argued, therefore, for Option 3 of those set out in the Iraq Note. It did, however, make clear that “Without the guidelines we would still have normal controls and would make case by case decisions on export licence applications as we do for any other country i.e. on grounds of, for instance, concern related to MTCR, NNPT, CW, security classification, national security (Armilla Patrol), human rights and repression.” The MOD “Second Preferred Option” was, not surprisingly, Option 2. The brief warned that under Option 2 “it will be very important to define what is meant by ‘lethal equipment’” and argued that weapon platforms, ancillary equipment and spares were “potentially fruitful areas for valuable exports - Hawk to Iraq.” Presumably Hawk was regarded as non-lethal but as a “weapon platform”. It is apparent from the briefing that so far as DESO and DESS were concerned the possibility of reviving the Hawk project was still a live one. *256 The briefing advised the Minister, if Option 2 were favoured, to “Press for all three categories [i.e. weapon platforms, ancillary equipment and spares] to be excluded from lethal definition on grounds our competitors are willing to supply if we don’t.”

D3.163 Mr Petter submitted a brief, agreed with Mr Meadway, for use by Mr Lilley at the 19 July meeting. *257 The brief set out the DTI objectives, expressed as follows:

“To revert to the normal system of control which is:

- clear to UK exporters and buyers in Iran/Iraq,

- allows UK exporters to compete on level terms with EC and other suppliers,

- reassures Iraq that the UK is not obstructing civil trade,

- protects UK security,

- avoids qualification to COCOM changes,

- avoids delay in processing licence applications due to the vagueness and difficulty of interpretation of current guidelines,

- eliminates the bureaucracy of the special inter-departmental Committee on exports to Iran and Iraq.”

The brief expressed the same preference for Option 3, or, as second best, Option 2 as had been expressed in Mr McDonald’s MOD brief. This is a revealing comment on Mr Petter’s view on the scope of the restrictions as currently applied.

D3.164 The discussions at the 19 July 1990 meeting were summed up by the Foreign Secretary as follows:

“THE FOREIGN AND COMMONWEALTH SECRETARY, summing up the discussion, said that the 1985 guidelines on the export of defence equipment to Iraq and Iran had served their purpose, and now needed to be revised in the light of changed circumstances. There was general acceptance that the two countries must continue to be treated equally. Some Ministers would have preferred to abandon the guidelines altogether (Option 3), but this was not a general view. It was therefore agreed that the course to be recommended to the Prime Minister should be the replacement of the present guidelines by more limited and clearly-defined controls (Option 2), involving a continued ban on the export of lethal equipment. The ban should apply to weapons designed to kill, but not to weapon platforms, equipment ancillary to weapon platforms, or any spares. Applications for export licences for equipment no longer banned should be considered on their merits on a case-by-case basis; this should apply, for example, to weapon platforms including aircraft. Decisions on export licences should continue to pay full regard to the United Kingdom’s international obligations in respect of NPT, MTCR, CW and BW. There should be no special constraints on the export of machine tools and other industrial goods to Iraq and Iran, other than those stemming from the recently revised COCOM controls. For reasons connected with our bilateral relations with Iran the change of policy should be deferred for several weeks. It would need to be announced to Parliament, and the aim should be to do so by Written Answer during the Parliamentary spillover. The Foreign and Commonwealth Office (FCO) should be consulted about the precise timing. The new guidelines should be presented publicly in the context of the Government’s concern for regional stability in the Middle East. The Written Answer should make clear that the Government’s determination to prevent the export to Iraq and Iran of such items as nuclear capacitors and components for long-range guns remained undiminished.” *258

The meeting also discussed the public presentation of any change of policy:

“(e) Any change in policy would need to be announced to Parliament. Timing would be important. For separate reasons it would be inopportune to make any substantive concessions to Iran for the moment. This argued for deferring any relaxation of policy for several weeks, perhaps until the Parliamentary spillover. Public presentation of any new policy should be expressed in general language; the need for continued controls could appropriately be linked to the Government’s concern for regional stability in the Middle East. However, officials would need clear and precise policy guidance which could readily be applied to cases.”

D3.165 The result of the 19 July 1990 meeting was reported to the Prime Minister, Mrs Thatcher. A letter dated 26 July from her Private Secretary, Sir Charles Powell said that she “found the Foreign Secretary’s presentation convincing”. *259 It was agreed, therefore, that the Guidelines would be relaxed as proposed in Option 2 and, in particular, that machine-tools which had been released from control by recent COCOM amendments should not be subjected to unilateral restrictions under the Guidelines. *260 But tensions arising out of Iraqi military manoeuvres on the border with Kuwait postponed the bringing into effect of the relaxation. *261 The invasion of Kuwait by Iraq and the consequent imposition of United Nations sanctions made the Guidelines, for Iraq at least, an irrelevance. The changes that had been agreed upon were never brought into effect. In 1991 a revision of the Guidelines was agreed for Iran.

Endnotes
*228 - see CO/32.PM/3.34 at 37

*229 - It should be noted that the August 1988 cease-fire had not been accompanied by any peace negotiations between the combatants and had been regarded, in the UK at least, as being, for that reason, not necessarily permanent

*230 - see Sir Charles Powell’s letter of 22 June 1990 to Mr Ridley’s Private Secretary: CO/32.PM/3.38

*231 - DTI/41.2275

*232 - DTI/41.2296

*233 - FCO/62.11.2309

*235 - CO/288.34

*236 - In June 1989, the Habobi submission: paragraph D5.13 et seq; in February 1989, on Machine Tools: paragraphs D6.94 and D6.96 infra; and in November 1989, also on Machine Tools: paragraph D6.150 infra

*237 - see the correspondence between Ministers in May and June 1990: paragraphs D6.249 to D6.254 infra.

*238 - see paragraphs D6.108 and D6.109

*239 - Paragraph D6.132 infra

*240 - DTI/47.1.3008; DTI/102.3.7517 at 7522

*241 - Mr Coolican has pointed out that the Sensitive Destinations Unit established at the end of May 1990 adopted the practice of sending out a pro-forma ‘End User Statement’ to applicants for export licences. The statement required details of specific intended use as well as assurances against re-export. 242 DTI/41.2310 243 Written statement dated 21 January 1994, paragraph A3.1(d)

*244 - see paragraphs G3.16 to G3.17 infra

*245 - In his written submissions dated 28 June 1995, page 87, Mr Waldegrave also referred to communications equipment unrelated to a weapons platform and bridging equipment (xiii)

*246 - The other arguments against abandonment were (a) the Iraqis’ behaviour in failing to make progress towards a peace settlement and in their illegal arms procurement activities, and (b) that abandonment would “contradict past British efforts to reduce tension in the region”.

*247 - see paragraph D3.84 supra

*248 - Written statement dated 8 September 1993, paragraph A.10.6(e)

*249 - see paragraph D5.25 infra

*250 - A copy of the note was supplied to the Inquiry by Admiral Sir John Kerr as an Annex to his written statement submitted on 16 December 1993.

*251 - DTI/44.2.2728 at 2729

*252 - paragraph 86 of Lord Trefgarne’s written evidence to the Inquiry dated 18 March 1994

*253 - FCO/62.11.2332

*254 - FCO/62.11.2347

*255 - MOD/42.2.243

*256 - The Hawk project had been rejected by the Cabinet in July 1989: see paragraphs D6.1 to D6.28 infra

*257 - DTI/41.2407

*258 - DTI/41.2423

*259 - DTI/41.2419

*260 - see the Foreign Secretary’s Note of 1 August 1990 to the Secretary of State for Trade and Industry; DTI/41.2454

*261 - The Foreign Secretary advised that no action should be taken for a few weeks, but the relaxation of restrictions on machine tools came into effect immediately

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