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 Two
Section D Arms and Defence-Related Exports to Iraq
Chapter 6 Specific Export License Applications after the Cease-fire

Excerpt:
(VII) MACHINE TOOLS - ELAS - 1990

(VII) MACHINE TOOLS: ELAS - 1990

D6.221 In the period December 1989 to June 1990 a number of ELAs relating to the export of machine tools to Iraq were submitted by Matrix Churchill and by Bridgeport Machine Tools Ltd. There were four Matrix Churchill ELAs, namely 3G/19890/89, 3G/50380/89, 3G/22269/90 and 3G/22270/90, and four from Bridgeport, namely, 3G/10039/90, 3G/10040/90, 3G/10041/90 and 3G/10042/90.

D6.222 Matrix Churchill’s ELA 19890 was dated 10 November 1989. *415 It related to five “Hardinge Model CHNC1 High Speed Precision CNC Bar and Chucking Lathe[s]”. The Consignee was stated to be “State Electrical Industries Est” whose business was “Manufacture of Electric Motors, Fans, Water Pump[s]”. The “Precise purpose for which the goods are to be used” was stated to be “Manufacture of parts for Electric Motors, Fans and Water Pumps”. This relatively specific statement of “Precise purpose” contrasts with the much more general statements of “Precise purpose” contained in the other Matrix Churchill Iraq ELAs. The proposed date of shipment was “April/May 1990”. Copies of the ELA were sent to FCO Defence Department (whence it would have gone to FCO/MED), FCO/SEND and MOD/DESS2a. A letter dated 1 December 1989 from Mr Martin Lamport indicated that SEND had no objection to the ELA.

D6.223 Matrix Churchill’s ELA 50380 was dated 28 November 1989. *416 The company reference for the export was given as “Hot Die Forge-K1000”. The consignee was Nassr whose business was stated to be “Engineering”. The “Precise purpose” was stated to be “Production of Forging Dies”. The equipment comprised in the ELA was described as “E850 x 1850 Trident Centre Lathe C/W Standard equipment plus 2 years Spares”. The proposed shipment date was “March/April 1990”. Copies of the ELA went to FCO/Defence Department, FCO/SEND and MOD/DESS. By letter dated 18 January 1990, Mr Martin Lamport indicated that FCO/SEND had no objection to the ELA. The ELA was accompanied by a Certificate dated 4 November 1989 signed on behalf of Nassr declaring that the equipment “Is intended for consumption in plant for production of forging dies” and that “...we shall not make re-export to third countries without approval...” A manuscript note made by a DTI/ELB official on the ELA asked for comment “on the bizarre [undertaking] which relates to the product of the equip rather than to the equip itself”. The next manuscript note said, simply, “Mr Steadman has seen this application.”

D6.224 Matrix Churchill ELAs 22269 and 22270 were both dated 22 March 1990. *417 Both carried the reference “Hot Die Forge”. The Consignee in each case was Nassr whose business was described as “General Metal Working”. The “Precise purpose” given in both ELAs was “for use in general engineering”. ELA 22269 related to a “Churchill 7/45 Series Chucking Lathe... with Fanuc 10TA”. ELA 22270 related to a “Danobat surface grinding machine”. The proposed date of shipment was, in each case, October 1990. In May 1990 Matrix Churchill provided the DTI with a Certificate dated 2 May 1990 signed on behalf of Nassr certifying that “the goods... are for our own use to bona fide customers in Iraq and will not be re-exported or sold for export”.

D6.225 The four Bridgeport ELAs, 10039 to 10042, were all dated 20 December 1989. *418 They related to 20 Vertical Machining Centres and associated equipment. The Consignee was named as Nassr whose address was given as “CTRP/CNC Project, Al Taji, Baghdad”. The Consignee’s business was described as “General Metal Working”; the “Precise purpose for which the goods are to be used” was answered “To be assembled for re-sale”. ELA 10039 related to a complete machine. ELAs 10040, 10041 and 10042 related to 19 machines to be exported in kit form and re-assembled in Iraq.

D6.226 The Bridgeport ELAs had been preceded by a letter dated 4 October 1989 from the company to the DTI seeking “approval in principle to the issue of export licences for the supply of Interact 720 machines in kit form to the Nassr establishment in Iraq under a possible manufacture under licence arrangement”. Details of the proposed contract between Bridgeport and Nassr were, on 11 October, sent by Mr Harper, DTI/ELU, to the FCO/Defence Department and to MOD/DESS. The accompanying letters said that Bridgeport wished to conclude the contract at the forthcoming Trade Fair and were “anxious for a reply well in advance of 5 November 1989.” *419

D6.227 The 11 October letter to MOD/DESS (addressed to Mr Head, DESS2b, but dealt with initially by Mr Devlin) prompted an internal DESS correspondence conducted by means of manuscript notes on a copy of the 11 October letter. *420 I have for convenience, numbered the notes in chronological sequence, thus:

(1) Mr Barrett to Mr Devlin on 17 October:

“Do we know which Iraqi end-user please?”

(2) Mr Devlin to Mr Barrett on 17 October:

“Yes. Nassr Establishment for Mechanical Industries.”

(3) Mr Devlin to Mr Barrett on 17 October:

“You may wish to be aware of this. The only way to respond to this within the company’s deadline would be to consider it out of committee. It is likely to be caught under P(AM) however. Any thoughts”

(4) Mr Barrett on 26 October:

“NB. Spoke Harper and said this application could not be considered until Minister had decided (on 1 November probably) what to do about Matrix Churchill lathes to Nassr. He will speak to Tony Steadman who could perhaps get Lord T to raise it at the meeting on 1 November.”

(5) Mr Barrett (who was due to take leave from 2 to 15 November) to Mr Devlin on 30 October:

“Please note No 4 above and put to Mr Hextall to await outcome on 1 November. If Ministers agree that the Churchill Matrix lathes go ahead - so should these.”

(6) Mr Devlin to Mr Hextall on 7 November:

“Awaiting outcome of Churchill Matrix meeting.”

(7) Mr Hextall to Mr Devlin on 8 November:

“Discussed briefly at MODWG on 8/11. Agreed to circ. in view of T2” [i.e Technology Transfer].

(8) “Circulate”.

D6.228 In accordance with but, oddly, some weeks after the order to “circulate”, Mr Devlin sent a note to each of the MODWG members. The note, dated 29 November 1989, said that a “pre-export enquiry” had been received from Bridgeport “who wish to enter into a transfer of technology agreement whereby Interact 720 machines will be supplied to Iraq....” and that “the company are seeking provisional approval of these exports in advance of entering into any contracts.” *421 The application was considered by the MODWG at its meeting on 6 December 1989 and was marked ‘RAM’, i.e refusal on the ground of use for arms manufacture. *422

D6.229 The MOD/DESS notes referred to above *423 are complemented by notes on DTI files. Thus:

(i) On 26 October, no response having been received from the MOD or the FCO, Mr Steadman sent a note to Mr Harper: “Please chase them. We need it taken outside of the IDC circuit of course.” *424 Bridgeport’s deadline of 5 November could not have been met if a decision had had to await the next MODWG and IDC meetings.

(ii) Also on 26 October Mr Harper made a note for Mr Steadman of his (Mr Harper’s) telephone conversation with Mr Barrett. This note reads:

“This is being dealt with by Mr Barrett personally. It has been linked with the Matrix Churchill case as the consignee is the same. Allan wishes to discuss tactics with you on how to proceed - either briefing Lord Trefgarne to include this case with the Matrix Churchill case on 1.11.89 or to await the decision on the Matrix Churchill and proceed accordingly.” *425

Mr Barrett, who naturally has no actual recollection of the conversations recorded in the various notes, does not agree that the matter had been earmarked to be dealt with by him personally. He has pointed out that, in view of his impending leave on 2 November, Mr Hextall became involved. *426

(iii) On 1 November Mr Harper made a note for Mr Steadman in which he said:

“In my conversation with Allan Barrett of MOD I understood that MOD regard these machines as just as sensitive as lathes as they could be used for the production of arms and munitions.” *427

(iv) On 30 October Mr Steadman made a note of telephone conversations with Mr Barrett and Mr Simmons:

“I pointed out that if the Matrix Churchill licences are agreed then other applications from other UK manufacturers would also be approved e.g Bridgeport Machine Tools. Both agreed that this would be the case and would be briefing their Ministers accordingly.” *428

(v) The final DTI note was made by Mr Steadman on 3 November following a request from Bridgeport to know the result of their application for “approval in principle” to export machine tools to Nassr. Mr Steadman’s note records:

“I spoke to Allan Barrett (MOD) and Tim Simmons (FCO). They agreed that since the Ministerial meeting approved the principle of supplying machines to Iraq and Nassr at Wednesday’s meeting we could go ahead and agree the Bridgeport proposed exports.” *429

D6.230 The accuracy of the note of 3 November seems, however, to be open to question. Mr Simmons has commented as follows:

“I do not remember what Mr Steadman might have said to me on 30 October or 3 November, nor what I said in reply. But I cannot believe that his records of these conversations reflected accurately their content. The Ministerial decision on the Matrix Churchill cases for Nassr would be a factor for the IDC in considering what to recommend on a similar application. The DTI habitually argued for consistent treatment of comparable applications. But the Matrix Churchill decision would not have allowed any department to circumvent export licence procedures or the IDC. For one thing, we would have no way of knowing until the MODWG had studied a detailed application whether it was comparable to earlier cases.” *430

Mr Barrett, for his part, has pointed out that he was away on leave from 2 to 15 November. He does not agree that Mr Steadman had, or could have had, any conversation with him either on 2 or 3 November. He has stressed that, in any event, he would not have agreed to the “approval-in- principle” being given without first consulting the MODWG, the IDC and the Minister (DP). *431

D6.231 Whatever the provenance of or justification for his note of 3 November, *432 Mr Steadman wrote to Bridgeport on the same day, 3 November, as follows:

“I am pleased to tell you that it would be possible to issue licences for these machines in accordance with your proposals.

I must point out, however, that this approval is given without prejudice to consideration of any full application for a licence which would be considered on its merits in the light of the circumstances prevailing at the time the application is made.”*433

D6.232 If the approval in principle had already been agreed to by Mr Barrett, as suggested by Mr Steadman’s note of 3 November, Mr Devlin’s note of 29 November 1989 to the MODWG members, inviting them to consider whether the application for approval in principle should be granted, would be puzzling. Mr Devlin’s note and its terms are, however, consistent with the conclusion that it was not known within DESS that the approval in principle had been granted. That conclusion is supported also by the terms of the MOD notes (6) and (7). In any event, the MODWG’s consideration of Bridgeport’s “pre export enquiry” ought not to have been pre- empted. Their view of it, “RAM”, was made clear at their 6 December meeting. The Bridgeport application was not, according to the notes of the 1 November ministerial meeting, mentioned at that meeting and did not receive any sanction, expressly at least, from any Minister. The use to which the machine tools, when assembled, might be put was wholly at large. No assurance of civil production use had been sought or given.

D6.233 The four Bridgeport ELAs were accompanied by a certificate signed on behalf of Nassr certifying that the machining centres would not be re-exported to a number of specified countries, including North America and most Western European countries, but not including any Warsaw Pact countries. *434 This certificate was, for obvious COCOM reasons, not satisfactory and the company was so informed. A revised certificate was provided which certified that the 20 machines “will not be re-exported”. The prompt attention to the certificate designed to ensure that no undesirable re-exporting took place is in revealing contrast to the lack of attention paid to the use to which the machines would be put in Iraq. The ELAs themselves had answered the “Precise purpose” question by stating that the machines would be “assembled for re-sale”. The second of the certificates from Nassr made it clear the machines would be staying in Iraq. No question to ascertain the use to which they would or might be put in Iraq was asked. As Mr Barrett has percipiently pointed out, *435 it is surprising that the ELAs were not accompanied by any reference to the “approval-in-principle” conveyed by Mr Steadman’s letter of 3 November.

D6.234 The IDC, however, was certainly interested in the possible use to which Iraqi purchases of machine tools might be put. The Summary Record of the IDC meeting on 13 December 1989 records the following discussion of Iraqi Arms Manufacture:

“IRAQI ARMS MANUFACTURE

2. The MOD Working Group have recommended that a number of items be refused on the grounds that they might contribute to indigenous arms manufacture in Iraq (represented on the list by the symbol R(AM)). They have made these recommendations without awaiting the conclusion of the survey being conducted on other channels within the MOD because they argue that if the survey concludes that a number of items of equipment will contribute to such arms manufacture and are refused after several months on the pending list, the companies affected might legitimately complain that they had been kept waiting unnecessarily. On the other hand, if the DIS survey gives the Iraqis a clean bill of health the companies can always be told that they may apply again. The items on the list which fall into this category are as follows:

(i) (Page A-4) 3G/19122/89 - Iraq: ....spectrometer system (MOD Working Group Recommendation: REFUSED)

The MOD experts were not of the opinion that this was any more sensitive than, for example, the Matrix Churchill lathes agreed by Ministers at their meeting on 1 November. But, as they had with the lathes, they would be recommending to their Minister that they be refused on the grounds that they might contribute to Iraqi arms manufacture.

(ii) (Page C-5) 3G/18931/89 and 3G/27203/89 - Iraq: ......., x-ray micro-analysis system and x-ray fluorescence system and associated software (MOD Working Group Recommendation: REFUSED)

The MOD experts at the Working Group had conceded that there were no Sensitive Nuclear Explosives Technology, Missile Technology Control Regime or Non-Proliferation Treaty objections to this equipment and, now that the Soviet Union were known to process similar technology, neither were there diversion considerations. Nevertheless, they believed that the items should be refused on arms manufacture grounds.

(iii) (Page C-5) 3G/31162/89 - Iraq: ..., scientific equipment (MOD Working Group Recommendation: REFUSED)

The MOD explained that the equipment in question was an arms research laboratory to be supplied to Iraq under contract to a German firm. (This seems on the face of it to be the most controversial of all these items.)

3. The MOD will be submitting to their Ministers on the R(AM) items separately from the other IDC applications. MED will also prepare a separate submission for Ministers which takes in both these items and the question of the survey being conducted on other channels. MED made the point at the meeting that the launch of the Iraqi space vehicle, and the fact that this demonstrated a far more sophisticated capability in Iraq than we had imagined, would certainly incline us to be very wary about Iraqi procurement activities. The MOD (DGS) agreed that this was a factor which was also of considerable concern to them.” *436

The same approach was adopted by the IDC at its meeting on 22 January 1990. *437

D6.235 Matrix Churchill’s ELAs 19890 and 50380 were considered by the MODWG at its meeting on 10 January 1990. Both were marked “RAM”. *438 At the IDC meeting on 22 January MOD/DESO representatives queried the MODWG’s approach to these ELAs. The Summary Record of the meeting records as follows:

“At IDC, MOD(DESO) asked why the MOD Working Group continued to recommend REFUSAL on such items as the Matrix Churchill lathes when Ministers had agreed similar equipment in the past. The MOD(DGS) said that they had no alternative but to mark up for Ministers their concerns about the equipment. The FCO said that it was also relevant that our view of Iraq’s capabilities had changed over recent months in view of, for example, their space launch. DESO asked whether the guidelines should not be changed to reflect these new factors. FCO replied (with the support of DESS) that the guidelines had been framed specifically in the context of the Gulf Conflict, but that it was IDC’s job to take into account all factors when considering export licence applications. DESS pointed out that the IDC was the only forum in which such considerations which went beyond the guidelines could be applied to export licence applications.” *439

D6.236 It is of interest to notice, also, that at the 22 January 1990 IDC meeting, Mr Barrett informed the meeting that “the survey on Iraq’s arms manufacture/capability, the pursuance of which Mr Waldegrave made a condition of supplying the last batch of Matrix Churchill’s lathes, was not the comprehensive survey which they had been led to believe....” “It may therefore not”, he said, “be of great help in establishing whether we should supply items considered sensitive in the context of possible indigenous Iraqi arms manufacture.” *440

D6.237 The Bridgeport ELAs had been circulated to the FCO and MOD on 10 January 1990 and had not been considered by the MODWG at its 10 January meeting. Mr Steadman approved a suggestion, made by a junior ELU official, that “special arrangements” might be made for the ELAs to be placed before the IDC at its 22 January meeting. *441 But an internal DTI Note on the 22 January meeting made by Mr Gall recorded as follows:

“The four cases for Bridgeport Machine Tools, 3G/10039-10042/89 which have been approved in principle for Iraq must go through the IDC Procedure. The argument that these machines may be re-exported to E. Bloc countries from Iraq and should therefore be considered as exports to those countries was not accepted by MOD and FCO as a reason for taking them out of the IDC procedure since some machines could be retained in Iraq. FCO argued that following the recent launch of a missile on test by Iraq the situation has changed and MTCR considerations were now much more significant in the assessment of licence applications and FCO Ministers were less inclined to approve any exports which might be for armaments manufacture even though similar equipment had been approved in the past. The argument applied equally to the Matrix Churchill applications... DTI take the view that this matter must now be taken up in a Ministerial Tripartite Meeting. ELU undertook to prepare the Ministerial briefing on machine tools.” *442

D6.238 On 2 March 1990, Bridgeport’s temporary licence ELA 11176, was issued. *443 On 12 March 1990 Mr Malcolm Taylor, managing director of Bridgeport Machine Tools Ltd, wrote to Lord Trefgarne pointing out that his company had “obtained agreement in principle from the DTI, that export licences would be available.” *444 It may be noted that that letter made no reference to the temporary licence application. Mr Taylor was complaining about delay in the permanent licence ELAs.

D6.239 The IDC did not, at its 19 March meeting produce a firm recommendation on the Matrix Churchill and Bridgeport ELAs *445 and, on 28 March, Mr Steadman put up a submission to Lord Trefgarne regarding the ELAs and, in particular, regarding Mr Taylor’s letter of 12 March. *446 Mr Steadman may have felt under some pressure since it had been he who in November the previous year had represented to Bridgeport that licences for the export of their machine tools to Iraq would be granted. He (Mr Steadman) had on the previous day, 27 March, issued the temporary licence under Bridgeport’s ELA 11176. The 28 March submission advised a “holding reply” to Mr Taylor’s letter and that “an early FCO and MOD response on the outstanding licence applications” should be sought. A number of points arising from the contents of the submission are worth attention.

(i) Mr Steadman informed the Minister that “A separate but urgent temporary export licence has been issued to Bridgeport without FCO clearance to enable a machine to be shipped today in time for an exhibition by Nassr Industries... without prejudice to the outcome of the application for the permanent export of knock down kits”. The Minister would not have understood from this that one of the outstanding ELAs for permanent licences related to the self-same machine.

(ii) The submission went on to say that “The Bridgeport applications were the subject of an approval in principle following on the November Ministerial meeting at which the then pending Matrix Churchill applications were approved.”

(iii) The submission informed the Minister that “The MOD Working Group has recommended approval of the Bridgeport applications... on the grounds that they are not strategically sensitive. Milling machines unlike lathes are not controlled for nuclear explosives technology purposes. However, all of the applications are to be referred by the IDC to FCO and MOD Ministers because machine tools are dual use goods which could possibly be used for arms manufacture”. In fact, although the MODWG had, at its meeting on 7 March, marked the Bridgeport ELAs ‘A(I)’, the lists attached to the Summary Record of the 19 March IDC meeting appear to show that the assessment had been corrected to ‘R(AM)’. *447 Mr Steadman, however, was not aware of the correction. He had not been present at the 19 March IDC meeting and Mr Gall had noted on the licensing file for ELA 11176 that “...this application ...with the other Bridgeport cases... will be classified A(I). But refer to Ministers for approval”. The note was dated 20 March 1990. *448

(iv) The submission referred to the “more rigorous scrutiny” being adopted by FCO officials (consequent upon Mr Bazoft’s execution) and, while accepting that the “FCO’s cautious approach to the licensing of sensitive goods which could possibly be used for arms manufacture is understandable”, argued that this approach should not be applied to the machine tool ELAs since “very careful appraisal and approval” had been given by Ministers in November to Matrix Churchill’s machine tool ELAs. The submission said “There has not been to our knowledge, a significant change in circumstances since that time, or evidence that the machine tools now for export are for arms manufacture or some other sensitive purposes”. But, as recently as 16 March, Customs had reported to the REU that there was evidence that Matrix Churchill’s machine tools were being used in Iraq for purposes “different from those stated on licences”. The clear implication was that the use was a munitions or other military related manufacturing use. Mr Steadman had received a copy of the minutes but, he told the Inquiry: “I very much doubt whether I had read them by the time I drafted this submission.” Mr Steadman did not bring to the Minister’s attention the contents of the intelligence Report of 13 October 1989 and the identification of Matrix Churchill as the “UK firm” referred to in the Report. He had, he said, “concluded (albeit mistakenly) that these machine tools were being supplied from overseas”. Moreover, at the meeting of the WGIP on 10 November 1989 several UK companies, including Matrix Churchill, were referred to by SIS as being involved in the Iraqi ‘Babylon’ project, the development of a long range artillery weapon. The suggestion that Matrix Churchill was associated with the Babylon project was erroneous but the error was not discovered until later in 1990. Mr Steadman had, however, not been present at the 10 November 1989 WGIP meeting and did not receive a copy of the minutes. Lord Trefgarne had no comment to make on the question whether his attention ought to have been drawn to the Report of 13 October 1989 or the REU meeting of 16 March 1990. *449 In his written evidence he explained that “Given what Mr Steadman had said, the position in relation to this batch of ELAs appeared to be no different from those approved in early November 1989.” *450

D6.240 On the following day, 29 March 1990, Mr Steadman put up a supplementary submission to Lord Trefgarne. *451 This had been prompted by the discovery at Heathrow of a consignment of items believed to be nuclear trigger devices in the process of export to Iraq. The exporter was Euromac Ltd. The submission said:

“The timing of events is unfortunate since presentation would need sensitive handling, if the machine tool exports were made public, but no more so than at the time of the November approvals when media coverage of Matrix Churchill’s involvement in the procurement network was at its height.

We need to hold the line that CNC general engineering machine tools are not in the same category as high technology components, the production of which, needs ... more sophisticated technical know-how than machining capability which is widely available.”

This supplementary submission is another indication of Mr Steadman’s and the DTI’s approach to the export of standard machine tools. The recommendation that the “line” be held, i.e. the export be permitted, was made without reference to or any apparent interest in the possibility, probability or near certainty (as the case might be) that the machines would be used for the manufacture of conventional munitions.

D6.241 Mr Steadman’s submissions led to a letter dated 30 March from Lord Trefgarne to Mr Waldegrave. *452 The letter was copied to Mr Clark. The letter referred to “four applications for Bridgeport Machines Ltd for the export to Iraq of 19 milling machine tools and accessories in kit form *453 for assembly and re-sale in Iraq by Nassr...” and to “two earlier applications from Matrix Churchill Ltd for similar consideration (ref 3G19890/89 and 3G50580/89).” The letter argued that the applications should be granted. It put the case thus:

“There is of course a need to continue to examine critically applications for the export of controlled goods to Iraq. However, in the case of these goods we made a decision last November, after careful deliberation under the guidelines, to approve the applications then outstanding. This was in the knowledge that Iraq was seeking to acquire technology for CW and for ballistic missile operations (which by that time was publicly known) and that, although the machines could be used for arms manufacture, the ceasefire had held for nearly 18 months and in consequence, it was considered unreasonable to refuse the export of goods generally used for peaceful purposes. There is no evidence to suggest that the current exports are for anything other than for general engineering. In December, of course, Iraq was reported to have launched a ballistic missile. This was only to be expected at some time given the earlier very public knowledge of its involvement in the Condor missile development programme, but I cannot regard this development as a reason to change our policy now in relation to the current applications. Neither do I think Wednesday’s discovery of illegal exports of nuclear trigger devices alters the case for approval. *454 Iraq’s nuclear ambitions have been known for some time. CNC general engineering machine tools are not in the same category as high technology components, the production of which, needs, as Wednesday’s example demonstrates, more sophisticated technical know-how than machining capability which is widely available from many sources.

The applications for Bridgeport Machines Ltd (which are the formal applications, arising from an approval in principle following upon our November meeting), are for the supply of milling machines which are controlled for COCOM reasons, but not for missile or nuclear explosives technology purposes. MOD technical adviser’s recommend to the IDC that the applications be approved on the grounds that they are not strategically significant.

The Matrix Churchill applications covering five lathes for The State Electrical Establishment and one to Nassr are subject to control for nuclear explosives technology purposes, as they have been hitherto. However, these applications have already been considered from that viewpoint and recommend[ed] for approval by SEND/FCO.

Having carefully examined our policy in relation to machine tool exports to Iraq last November in the context of the similar applications then on the table which we approved, it would not be right to reverse our previous position without additional and very strong reasons for doing so. In addition, Iraq is committed to rebuilding its economy involving the development of its manufacturing base resulting in a strong demand for machine tools for civil purposes. It would be wrong to close this significant market to our machine tool manufacturers who are facing strong European competition in Iraq and elsewhere.”

D6.242 The points that arise from this letter are similar to those that arose from Mr Steadman’s 28 March submission. It may be noted that the letter did not refer to the temporary licence, ELA 11176. Lord Trefgarne had been told that that had already been dealt with by Mr Steadman. However, the statement that there was “no evidence to suggest that the current exports are for anything other than for general engineering”, apart from the familiar unwarranted assumption that “general engineering” meant engineering for exclusively civil purposes, was not, in my opinion, accurate. *455 There was a considerable volume of evidence about Nassr’s munitions making activities, and about the ‘Central Tool Room Project’ (CTRP). Some of the intelligence and, in particular, the intelligence relating to the CTRP had not been copied to the DTI but the DTI had received copies of the Intelligence Reports of 7 July 1989, 13 October 1989, and 6 October 1989. *456 On 16 March, Customs & Excise reported to the REU that there was evidence that Matrix Churchill machine tools were, by implication, being used to manufacture munitions or other military related items. In his written evidence to the Inquiry, Lord Trefgarne pointed out that “at the time I wrote my letter to Mr Waldegrave, which was based on the information contained in the submissions of Mr Steadman of 28 and 29 March, I had no intelligence information which would lead me to believe that the current ELAs were for anything other than general engineering”. *457 He added “If, as I believed, they were for general engineering purposes, they would be within the guidelines and could be approved accordingly.” That Lord Trefgarne had no intelligence information which invalidated the “no evidence” sentence in his letter. was no doubt true, so far as Lord Trefgarne personally was concerned. But, equally, Lord Trefgarne had not been supplied with any evidence that the machine tools destined for Nassr were intended for civil manufacturing use. However, I accept that Lord Trefgarne nevertheless held the belief that the machine tools were for general engineering purposes.

D6.243 On 3 April 1990 a meeting took place between DTI, MOD and FCO officials. The original purpose of the meeting, convened at Mr Waldegrave’s request, *458 was to discuss exports to Iran of spares for civil helicopters. “Spare parts for aircraft which the MOD believe are being used as in-flight refuelling tankers” was also on the agenda and, in addition, the opportunity was taken to discuss the outstanding machine tool ELAs and ELAs relating to Remotely-Piloted Vehicles (RPVs). The meeting was attended by Mr Stephen Lamport and Mr Sherrington of the FCO. Mr Barrett was one of the MOD representatives. Mr Gallaher was one of the DTI representatives. Mr Steadman was not present. The FCO Summary Record of the meeting records that: “The MOD raised the question of machine tools for Iraq, pointing out that there were no direct CW, nuclear or military grounds for refusing these applications.” *459 The FCO said “there were strong political arguments in favour of refusal if there was any possibility of dual use of such equipment.” *460 The issue of the machine tools was not resolved at the meeting.

D6.244 Lord Trefgarne’s letter of 30 March had, more or less, followed the line in favour of allowing the export of the machine tools that had been urged by Mr Steadman in his submissions of 28 and 29 March. The Secretary of State for Trade & Industry, Mr Nicholas Ridley, was, however, dubious. A note from his Private Secretary to Lord Trefgarne’s Private Secretary referred to Mr Steadman’s 29 March submission and said that “in view of the recent ‘nuclear triggers’ events, [the Secretary of State] has some doubts about the wisdom of allowing these machine tools to be exported. When FCO’s response [i.e. to the letter of 30 March] comes in you may therefore wish to consult the Secretary of State before reaching a final view”. *461

D6.245 At the IDC meeting on 19 April 1990 it was agreed that the Bridgeport ELAs and the two outstanding Matrix Churchill ELAs would await the result of departmental submissions to Ministers. The Summary Record reads: “MED will submit separately to Ministers on the five Bridgeport export licence applications for machine tools (together with two outstanding licence applications from Matrix Churchill) as the equipment could be used in indigenous arms manufacture.” *462 The reference to ‘five’ Bridgeport ELAs and the continued inclusion of ELA 11176 on the MODWG and IDC lists *463 show that FCO and MOD were still unaware that the decision on 11176 had already been taken by Mr Steadman. It may also be noted that the MODWG was continuing to mark the Bridgeport ELAs ‘R(AM)’.

D6.246 A further Matrix Churchill application came on the table at the end of April 1990. On 16 February 1989 Matrix Churchill had been granted an export licence under ELA 53234. The licence related to Machining Centres and Lathes. Nassr was the Consignee. The machines formed part of the “ABA Project”. *464 The licence had expired on 15 February 1990. By letter to the DTI dated 25 April 1990 *465 Matrix Churchill sought an extension of the licence. Apparently some of the machining centres had not yet been exported. ELA 53234 was the ELA specifically referred to by Lieut-Colonel Glazebrook in his 14 July 1989 paper as “one consignment, to the NASSR ESTABLISHMENT ...., of lathes and other machinery sufficient to equip a factory designed to produce 500,000 X 155mm shells per annum.” *466

D6.247 In ELA 53234 “ABA Project” had been given as the consignor’s reference. *467 On 27 October 1989 Mr Henderson had handed to Mr T a bundle of blueprints of a projectile and had told Mr T that Matrix Churchill had been asked by Nassr to provide machines to manufacture components of the projectile. The drawings were marked ‘ABA’. *468 In early March 1990 Mr Henderson had informed Mr T that “Project ABA” related to the production of long range artillery rockets. Mr T had incorporated the information into a report copied to various SIS desks including that of Mr C3. *469 None of this information reached the DTI, the MOD or the FCO. The revalidation application was dealt with by the officials in these departments in ignorance of this intelligence that had been supplied by Mr Henderson. Mr T explained that he had not been aware that Project ABA and the drawings related to machine tools in respect of which Matrix Churchill were seeking revalidation of an export licence. *470 Responsibility for deciding whether copies of Mr T’s report should be distributed to the licensing departments rested with Mr C3. In my opinion, Mr C3 should have realized the possible implications of Mr T’s report for export licensing purposes and to have arranged for distribution of copies of the report accordingly. If he had done so, it is to be hoped that someone would have noticed the reference to ABA on the ELA form and have made the appropriate connection.

D6.248 Lord Trefgarne’s letter of 30 March 1990 did not receive a written response from Mr Waldegrave until 30 May 1990. It did, however, produce an earlier response from Mr Clark, the Minister (DP). Mr Hextall (DESS2a) (in Mr Barrett’s absence on leave) put up a submission dated 28 April to the Minister together with a suggested reply to Lord Trefgarne. The submission and the draft letter were seen and amended by Mr McDonald before they went forward. The draft reply had been supplied to Mr Hextall by Mr Barrett before he (Mr Barrett) went on leave. The submission *471 described the nature of the ELAs but, inaccurately, attributed both of the Matrix Churchill ELAs to the supply of lathes to the Iraqi State Electrical Industries Establishment. In fact, the consignee under one of the Matrix Churchill ELAs was Nassr. The submission was accompanied by an annex in which the ELAs were listed and in which the correct details of the consignees were given, so the error in the body of the submission was unlikely to have misled anyone. In paragraph 5, the submission accurately summarised the MODWG view:

“The MOD Working Group has no security or technology transfer objections to the supply of these machine tools to Iraq. In accordance with the Ministerial guidelines, however, it has no alternative but to maintain its consistent recommendation against supply to those Iraqi destinations known to be munitions factories. The NASSR establishment is known to be making arms or components and whilst there is no intelligence to suggest that the State Electrical Industries Establishment is so engaged, there remains the possibility of diversion to NASSR”.

The submission then referred to the decisions taken in January 1988, February 1989 and November 1989 to permit the export to Iraq of machine tools and continued:

“Against this background it would, as Lord Trefgarne argues, be inconsistent not to approve these ELAs. However, Lord Trefgarne’s letter was written before the Iraqi Gun episode became public. Sensitivities in this area are now very much higher. Matrix Churchill is the subject of a number of current PQ’s in relation to past export licences. I believe that Lord Trefgarne will wish to reconsider his position in relation to these two batches of ELAs....”

D6.249 Mr Clark’s letter to Lord Trefgarne, not entirely following Mr Hextall’s draft, was dated 3 May 1990. *472 It said (substantially following in this respect the terms of the draft):

“There are no MOD security or technology transfer grounds for refusing these applications and we agreed in November to approve other similar Matrix Churchill machine tool applications. Although one of the consignees is known to be making arms or components, there is only circumstantial evidence that UK general-purpose machine tools are being used in arms manufacture.”

In truth, the evidence that UK general purpose machine tools were being used in arms manufacture in Iraq was overwhelming. Report after report from the intelligence agencies had made this clear. The second sentence that I have cited from Mr Clark’s letter reflected Mr Hextall’s knowledge of the intelligence background. *473 He did not attend or receive Minutes of meetings of the REU or the WGIP. He did not have the necessary security clearance to see Intelligence Reports. Mr Beston and Mr Steadman, however, should not have been misled by the sentence in the letter. They were better placed to know the true position than Mr Hextall and as well placed as Mr McDonald and Mr Barrett. Both Mr Beston and Mr Steadman attended REU meetings. Both had been on the distribution list of the important intelligence Reports such as that of 13 October 1989. The letter went on to say that “in the light of other developments since your letter *474, however, you may wish to give further consideration as to whether this is the right time to approve such applications.” A copy of the letter went to Mr Waldegrave, whose manuscript comment, endorsed on the copy, was “I think this is not the time to approve them.” *475

D6.250 The FCO submission to Mr Waldegrave on the proposed response to Lord Trefgarne’s letter of 30 March was dated 17 May 1990. *476 It was prepared by Mr Sherrington and approved by Mr Rob Young and Mr Gore-Booth before it reached Mr Waldegrave. The submission recommended that “we should refuse supply of all the items of equipment mentioned in Lord Trefgarne’s letter” and went on: “I also recommend that we should reject one further licence application for Bridgeport and two for Matrix Churchill not mentioned in the letter but on recent IDC lists.” The “one further licence application for Bridgeport” was ELA 11176. The FCO was still (through no fault of its own) ignorant of the fact that the licence had been issued nearly two months previously. The submission suggested “a further look at the position on licences... in 3 months time.” The argument in favour of the recommendation for postponing a decision was set out in paragraph 7 as follows:

“The major difficulty with the Matrix Churchill equipment is in the company’s link with the Iraqi procurement network, of which SRC, the company behind the Supergun, was a member. If we were to continue to permit Matrix Churchill to export sophisticated machine tools, such as lathes, the press might well conclude, reasonably or otherwise, that the equipment was being used in the construction of the supergun, or related projects, and we would be accused of negligence in letting the lathes go.... The case of Bridgeport is different. Although it does not, as far as we are aware, have formal links with the Iraqi procurement network, the destination for their machine tools, which are as sophisticated as the Matrix Churchill equipment, is Nassir and Hutteen State Establishments which have in the past been implicated in munitions manufacture. More generally, the current view of our friends is that, although there is no hard evidence, military application can be inferred from the total intelligence picture.”

D6.251 The submission then turned to “the arguments in favour of supply”. After referring to the trade implications the submission said that “In the absence of incontrovertible evidence that the machine tools are for e.g. ballistic missile or nuclear applications, and so would be caught under MTCR or NPT, there is little or no chance that we would be able to prevent other supplier countries from providing Iraq with machine tools”. This was, to my mind, indisputably so. The submission noted that “to refuse [the licences] now without good reason would undoubtedly be seen by the Iraqis as provocative and a deliberate attempt to add further to our difficulties with them” and referred to the precedent set by the licences previously granted to Matrix Churchill and to a licence recently granted for the export of machinery “capable of manufacturing integrated circuits which might be used in military or nuclear application.” *477

D6.252 In summing up the pros and cons of the argument the submission said: “We can have no certainty that the Iraqis will put the Matrix Churchill lathes to undesirable uses, but can be sure that if Matrix Churchill are not permitted to supply machine tools others will... There is no mechanism for preventing this. It might be argued that it would be better to concentrate on preventing the export of equipment which does fall under the MTCR or NPT and without which the more objectionable Iraqi projects would not be able to go ahead.” And after referring to the possible loss of lucrative contracts that might result from delay, the submission commented: “The risks of adverse publicity and possible fierce criticism in Parliament seem too great at the moment to do otherwise than refuse the licences”. Finally, reference was made to the DIS Survey of Iraqi procurement activities, the continuance of which had been one of the conditions on which Mr Waldegrave had given his reluctant consent on 1 November 1989 to the grant of the Matrix Churchill ELAs then under consideration. The submission reported that “The MOD have now said that this survey is simply one of a series on a number of countries’ military capabilities and is unlikely to be of the assistance that we first thought in coming to such decisions.”

D6.253 Mr Young appended a note to the submission agreeing “that this is the wrong moment to grant export licences for the equipment in question... the Government”, he said, “would be given little or no quarter by Parliament and the press if these sales went ahead (they would certainly become public).” Mr Gore-Booth added his signature, thereby signifying his agreement both with the submission and with Mr Young’s comments. *478 Mr Waldegrave, too, agreed with the submission. His manuscript note written on the submission reads:

“It would be crazy to licence these now. But should we at least attempt to warn off [the Japanese] and Germans. It would at least put them on notice that they might face a little criticism if they supplied substitute equipment”. *479

The Secretary of State, too, agreed with the submission.

D6.254 Mr Waldegrave’s letter of 30 May 1990 to Lord Trefgarne *480 followed, broadly, the line suggested in Mr Sherrington’s submission. But, in one respect, the letter appeared to make what was, in my opinion, an unnecessary concession to the DTI arguments. The letter said: “I accept your argument that we do not have incontrovertible evidence to suggest that the machinery in question will be used for anything but legitimate civil purposes”. *481 As to this the proposition that “incontrovertible evidence” of an intended use for military purposes needed to be obtained if an ELA was to be refused was not, in my opinion, a sustainable one. If an intended use of the machines for the manufacture of conventional weapons would have justified refusal of the export licences, a proposition that Lord Trefgarne and Mr Clark had both made clear they did not accept, there seems no logical reason why the quality of evidence to establish the intended use should have had to be “incontrovertible”. If the proposition were a sound one, and the FCO had, throughout, proceeded on the footing that it was, it should have been sufficient to identify evidence which established the intention on a clear balance of probabilities. In any event, the available evidence did not, in the case of at least some of the ELAs, fall far short, if it fell short at all, of being incontrovertible. There was plenty of evidence about the nature of the Central Tool Room Project with which a number of the ELAs were associated. And the accumulated weight of the evidence about Nassr and its munitions manufacturing activities produced, in the absence of any evidence to the contrary, a very strong likelihood that the machine tools would be used in those activities. The SIS witnesses who gave evidence to the Inquiry were not in doubt about this as, indeed, the relevant sentence in Mr Sherrington’s submission had indicated. In his oral evidence to the Inquiry, Mr Waldegrave made clear that he intended in his letter to accept simply that the evidence was not “incontrovertible”, he was not intending to accept that that was the necessary test. *482 Mr Waldegrave’s letter proposed the three month delay that the Sherrington submission had recommended and concluded by saying that the Secretary of State, Mr Douglas Hurd, had seen the letter and agreed with it.

D6.255 Neither Mr Clark at the MOD nor Lord Trefgarne at the DTI was prepared to accept the suggested three month delay. Before I refer to their responses, however, I should mention a meeting between Lord Trefgarne and members of the MTTA, including Mr Henderson. The meeting took place on 17 May 1990 and was arranged at the request of the MTTA in order to give them an opportunity “to discuss HMG’s general policy towards exports of machine tools to Iraq.” *483 The brief provided for Lord Trefgarne by Mr Nunn (OT2/3) set out succinctly DTI policy:

“Our policy remains to promote trade with Iraq in industrial goods for use for civil purposes, consistent with the Guidelines. We are anxious not to prevent legitimate exports needlessly and the longer the ceasefire continues the greater the scope for more relaxed application of the Guidelines. However, it is necessary to strike an appropriate balance between promoting trade and HMG’s concerns about Iraqi attempts to procure equipment and technology related to missiles and nuclear weapons .... This has taken on enhanced sensitivity in the light of events surrounding the Iraqi gun project.”

It is interesting to notice that the brief draws attention to “concerns .... about whether goods exported under a temporary export licence are returned to the UK.” *484

D6.256 The meeting was attended, on the MTTA side, by Mr Nosworthy, Mr Henderson, Mr Bailey (BSA Tools Ltd), Mr Carter (The 600 Group plc) and Mr Taylor (Bridgeport Machines Ltd). Lord Trefgarne was supported by among others Mr Meadway and Mr Nunn. Surprisingly no note of the discussions was taken by any DTI official. A note was, however, prepared by Mr Nosworthy and was accepted by Lord Trefgarne as being “a reasonably accurate summary of the matters discussed at that meeting”. *485 The MTTA delegates stressed the importance to the machine tool industry of Iraqi exports (which were estimated to represent “at least 10% of the UK export trade”) and drew attention to the damage caused to this export trade by “export licence delays”. The Minister commented, inter alia, “that a concern for the Government is the use which Iraq will make of the technology they are so obviously trying to obtain” but after discussion, agreed to give urgent attention to [the ELAs] submitted by FMT Ltd *486 and Bridgeport Machines Ltd. *487

D6.257 Following the meeting between Lord Trefgarne and the MTTA, the DTI “reviewed the position in respect of the outstanding export licence applications for Iraq.” *488 The ELAs in question were listed in an Annex and included the four Bridgeport ELAs (not including 11176) and five Matrix Churchill ELAs mentioned in this section. *489 A note dated 21 May 1990 from Mr Nunn to Mr Meadway reported that the conclusion had been reached that the equipment comprised in one of the five Matrix Churchill ELAs, namely, 50380, (and also the equipment comprised in the two ELAs for India) had been rated not licensable. But the note also informed Mr Meadway that once current proposals for revisions to COCOM controls came into effect, the machine tools covered by the other ELAs (bar ELA 19890) “should not require an export licence”. August 1990 was mentioned as the probable date. The Note pointed out that “It would be open to OGDs to argue that the existing control should be retained for certain destinations” but commented that “such a control would be ineffective given the widespread foreign availability of the machines in question.” *490 Mr Nunn’s comments in this Note are interesting. Export controls over standard machine tools had been imposed for COCOM reasons. The details of the controls were to be found in the Industrial List of the current EG(C)O. The purpose of the controls had been to prevent technology transfer to the Soviet bloc. The use of the controls to prevent the export of machine tools to Iraq was nothing to do with COCOM and was not a use of the COCOM controls that Britain’s COCOM partners copied. The restrictions on exports to Iraq that were achieved by means of the Industrial List controls that had been imposed for COCOM reasons were always unilateral. The relaxation of COCOM restrictions would make no difference in that respect. The ineffectiveness of unilateral controls, to which Mr Nunn was referring, had been for a very long time a basic and understandable DTI objection to the use of the Industrial List to control exports of dual use goods to Iraq.

D6.258 On 1 June 1990, Mr Nunn put up a submission to Lord Trefgarne regarding the response that should be made to Mr Waldegrave’s letter of 30 May. The submission drew particular attention to the imminent COCOM revisions that would result in most of the machine tools for which licences were being sought being released from COCOM control and pointed out the objections to retaining UK export controls for Iran, Iraq and other specific countries of concern. It warned: “Singling these countries out would undoubtedly affect our relations with them. Furthermore, such a control would be bound to be ineffective given that the machine tools will be almost universally available, and a number of our competitors will readily step in. This is aside from the presentational problem of denying to Iraq that which we are prepared to export to the Soviet Union without requiring a licence.” *491 As to the FCO’s proposed three month delay, the submission suggested that that was “arguably the worst of all worlds”. The submission warned that the delay “is harmful to the companies concerned ...” and “could only be perceived of by the Iraqis as seriously undermining the scope of our present action against them”. It added that “this would almost certainly invite further action against British companies by the Iraqi Ministry of Industry.” So the Minister was advised to continue to press for the grant of the export licences. The submission was copied to the Secretary of State and, in a Note to Mr Nunn dated 6 June 1990, the Secretary of State’s Private Secretary said that the Secretary of State “now agrees that we should grant these licences.” *492

D6.259 Lord Trefgarne’s letter to Mr Waldegrave of 5 June 1990 *493 followed the line suggested by Mr Nunn and stressed that “these machine tools will be completely free from export control within a short period of time given that normal practice is to extend COCOM agreed relaxations in controls to all destinations”. A copy of the letter went to Mr Clark who, in a letter dated 8 June 1990 to Lord Trefgarne (copied to Mr Waldegrave), supported Lord Trefgarne’s argument based upon the imminent COCOM relaxation of controls. *494

D6.260 At about the same time as the DTI response to Mr Waldegrave’s 30 May letter was being prepared, the DTI was asked to advise the Prime Minister how she should respond to a letter dated 8 May 1990 from Mr Bright, Chairman of Flexible Manufacturing Technology Ltd (FMT). FMT was, as sub-contractor to Matrix Churchill, concerned to obtain a renewal of Matrix Churchill’s licence under ELA 53234. *495 Mr Bright’s letter complained of the delay in the renewal of the licence. Mr Nunn prepared a draft reply and a supporting submission dated 6 June 1990. Copies of the draft went to Lord Trefgarne, Mr Meadway, Mr Coolican (who had replaced Mr Beston), Mr Waldegrave, Mr Gore-Booth and others. The letter of reply written on behalf of the Prime Minister was dated 8 June 1990. It followed, essentially, the terms of the draft and included the following statement of Government policy and approach to the licensing of exports to Iraq:

“The Government’s policy is to continue to encourage trade with Iraq where it is clearly for legitimate civil purposes. However, you will appreciate the need for rigorous scrutiny of export licence applications to ensure that they are consistent with the Government’s guidelines on exports to Iran and Iraq, and in particular are not intended for use for military purposes.” *496

These two sentences misrepresented the Government’s policy and approach. First, the Government’s actual policy was, and had been for upwards of a year, to encourage trade with Iraq unless it was clearly for military purposes that offended against the bar on lethal weapons or against the re-written guideline (iii). Second, the scrutiny of ELAs was not carried out in order to “ensure” that the goods were not intended for military purposes, nor to “ensure” that their export to Iraq was consistent with the Guidelines. If that had been the approach none of the Nassr destined or Hutteen destined machine tools would have received export licences, Mr Waldegrave would not have had to regret the absence of “incontrovertible evidence” of intended military use and the “circumstantial evidence” that UK general purpose machine tools are being used in “arms manufacture” referred to by Mr Clark would have sufficed to bar the grant of export licences.

D6.261 Mr Waldegrave wrote a letter dated 19 June 1990 in response to Lord Trefgarne’s letter of 5 June. He argued that, despite the relaxation of COCOM restrictions, “we shall need for our own foreign policy reasons to retain controls in respect of specific destinations where strict guidelines on the sale of military-related equipment remain in force. These concerns apply not only to Iraq, but with equal force to [certain] other countries ....” He then repeated his comment about the absence of “incontrovertible proof that the equipment in question will be used in arms manufacture, the overall intelligence picture suggests that it might well” and warned of sharp criticism for granting the export licences if “there are further revelations about indigenous Iraqi arms manufacture and Matrix Churchill are again implicated ....” *497 He suggested an early Ministerial meeting to discuss the ELAs.

D6.262 The decision as to what to do about the outstanding machine tool ELAs was, first, complicated by an investigation of Matrix Churchill and its machine tool exports to Iraq instituted by Customs and Excise, and, secondly, overtaken by a broader examination at Cabinet level of government policy on trade with Iraq. As to the investigation of Matrix Churchill there are a number of submissions to Ministers and discussions to which I shall have to refer when describing the background to the prosecution of the Matrix Churchill directors. It suffices for the moment to refer to a submission dated 29 June 1990 put up by Mr Coolican to Lord Trefgarne in which Mr Coolican said that “given what we know from the C&E visits last week [to Matrix Churchill] I would be happy to licence the Bridgeport machines and all but one of the Matrix Churchill applications.” *498

D6.263 Mr Coolican had succeeded Mr Beston as head of the DTI’s Export Control organisation on 17 April 1990. He had not had to concentrate on the problems raised by the Matrix Churchill ELAs until preparing a submission to Lord Trefgarne of 14 June 1990 on the subject of the Customs investigation. The one Matrix Churchill ELA that Mr Coolican had, in his 29 June submission, singled out was ELA 50380. The ELA was known to be connected with Iraq’s Project K1000. *499 A good deal of intelligence regarding K1000 had become available during 1990. An SIS telegram dated 30 April 1990 referred to “indications .... that Matrix Churchill Ltd .... are somehow involved with missile parts ....” *500 and an Intelligence Report dated 6 July 1990 said: “Evidence has also emerged that MC is now manufacturing parts for Iraqi project K1000. The purpose and location of this project are as yet unknown but it is possibly a weapons system ....” *501 At the REU on 29 June reference had been made to Matrix Churchill’s “possible involvement with Project K1000 in Iraq.” *502

D6.264 On 20 June 1990 Mr Petter, the head of DTI’s Middle East branch from January 1984 to September 1993, put up a submission to the Secretary of State, Mr Ridley, about the deteriorating trade relations between the United Kingdom and Iraq. The submission said that Customs investigations into exports to Iraq were having a serious effect on trade *503 and suggested a review by the Cabinet OD Committee of the continued justification for and the commercial and financial implications of trade restrictions on exports to Iraq. On 21 June Mr Ridley submitted a Minute (a draft of which had been provided by Mr Petter) to the Prime Minister and OD colleagues. The Minute *504 referred to the Customs investigation of Matrix Churchill and said that Mr Ridley could “see no prospect of any improvement in the position [in regard to trade relations with Iraq] while investigations into possible breaches of export controls continue.”

D6.265 The Prime Minister agreed that the issue of continuing restrictions on exports to Iran and Iraq should be examined at a Cabinet OD meeting. She asked the Foreign Secretary, Mr Hurd, to chair the meeting. In the meantime the departments and the Cabinet Office set about the preparation of a comprehensive paper to be placed before the meeting. This paper became the “Iraq Note”. *505 The machine tool ELAs remained for the time being outstanding notwithstanding continuing attempts made by the DTI to obtain FCO agreement to the issue of licences.

D6.266 In a submission dated 6 July 1990 to Lord Trefgarne, Mr Coolican said that Mr Waldegrave had “declined to discuss outstanding licence applications for machine tools to Iraq in advance of the Ministerial meeting scheduled for mid July” and that “at least one contract [had] been cancelled”. *506 He recommended that Lord Trefgarne “should try to persuade Mr Waldegrave, by phone, that at least the ‘cancelled’ order should be released”. In the body of the submission Mr Coolican said:

“There can be no reason advanced for refusing to renew a licence that was issued under the existing guidelines when a refusal will cost innocent UK third parties some £5 million .... There is no evidence to suggest that this equipment is intended for a military use. For one contract (K1000) there is a doubt about end use and that licence application can be put to one side.”

The K1000 contract related to ELA 50380.

D6.267 In the event, however, a way emerged in which the objections being maintained by Mr Waldegrave and the FCO could be side-stepped. A query was raised by Matrix Churchill as to whether the machine tools comprised in ELA 50380 and ELA 22269 were licensable. A manuscript note dated 11 July *507 written by Mr Steadman to Mr Mayne of the ELU referred to the query and said:

“If this is prior to the recent relaxations (ie they were never licensable) then we may be able to release, but if they are de-controlled only through amendments to the Order in the pipeline then we shall certainly have to hold pending Ministers’ decisions on the maintenance of controls over machine tools to the most sensitive destinations.”

It may be noted that licensability of the machine tools was being considered in terms of the Industrial List. The machines were all standard machine tools. Mr Coolican confirmed in his oral evidence to the Inquiry that in regard to these machine tools no one gave any thought to the possibility of “special design” whereby the machine tools might become licensable under the Military List. *508

D6.268 The ELU licensability ruling on the ELA 50380 and ELA 22269 machine tools was that they were not licensable. By a letter to Matrix Churchill dated 26 July 1990 *509 Mr Mayne informed the company that the 50380 machine tools were not licensable. He added in his letter: “You should note that the above assessment only applies to Group 3 [the Industrial List] of the above order. Group 1 (Military List) and Group 2 (Atomic Energy and Nuclear Goods) in the order should be consulted if appropriate.” He wrote a similar letter in respect of the machine tools comprised in ELA 22270. It is not apparent from the papers before the Inquiry whether a decision was reached on the licensability of the machine tools comprised in ELA 22269. In the event, the Government decision, following the Cabinet OD review of policy which I have already described in more detail *510, to relax restrictions on trade with Iraq and the embargo on exports to Iraq imposed after Iraq’s invasion of Kuwait made the licensing decisions to which I have been referring irrelevant. The embargo prevented the export of the Matrix Churchill and Bridgeport machine tools comprised in the ELAs I have been examining.

Endnotes:

*415 - DTI/102.1.7261 to 7286

*416 - DTI/102.2.7803 to 7856.

*417 - DTI/102.3.7517 to 7540 and DTI/102.3.7541 to 7561

*418 - DTI/162.3.4.13121 to 13149.

*419 - DTI/949.3 and 4

*420 - MOD/30.2.61

*421 - MOD/31.1.89

*422 - MOD/31.1.55 at 87 and see D5.70 supra

*423 - see D6.144A supra

*424 - DTI/949.6

*425 - DTI/949.5

*426 - see Mr Barrett’s letter to the Inquiry dated 20 September 1995

*427 - DTI/949.7

*428 - DTI/949.8

*429 - DTI/949.9

*430 - Mr Simmons’ letter to the Inquiry dated 14 September 1995

*431 - Mr Barrett’s letter to the Inquiry dated 20 September 1995

*432 - Mr Steadman’s 3 November note, and the other DTI notes referred to in paragraph D6.229 were supplied to the Inquiry, at the instance of Mr Steadman, on 24 August 1995. It has not, in the circumstances, been practicable to seek to resolve the issue of fact regarding the accuracy of the 3 November note by adducing oral evidence.

*433 - DTI/162.3.4.13121 at 13134

*434 - DTI/162.3.4.13121 at 13135

*435 - Mr Barrett’s letter to the Inquiry dated 20 September 1995

*436 - FCO/6.1.2 at 5,paragraph 2

*437 - FCO/6.4.196 at 201, paragraph 2

*438 - MOD/31.1.227 at 233 and 235

*439 - FCO/6.4.196 at 202 paragraph 3

*440 - FCO/6.4.196 at 202 paragraph 4

*441 - DTI/102.3.7517 at 7538

*442 - DTI/45.2.2781

*443 - see paragraph D6.210 supra.

*444 - DTI/45.2.2822

*445 - see paragraph D6.211 supra

*446 - DTI/45.2.2808

*447 - MOD/31.2.219 at 243 and MOD/31.2.317 at 341 and FCO/6.4.124 at 136, FCO/6.4.51 at 64

*448 - DTI/72.1.(Folio 11)

*449 - see Lord Trefgarne’s transcript of oral evidence of 30 March 1994, Day 82, pages 120 to 122

*450 - see Lord Trefgarne’s written statement of 18 March 1994, paragraph 100

*451 - DTI/45.2.2816

*452 - DTI/45.2.2806. The letter was in the terms of a draft prepared by Mr Steadman (DTI/45.2.2816 at 2817): see Lord Trefgarne’s written evidence to the Inquiry of 18 March 1994, paragraph 103

*453 - In fact the 19 machines in kit form were covered by 3, not 4, ELAs (10040-42). The fourth (10039) was for a complete machine but, although Lord Trefgarne did not know it the machine had already been licenced for export under the temporary licence issued by Mr Steadman on 27 March (paragraph D6.213 supra)

*454 - This was a reference to the Euromac case; see Chapter J4 infra.

*455 - see paragraph D6.138 supra

*456 - see paragraphs D5.25(xxii), (xxiii) and (xxv) supra respectively

*457 - Lord Trefgarne’s written statement of 18 March 1994, paragraph 104

*458 - FCO/6.4.76

*459 - FCO/6.4.84; Mr Barrett has suggested in his comments dated 2 June 1995 that this question may have been raised by the DTI but was wrongly attributed to the MOD in the IDC Summary.

*460 - FCO/6.4.84

*461 - DTI/45.2.2823 and see paragraph D6.258 infra

*462 - FCO/6.4.25 at 28

*463 - MOD/32.1.9 at 37 paragraph 1(x)

*464 - see paragraph D6.73 et seq

*465 - DTI/45.2.2841 at 2842

*466 - MOD/28.1.55 at 63 and MOD/28.2.71

*467 - see paragraph D6.73 supra

*468 - see paragraph D5.36 supra

*469 - see paragraph D5.37 supra

*470 - n.b. Mr T’s first contact with Mr Henderson was on 24 April 1989, over two months after the original licence under ELA 53234 had been granted

*471 - MOD/32.1.225

*472 - FCO/62.1.761c.

*473 - Mr Hextall’s written statement of 1 November 1993, Section P, p.3

*474 - Not only the Euromac incident i.e. the interception at Heathrow of the capacitors, but also the Supergun incident i.e. the interception at Teeside of components of the Iraqi long range gun, had occurred:see Section F and Chapter J4 infra

*475 - FCO/62.1.761c

*476 - FCO/62.14.2765b

*477 - see paragraphs D6.370 to D6.387 infra

*478 - FCO/62.14.2765h

*479 - FCO/62.14.2765b

*480 - FCO/62.14.2764

*481 - Lord Trefgarne’s letter of 30 March had not in fact argued that “incontrovertible evidence” had to be shown nor was the argument one that Lord Trefgarne personally supported. Lord Trefgarne supported a standard of proof “somewhere between the balance of probabilities and .... irrefutable proof” (Day 82, 30 March 1994, p. 10)

*482 - the transcript of Mr Waldegrave’s oral evidence Day 30, 12 October 1993, p.183-184

*483 - paragraph 1 of the DTI brief for Lord Trefgarne, DTI/45.2.2848

*484 - Ibid, paragraph 8, DTI/45.2.2848

*485 - Lord Trefgarne’s written statement dated 21 March 1994, paragraph 110A

*486 - FMT Ltd were sub-contractors for Matrix Churchill

*487 - MTTA/6

*488 - DTI/102.3.7517 at 7534

*489 - paragraphs D6.222, D6.223, D6.224 and D6.247 supra. Oddly the Annex also included two Matrix Churchill ELAs relating to exports to India

*490 - DTI/102.3.7517 at 7534

*491 - DTI/45.2.2885

*492 - DTI/295.1.20504

*493 - DTI/45.2.2882

*494 - MOD/32.2.83

*495 - see paragraph D6.246 supra

*496 - DTI/45.2.2889 at 2893 and FCO/62.14.2769

*497 - DTI/45.2.2964

*498 - DTI/45.2.2959

*499 - see paragraph D6.223 supra

*500 - SIS/10.1.99

*501 - SIS/11.2.373

*502 - DTI/45.1.198 at 201

*503 - This was a reference to investigations into the nuclear capacitors (Euromac) affair and into the Supergun affair - see Chapter J4 and Chapter J1

*504 - DTI/41.2286

*505 - see paragraphs D3.152 to D3.163 supra

*506 - DTI/295.1.20435

*507 - DTI/102.2.7803 at 7814

*508 - the transcript of Mr Coolican’s oral evidence Day 59, 28 January 1994, p. 88, 89

*509 - DTI/102.2.7803 at 7809

*510 - see paragraphs D3.155 to D3.165 supra

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