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 Licence Applications after the Cease-Fire

Excerpt:
(VI) MACHINE TOOLS: ELAS FOR TEMPORARY LICENCES IN 1989 AND 1990

(VI) MACHINE TOOLS: ELAS FOR TEMPORARY LICENCES IN 1989 AND 1990

D6.194 In September 1989 Matrix Churchill made two applications for temporary licences for the export of machines to Iraq in order that they might be exhibited at the Baghdad International Trade Fair to be held from 1 to 15 November 1989. The first of these ELAs received by the ELU on 6 September 1989 was given the number 3G/27098/89. *357 It related to a “Laser Marking Machine”. The proposed date of shipment was 25 September and the proposed date of return of the machine to the United Kingdom was stated to be “December 1989.” *358

The second of the ELAs which was received by the ELU on 28 September 1989 was given the number 3G/18866/89. It related to a “Bridgeport Vertical Milling Machine” and a “Bridgeport Vertical Production Centre” with associated equipment. The proposed date of shipment of these machines was 4 October 1989. The proposed date of return of the machines to the United Kingdom was stated to be “December 1989”. *359

D6.195 Under another ELA, correctly dated 5 September 1989, Matrix Churchill applied for a permanent export licence for the export of a “Four Series 2 Axis CNC Lathe” and a “Five Series 2 Axis CNC Lathe” and associated equipment. The Consignee was Nassr’s “CTRP CNC Lathe Project”. The “Precise purpose” for which the machines were to be used was stated to be “Metal Turning of Engineering Components”. The proposed date of shipment was 25 September 1989. The ELA was given the number 3G/27099/89. *360 A letter dated 4 October 1989 *361 from Matrix Churchill to the DTI’s ELU referred to the two 5 September 1989 ELAs and asked that 27099 be amended so as to become an application for temporary export only. Oddly, however, the identity of the Consignee, namely, Nassr’s CTRP CNC Lathe Project was not amended and the letter of 4 October 1989 said that the two Four Series and Five Series Lathes had been “sold to our customers”. Not surprisingly, therefore, no proposed date for the return of the machines to the United Kingdom was given. This incongruity in what had become an application for a temporary licence does not seem to have been the subject of any comment.

D6.196 The two 5 September 1989 ELAs were circulated to FCO/Defence Department and to MOD/DESS 2A on 7 September 1989. The proposed date of shipment of the machine comprised in 27098 was extended from 25 September, first, to 4 October and then extended again. *362

D6.197 On 9 October 1989 Mr Steadman put up a submission to Mr Beston and the Minister for Trade (Lord Trefgarne) regarding ELA 27098. *363 The submission said that “MOD have postponed making a recommendation on the application pending the outcome of Ministers’ consideration of all outstanding applications from [Matrix Churchill] for Iraq”, and that “This will be too late for shipment to the exhibition.” “Ministerial approval ... to issue a temporary licence in order that the company may exhibit at the Fair” was sought. Mr Steadman added the proviso that “Approval would be on condition that the machine tool is returned to the UK after exhibiting and without prejudice to any decision on a permanent export.” Mr Beston supported Mr Steadman’s recommendation that the temporary licence be granted. In a manuscript note endorsed on the submission he said: “To treat temporary licences as though they were permanent would seriously disadvantage UK firms in competition with foreign companies.” Equally, Mr Meadway approved Mr Beston’s comments, writing “quite right. [GAMMA] for MOD” on the submission.

D6.198 A Note dated 11 October 1989 from Lord Trefgarne’s Private Secretary said: “Lord Trefgarne is content to issue a temporary licence, but thinks you should take the views of FCO officials. If they object, please revert to me.” *364 In his oral evidence Lord Trefgarne explained that when he became Minister for State he changed his view “in the light of views of officials in the DTI ... [to accept] that licences for temporary shipment ought to be viewed slightly differently” than permanent ELAs. In relation to the temporary ELAs for the Trade Fair he said “Customers from all over the Gulf Region go to the Trade Fair, and it would be wrong, unless there were very serious risks, to deny Matrix Churchill the opportunity to exhibit to a whole range of regional customers based on problems within the domestic Iraqi situation” *365 A manuscript note to Mr Steadman endorsed by Mr Beston on the letter said: “If [FCO officials] are still sitting on the fence by Friday a.m (or object) please advise PS/MFT at once that it is our strong recommendation that the temps be issued without further delay. After Friday it would be too late and very embarrassing to Mins/HMG.” And a Note dated 13 October 1989 from Lord Trefgarne’s Private Secretary confirmed that: “Lord Trefgarne is content for the temporary licence to be issued for the Baghdad Fair, regardless of what FCO say.” *366 Mr Beston endorsed the letter “Good Show!”. The temporary licence applied for under ELA 27098 was issued by Mr Steadman on the same day. *367 In his written evidence to the Inquiry, Lord Trefgarne said: “I was aware that the DTI did not consult the MOD in relation to a small number of applications”. He explained that “Although it would have been preferable to have always consulted the MOD and FCO I believed that where there were tight deadlines which the exporters had to meet, for example, to ensure the equipment reached an exhibition on time, the DTI was justified in granting temporary licences unilaterally”. *368 At the meeting of the IDC on 16 October 1989 the Committee was informed that a temporary licence under 27098 had already been granted.

D6.199 On 13 October 1989, on the same day on which he had signed the temporary licence under 27098, Mr Steadman signed a temporary licence under 18866. This ELA had not been circulated to any FCO or MOD Department. Nor had Mr Steadman received any authority from senior officials or from Ministers to issue this licence. In his written response to questions about the temporary licence issued under 18866, Mr Steadman said: “I believe I may have regarded 27098 as the test case for consideration by the Minister.... Having based my submission to the Minister on Matrix 27098 I may have decided that Matrix 18866 did not require a further submission since the position would be resolved by the Minister’s decision and since the position of other Departments was already established.” So, Mr Steadman treated 27098 as a test case the result of which would cover also 18866. *369 There was, however, this difference between 27098 and 18866. ELA 27098 had been distributed to FCO and MOD Departments and the result of the application had been reported to the IDC at its meeting on 16 October 1989. ELA 18866 was not circulated either to FCO or to MOD and no mention of it was made to the IDC or to the Minister, Lord Trefgarne. In his oral evidence Mr Steadman defended his decision to grant the temporary licences under 27098 and 18866 as being necessary in order to avoid the “cumbersome nature of the control procedures” causing damage to British industry and to Matrix Churchill in particular. *370 His explanation for his failure to circulate 18866 to the other Departments was “the urgency of a decision from the company’s point of view”. He had no explanation for his failure to inform them of his unilateral decision to grant the temporary licence. He should have done so. He was not in a position to know whether or not MOD experts might have particular objections to the exports.

D6.200 In respect of both ELA 27098 and ELA 18866, the licence files were marked “to be brought forward” on 1 December 1989. The purpose of this was to check whether the equipment had been returned to the UK. In evidence to the Inquiry Mr Steadman said “It appears that follow- up action was subsequently overlooked by members of the licensing section....” *371

D6.201 ELA 27099 had been circulated to the Departments. It differed from ELAs 27098 and 18866 in that the machine and equipment had already been sold. Nassr was the purchaser. The sale was associated with the “CTRP CNC Lathe Project” *372 ELA 27099 was on the agenda at the IDC meeting on 16 October 1989 and the Summary Record records that “No decision has been taken by the IDC on these lathes (for temporary export only) pending Ministerial consideration of three other licences for Matrix Churchill lathes.” *373 Mr Steadman was present at that meeting. An internal ELA document dated 19 October listed ELA 27099, along with a number of other ELAs, under the heading “Action still with MOD.” *374

D6.202 The various records referred to in the previous paragraph show that up to 19 October ELA 27099 was still being considered by FCO and MOD and had yet to be dealt with finally by the IDC. It is surprising, therefore, to find that on 19 October Mr Steadman summarily issued the temporary licence. *375 He did not, in his written or oral evidence to the Inquiry, provide any adequate explanation of why he had thus pre-empted the IDC’s consideration of 27099. In his written evidence he said: “I believe I signed the licence on 19 October on the basis that Lord Trefgarne had approved Matrix 27098 and 27099 was another temporary licence which could, therefore, be authorised by me.” *376 This reliance on the precedent of 27098 was misplaced. The machines comprised in 27098, and in 18866 for that matter, had not been sold, and, there was no overt reason why, after the Trade Fair was over, they should not have been returned to the United Kingdom. In both those ELAs a proposed return date of “December 1989” had been given. ELA 27099 was quite different. The machines and equipment had been sold to Nassr. How could there have been any expectation that they would ever be coming back to this country?

D6.203 Some light on the circumstances in which Mr Steadman issued the 27099 temporary licence on 19 October is cast by the contemporary documents.

(i) First, there is a fax sent on 13 October by Mr Weakford, Matrix Churchill’s Sales Administrator, to Mr Steadman. The fax reads as follows:

“We spoke last Friday afternoon on the above re export licences for the Baghdad Fair. On 5.9.89 my shipping manager, Mr Price, wrote to your Mr A Fearis enclosing the.... application. To recap the above machines are being exhibited on Nassr’s own stand and are part of the on-going CTRP CNC lathe project. You mentioned the.... commences 23.10.89 before a possible outcome. An earlier decision would be welcome and if there is anything you can do to action this I would be grateful. Again, I appreciate your assistance.” *377

It is clear from the references to Nassr and the CTRP CNC Lathe Project that the fax was referring to the two machines for which export licences were being sought under ELA 27099.

(ii) Second, there is a manuscript note to an ELU official dated 17 October written by Mr Steadman on Matrix Churchill’s letter of 4 October. *378 The manuscript note reads:

“We approved MC’s own application for temporary export to the Fair but I have told [Matrix Churchill] that those to be used by Nassr will have to be considered along with the other [outstanding] applications.” *379

It is clear that, at this point, Mr Steadman did not have in mind to issue a temporary licence under 27099 in the summary way that he had issued the temporary licences under 27098 and 18866. 27099 would have to wait to be considered along with Matrix Churchill’s outstanding applications or permanent licences.

(iii) On 18 October 1989 Mr Henderson wrote to Lord Trefgarne complaining of the delay in the processing of Matrix Churchill’s outstanding applications for permanent export licences. He then added this:

“Additionally, we are committed to exhibiting at the Baghdad International Fair at some considerable cost and we are still awaiting clearance of licences for machines to be exhibited. Unless we ship the machines by Friday 20 October they will not reach the exhibition on time.” *380

Mr Steadman had, on 13 October, signed the temporary licences under 27098 and 18866. By 18 October the only outstanding problem, so far as temporary licence applications were concerned, was with 27099. The letter was referred to the ELU.

(iv) Presumably as a result of Mr Henderson’s 18 October letter, Mr Steadman spoke on the telephone to Matrix Churchill. Their conversation led to a fax sent by Matrix Churchill on 19 October. The fax said this:

“Further to your earlier telephone conversation please find enclosed an application relating to the above. The machines will be returned to the UK. Please release us from the undertaking if a sale takes place. I greatly appreciate your assistance in this matter. Original licence application is to be sent by courier to yourselves.” *381

The fax obviously relates to ELA 27099. It refers to an “enclosed” application. In the original ELA 27099 *382 the “Export Licence” page, which contains the description and value of the two machines, has had “Superseded” written across it. *383 The ELA is followed in the licensing file by a substitute “Export Licence” page which bears the same official reference number as the original, i.e 3G/27099/89, but the “Consignor’s reference” is given as “Baghdad International Fair” (in the original it was “TIMT 0703”) and the Consignee’s Name and Address are given as “Matrix Churchill Limited Matrix Churchill Pavilion, Hall 18, Baghdad International Trade Fair.” The description of the two machines and their stated value given in the substitute “Export licence” page were identical to the details in the original “Export Licence” page. *384 There was no substitution, however, in place of the first page of the original ELA in which the Consignee was stated to be Nassr. The “enclosed” application referred to in the fax must, therefore, have been the substituted Export Licence page rather than a full ELA. The fax suggests that Matrix Churchill had given an undertaking that the two machines comprised in 27099 would, subject to the request for a “release” from the undertaking “if a sale has taken place”, be returned to the United Kingdom. The fax made no reference to the sale of the machines to Nassr. Mr Steadman has stated that it was on the basis of the 19 October fax that he issued on the same day the temporary licence under 27099. *385

(v) In a note dated 23 October to Lord Trefgarne’s Private Secretary, Mr Steadman explained what he had done as a consequence of Mr Henderson’s 18 October letter. The note said this:

“I have explained to Mr Henderson the need for further consultations between Ministers before a decision can be reached on Matrix Churchill’s applications for permanent exports. All of the licences for temporary exports for the Company’s stand at the Baghdad Fair were cleared by last weekend. I explained that we could not agree to an outstanding licence for shipment of 2 machines to Nassr for exhibition on their stand and which were to be purchased by them; this would have to await the outcome of ministerial exchanges. I did, however, agree to the temporary export of 2 further machines for Matrix Churchill’s stand in the British Pavilion on condition they were returned afterwards; the licence was issued on Thursday to enable the company to ship in time for the fair.” *386

D6.204 The documents to which I have referred justify, in my opinion, the following reconstruction and conclusions:-

(i) It was made clear by Mr Steadman to Matrix Churchill that, so long as the named consignee of the two machine tools remained Nassr, an export licence, whether permanent or temporary, could not be granted in advance of Ministerial consideration.

(ii) It was known to Matrix Churchill that it had become Mr Steadman’s practice to issue temporary export licences for exhibition purposes without waiting for the procedures necessitating IDC consideration and Ministerial approval to be completed. Mr Steadman had issued on 13 October temporary licences under 27098 and 18866. ELA 27098 had been made on the same date, 5 September, as ELA 27099.

(iii) In the telephone discussion between Mr Steadman and a Matrix Churchill executive that followed receipt by Mr Steadman of Mr Henderson’s letter of 18 October to Lord Trefgarne and preceded the 19 October fax, it had been decided that the delay facing ELA 27099 could be avoided if the 2 machines, instead of being dispatched for the purpose of exhibition on Nassr’s stand at the Fair, were dispatched for exhibition on Matrix Churchill’s own stand. All that would be needed would be a new Export Licence page for the ELA in which Matrix Churchill, instead of Nassr, would be the named consignee.

(iv) It was known both to Mr Steadman and, of course, to Matrix Churchill that the two machines described in the substitute “Export Licence” page were the self same machines that had been sold to Nassr. There was only one ELA, namely, 27099.

(v) Mr Steadman’s note of 23 October to Lord Trefgarne’s Private Secretary suggested, misleadingly that the “2 further machines for Matrix Churchill’s stand” were different from the “2 machines” for which an export licence for “shipment.... to Nassr for exhibition on their stand” was being sought. In truth, the only difference was that the two machines were to be exhibited on Matrix Churchill’s stand rather than on Nassr’s stand.

D6.205 In comments to the Inquiry Mr Steadman has said:

“I am quite certain that I agreed to the grant of the temporary export of the [27099] machines for the purposes of the Trade Fair on the clear understanding that the machines would be returned to the United Kingdom after the Fair had ended unless a permanent ELA was subsequently granted.”

and

“It is not correct to say that there could have been no expectation that [the two machines] would ever be coming back to this country. The company made it clear that the goods would be returned to the UK.” *387

I do not accept this evidence. The temporary licence under 27099 was issued under a convenient fiction that the machines comprised in the licence were not, or were not necessarily, the same as the machines that Matrix Churchill had contracted to sell to Nassr. Evidence that they were one and the same is that there was only one ELA 27099 relating to the two machines. That being so I do not accept for one moment that it was ever supposed by Matrix Churchill or by Mr Steadman that the machines would be returned to the UK. And they never were.

D6.206 It had for a long time been the known contention of the MODWG that applications for temporary licences for export to Iraq should be processed as carefully as if they were applications for permanent licences. Whatever view might be taken regarding ELAs 27098 and 18866, the history of ELA 27099 bears out to the hilt the MODWG’s contention. The “Notes for Guidance” *388 which are circulated by the DTI to assist potential exporters to complete ELA’s specify certain “additional conditions” applicable to temporary export licences for Iraq (among other countries). One of the additional conditions is that:

“(f) the goods are returned to the United Kingdom immediately after the exhibition/demonstration and never later than 6 months from the date of issue of the licence for temporary export, unless written confirmation has been given by Export Licensing Branch or the SEC Section for a longer period”.

The Notes make it clear that “signature on the application form will signify that [the exporter] has read and accepted [the] additional conditions”. Additional condition (f) imposed, therefore, an obligation on exporters to whom temporary licences had been granted. The obligation was not, however, until amendments to the EG(C)O made in 1990, in practice enforceable. The sanction, if goods were not returned, would be that the defaulting exporters might have difficulty in the future in obtaining temporary licences. This sanction could hardly be applied if, at the time the temporary licence were granted, it were known to the DTI that the goods had been sold to a purchaser in the foreign country. When licence 27099 was granted, it was known to the DTI that the two machines had already been sold to Nassr and Matrix Churchill knew that this was known to the DTI. In the circumstances, and despite the contents of the 19 October fax, it is not surprising that the machines were not returned to the United Kingdom on completion of the Exhibition.

D6.207 The machines and equipment exported under the temporary licences issued under ELAs 18866 and 27099 were the subject of correspondence between Matrix Churchill and the DTI in April and May 1990. A letter dated 2 April 1990 from Matrix Churchill referred to “a number of machines... exhibited at the Baghdad International Fair” under temporary licences 18866 and 27099 and, after giving various details about the machines, continued: “The above machines can be sold subject to receipt of full export licences. Please arrange accordingly.” The “End-User” for the 27099 machines was stated to be Nassr. *389 And a letter from the company to the DTI, dated 7 May 1990, summarised the history of the export licences as follows:

“Our records indicate that the above mentioned temporary licences were issued on 13 and 19 October 1989... It was our understanding that in the event we obtained orders for these machines, we applied to your department for the temporary licences to be converted to full licences. At no time were we advised that the machines had to be returned to the United Kingdom on completion of the Exhibition.”

An internal Note dated 6 April from Mr Steadman to an ELU official, obviously prompted by the company’s letter of 2 April, asked “Why were the machines not returned? Did we extend the time frames?” The Note gave instructions for a copy of the 2 April letter to be given to the FCO and MOD “to consider along with the other permanent ones” and added: “...give an explanation as to why the machines are still in Iraq and say that this would no longer be allowed under our new powers to impose legally enforceable conditions.”

D6.208 Mr Steadman’s request for the “explanation” was, in my opinion, surprising. Notwithstanding Standard Condition F referred to above, neither Mr Steadman nor anyone within the DTI had made any attempt to impress upon Matrix Churchill the importance of due return of the goods to the United Kingdom. The circumstances in which and the speed at which Mr Steadman had taken it upon himself to issue the licences in October 1989, pre-empting any possible opposition from MOD or FCO and, in regard to 27099, ignoring the fact that Nassr had been declared to be the contractual purchaser, indicate with some clarity, to my mind, that he did not regard the return of the equipment as a matter of importance. He could not explain how it was that Matrix Churchill had come by the “understanding” referred to in their letter of 7 May, but their understanding was, in my opinion, consistent with the manner in which the temporary licence applications had been dealt with.

D6.209 I must now turn to two applications for temporary licences that were made by Bridgeport Machines Ltd. An application, ELA 3G/09426/89, was made by Bridgeport for a temporary licence to exhibit a “Gold Wire EDM” at the Baghdad Trade Fair. The ELA was dated 29 September 1989 and was accompanied by a letter from Bridgeport informing the DTI that the goods were due to be shipped to Iraq on 4 October. On 3 October the ELA was circulated to FCO/Defence Department and MOD/DESS. On 4 October the lists of applications to be considered at the MODWG meeting on 9 October were sent to MODWG members. Bridgeport’s ELA 09426 was not among them. It was not, therefore, considered at the 9 October meeting nor at the IDC meeting on 16 October. The ELA was first considered by the MODWG at its meeting on 8 November 1989 and was marked “Pending for DIS” and “PAM”. *390 An arms manufacture use was obviously feared. In the lists of ELAs for the IDC to consider at its meeting on 15 November 1989, the ELA was marked pending and “MOD(DIS) to consider.” *391 But the Summary Record of that IDC meeting records: “MOD’s recommendation was that this item should remain Pending while DIS considered it further. The DTI said however that it had already been exported for exhibition at the Baghdad Trade Fair. MOD said that it was important to check that it was returned after the end of the Fair”. In fact the temporary licence had been issued by Mr Steadman on 13 October 1989. This ELA provides another example, on all fours with ELAs 27098 and 18866, of the DTI, where ELAs for temporary licences were concerned, pre-empting the established procedures designed to police the Guidelines.

D6.210 The second Bridgeport ELA prompts more serious criticism. This ELA, 3G/11176/90, was dated 2 March 1990. It related to an “Interact 720 F OM Mate” with ancillary equipment and sought a temporary licence “For Exhibition Purposes.” *392 This equipment, however, was identical to the equipment comprised in ELA 3G/10039/90, one of a batch of four Bridgeport ELAs dated 5 January 1990 which sought permanent licences. *393 The consignee under these four ELAs was Nassr, whose address was given as “CTRP/CNC Project, Al Taji, Baghdad”. *394 In each of the four ELAs the consignee’s business was described as “General Metal Working” and the “Precise purpose for which the goods are to be used” was answered: “To be assembled for re-sale”. I will later describe the progress of these four ELAs through the IDC procedures. It suffices for the moment to note that the ELAs were considered by the MODWG on 7 February 1990 and were marked “Pending for DIS” *395 and at the IDC meeting on 16 February were marked “MOD(DIS) to consider under COCOM.” *396 An early decision was, plainly, not imminent. With the four ELAs for the time being in a state of limbo, the 2 March 1990 ELA, 11176, was made. It was accompanied by a letter dated 2 March 1990 from Bridgeport to the DTI in which the author said: “Could you please advise me when the enclosed application is ready, so that I can arrange for a courier to collect it from your premises.” *397 No reference was made in the letter to ELA 10039 which covered the same equipment. The inference seems to me strong that there had been some communication between the company and the DTI that had preceded the 2 March ELA. Otherwise the previous ELA would surely have been mentioned and the apparent complete certainty that the temporary licence would be granted would be unwarranted. In the new ELA, 11176, the details of the “Consignee” were the same as those in ELA 10039 save that after “Nassr Establishment” the words “(For Exhibition at Company)” had been added. The “Precise purpose” was given as “For Exhibition Purposes”. The “Proposed date of return” was given as “May 31st 1990”. The new ELA, 11176, was circulated to the MOD and the FCO on 12 March.

D6.211 A manuscript Note written by Mr Gall on 20 March 1990 records: “Details of this application [11176] passed to IDC at 19 March meeting - with the other Bridgeport cases it will be classified A(I). But defer to Ministers for approval”. *398 The four Bridgeport ELAs for permanent licences had been considered again by the MODWG on 7 March and, this time, had been assessed “R(AM)”. *399 They had been considered by the IDC on 19 March. The Summary Record (relating to ELAs 10039 to 10042) reads:

“As with the recent Matrix Churchill applications, there is the concern that this equipment might be used in missile manufacture. MED will therefore be submitting separately on these and other sensitive items for Iraq when full details from the MOD are forthcoming. (On 21 March MED officials told the [ELU] of the DTI that they were unable to agree at official level to a temporary licence (3G/11176/90) for a similar item of equipment manufactured by Bridgeport which was to be exhibited at a private exhibition in Iraq. MED explained that, in view of the current sensitivities towards Iraq, they could not give approval for such a temporary licence for equipment the actual export of which Ministers’ might ultimately refuse. There were in addition, particular presentational difficulties at the moment)”. *400

The tenor of the decision reached regarding ELA 11176 is unambiguous. The temporary licence was not to be granted until Ministers had had a chance to consider the matter.

D6.212 There is another point that emerges from the Summary Record reference to ELA 11176. The reference to “a similar item of equipment” suggests that the IDC was under the misapprehension that the 11176 equipment was additional to the equipment for which a permanent licence was being sought under ELA 10039. In fact it was the same equipment that was comprised in the two ELAs. Mr Steadman does not accept that the IDC was under the misapprehension. ELA 11176 was, he says, “quite clearly a temporary application for the purposes....” of exporting “one machine in kit form so that it could be assembled and demonstrated to potential customers of Nassr.” *401

D6.213 Mr Steadman, on 27 March 1990, without more ado or authority from anyone simply approved the temporary licence. In a submission dated 28 March he informed the Minister, Lord Trefgarne, of what he had done. *402 He sent the licence to Bridgeport under cover of a letter of 27 March which said:

“This licence is issued on the condition that the machine tool shall be returned to the UK by 30 May 1990. It is also issued without prejudice to the outcome of your applications for the permanent export of 19 Interact 720f milling machines which are the subject of separate consideration. I hope that a decision on these will be made shortly.

You should be aware that non-compliance with a condition of an export licence is a breach of the Export of Goods (Control) Order 1989.” *403

In a Note of the same date, 27 March, to a DTI official, Mr Steadman said “The FCO have not yet sought a Ministerial decision on the 4 Bridgeport applications for the export of 19 knock down machine tool kits. Meanwhile, the company need to send out a machine temporarily by Wednesday at the latest for a customer exhibition. In line with previous practice in these circumstances, I have approved this application on the strict understanding that the application is conditional upon the return of the goods.... Please have the licence annotated with the ‘Temporary Export return condition by 31 May 1990...’” *404 Mr Steadman’s reference in the letter and the Note to 19 machines for permanent export and to one machine for temporary export underline that ELA 10039 and ELA 11176 covered the same goods.

D6.214 Not only did Mr Steadman approve the temporary licence without reference to the IDC, and, indeed, in flat contradiction of the decision regarding ELA 11176 taken at the IDC meeting on 19 March, he does not seem to have informed the IDC that he had done so. The Summary Record of the IDC meeting held on 19 April 1990 records as follows:

“3G/10039/90, 3G/10040/90, 3G/10041/90, 3G/10042/90 and 3G/11176/90 - Iraq: Interact 720F OM Mate 380/440M 720F Vertical Machining Centre plus associated equipment. (IDC recommendation: PENDING)

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” *405.

Mr Steadman has said that he has “no doubt whatsoever that the FCO desk officer was aware of [his] decision and actions in relation to ELA 11176.” *406 There is no written evidence that that was so and Mr Steadman has not suggested the means by which the FCO desk officer would have become so aware.

D6.215 The machine tool and equipment licensed for export under the temporary licence 11176 were required to be returned to the United Kingdom by 31 May 1990. The return date of 31 May 1990 was, on 5 April 1990, extended by Mr Steadman at Bridgeport’s request to 30 June. On 13 July 1990 the DTI enquired about the equipment. The company replied by letter dated 23 July 1990 informing the DTI that the goods had “for commercial reasons” never been dispatched to Iraq. *407

D6.216 Mr Steadman was questioned by the Inquiry about his peremptory issue of the temporary licence under ELA 11176. He made clear that he did not obtain approval from anyone in any of the three Departments before issuing the licence. *408 He said that he had not seen the Minutes of the 19 March IDC meeting until 3rd or 4th April. In his written statement he explained his action thus:

“I was under considerable pressure from the company to allow goods to be exported on a temporary licence. The original shipment date [under 11176] had been the 16th March. Mr Taylor [Bridgeport’s managing director] had written to Lord Trefgarne on 12th March 1990. *409 I spoke to Mr Higson at FCO/MED to explain the problem and seek FCO’s agreement to allowing the temporary licence to go in view of its assessment as A(I). FCO had not at that stage sought a Ministerial decision. This meant there was bound to be a further significant delay before the matter was considered at Ministerial level... By this stage Mr Beston had left and Mr Coolican his successor had not yet arrived. I believe Mr Meadway was overseas and, in the circumstances, I felt that it was appropriate to issue the temporary licence, subject to the condition that the goods would be returned by 31 May 1990 (subsequently extended to 30th June)... I felt the situation was on all fours with what had happened in October 1989 where Lord Trefgarne had approved Matrix 27098 at short notice”. *410

In his oral evidence Mr Steadman confirmed that he did not consult anyone in his own department.

D6.217 It is correct that Mr Steadman was under strong pressure from the company to issue the temporary licence but I regret to say that I find Mr Steadman’s explanation unacceptable. First, whether or not the Minutes of the 19 March IDC meeting had reached Mr Steadman by 27 March, he knew that ELA 11176 had been referred to Ministers. A Minute dated 20 March from Mr Gall, copied to Mr Steadman, among others, had so stated. *411 Second, Lord Trefgarne’s authority given in respect of Matrix 27098 was no precedent for 11176, for the same reason that it was no precedent for Matrix 27099. *412

D6.218 Mr Steadman’s practice of granting temporary licences for the export of machine tools to Iraq without waiting for approval from the other departments or from the IDC was understandable in cases where the goods were to be exhibited at a Trade Fair and where the company had no contractual commitment to allow them to remain in Iraq. The licence granted under Matrix 27098, whose grant had been authorised by Lord Trefgarne, fell into that category. So did the licence granted under Matrix 18866. But temporary licences granted in respect of machine tools which, at the time of export, had already been sold to an Iraqi purchaser, a fortiori a purchaser such as Nassr, raise quite different issues. It seems to me that an unfortunate pattern can be discerned in regard to temporary licences falling into this category. The pattern begins with the two Matrix Churchill 1988 ELAs, 0440 and 1029. 0440 was an ELA for a temporary licence. The machine tool covered by the ELA was sold before the temporary licence had been granted and a permanent licence was sought under 1029. 0440 ought to have been treated as superseded but was allowed by Mr Steadman to remain on foot. A temporary licence was granted and the machine tool was exported while 1029 was still pending, its fate uncertain. *413 The application for the temporary licence had thus succeeded in enabling export of the machine tool to Iraq to be carried out much earlier than would have been the case had export had to await a decision on the ELA for a permanent licence.

The second example relates to Matrix Churchill’s ELA 27099. This ELA began life as an application for a permanent export licence for equipment that had been sold to Nassr. It was then transformed into an ELA for a temporary licence. But Nassr remained the purchaser, the ‘Consignee’ named in the ELA. If the ELA had remained as an application for a permanent licence, it would have had to await the Ministerial decision at the meeting on 1 November 1989. In early October 1989, when it was amended so as to become an application for a temporary licence, the fate of the Matrix Churchill ELAs for permanent licences was uncertain, and, at best, considerable delay was anticipated. Once the ELA had become an application for a temporary licence, Mr Steadman summarily issued the licence and the machine tool was exported. No return date was ever specified and no expectation that the purchaser, Nassr, would ever return the equipment, could have been realistically entertained. The same procedural device is apparent in regard to Bridgeport’s ELA 10039. Delay in a final decision on the ELA and uncertainty as to the nature of the final decision had, by March 1990, become obvious. A new ELA, covering the same equipment but seeking a temporary licence was then issued and, summarily, the temporary licence was approved by Mr Steadman. It was merely fortuitous that the machine was not, in the event, exported.

D6.219 If these three examples are looked at in sequence it is difficult to avoid the inference that the temporary licence device was being used in order to short circuit the IDC and departmental procedures and to bring about the speedy export of particular machine tools intended for permanent export. Whether or not this inference is justified, Mr Steadman’s conduct in authorising the export to Iraq and, in the case of ELAs 27099 and 11176, the export to a known manufacturer of munitions of the machine tools in question served to frustrate the machinery that had been put in place to police the Guidelines and was, in my opinion, reprehensible. His conduct is consistent with a lack of concern about the use to which machine tools exported to Iraq might be put.

D6.220 Mr Beston, both at the time and in his oral evidence to the Inquiry, supported the manner in which Mr Steadman had dealt with the Matrix Churchill applications for temporary export licences. He justified this support by saying that “in the case of a temporary export where there is a deadline to get it out there for an exhibition, the effect of delaying advice on it is to ensure it does not get there. This is tantamount to a refusal.” *414 This explanation has some force in regard to 18866 (and in regard to 27098). It has none, in my opinion, in regard to 27099. It cannot constitute an acceptable approach unless there is some ground for the realistic belief that if a permanent licence is not forthcoming the goods in question will be brought back to this country. How realistic that belief may have been in regard to 27098 and 18866 I am not sure. But the belief, if held, would have been wholly unrealistic in regard to 27099 (as it would also, although Mr Beston was not involved, have been in regard to 11176). Mr Beston’s comment cited above was, however, made on the basis that 27099 related to a genuinely temporary export.

Endnotes:

*357 - ELA 3G/27098/89 bears the date 5 December 1989. This is an obvious error for 5 September 1989.

*358 - DTI/102.2.7723 et seq

*359 - DTI/102.1.7228 et seq

*360 - DTI/102.2.7731 et seq

*361 - DTI/102.2.7731 at 7748

*362 - Mr Steadman’s written statement of 25 November 1993, paragraph K.14.2

*363 - DTI/44.2.2730

*364 - DTI/44.2.2732

*365 - see transcript of Lord Trefgarne’s oral evidence of 30 March 1994, Day 82, pp.79 to 80

*366 - DTI/44.2.2733

*367 - DTI/102.2.7723

*368 - see Lord Trefgarne’s written evidence of 18 March 1994, paragraph 160, p. 77

*369 - Mr Steadman’s written statement submitted on 25 November 1993, paragraph K.14.11

*370 - transcript of Mr Steadman’s oral evidence Day 47, 1 December 1993, pp 91 and 92

*371 - Written comments submitted on 12 June 1995

*372 - CTRP was the Central Tool Room Project as to which intelligence had been received in a Report dated 12 September 1989 (see paragraph D5.25(xx) supra).

*373 - FCO/6.1.64 at 66, paragraph 3(v)

*374 - DTI/44.2.2735 at 2738, paragraph G

*375 - DTI/102.2.7753

*376 - Mr Steadman’s written statement of 25 November 1993, paragraph K.15.1 to K.15.4 - Lord Trefgarne, in his written evidence to the Inquiry, said that “it would certainly have been preferable for the Minister to have been consulted and for the usual inter-departmental procedure to have been gone through” - see Lord Trefgarne’s written statement of 18 March 1994, paragraph 163

*377 - DTI/44.2.2732A and DTI/44.2.2732B. The fax is difficult to read and the accuracy of the above transcription is not guaranteed.

*378 - see paragraph D6.195 supra

*379 - DTI/102.2.7731 at 7748

*380 - DTI/44.2.2742

*381 - DTI/102.2.7731 at 7746. The fax is very difficult to read and I have used the transcription of it supplied by Mr Steadman in his written comments submitted on 12 June 1995.

*382 - described in paragraph D6.195 supra

*383 - DTI/102.2.7731 at 7733

*384 - DTI/102.2.7753 at 7754

*385 - Mr Steadman’s written comments submitted on 12 June 1995.

*386 - DTI/44.2.2741

*387 - Written comments submitted on 12 June 1995: see also Mr Steadman’s written comments to the same effect submitted on 1 December 1995

*388 - DTI/219.1.17145 at 17148

*389 - DTI/102.2.7731 at 7735 and DTI/102.2.7731 at 7738

*390 - MOD/30.2.239 at 247

*391 - FCO/6.1.37 at 41

*392 - DTI/72.1.(Folio 11)

*393 - DTI/162.3.4.13121 to 13149. see paragraph D6.221 et seq infra

*394 - Here again, therefore, there is a Central Tool Room Project connection with the ELAs.

*395 - MOD/31.2.7 at 19

*396 - FCO/6.4.172 at 178

*397 - DTI/72.1.(Folio 11)

*398 - DTI/72.1.(Folio 11)

*399 - FCO/6.4.124 at 136

*400 - FCO/6.4.117 at 121, paragraph 1(xiii)

*401 - Written comments submitted on 12 June 1995. Mr Steadman has pointed out the ELU copy of MODWG lists for the 7 March 1990 meeting was annotated with a manuscript note that ELA 3G/11176/90 was identical to ELA 3G/10039/90.

*402 - see paragraph D6.239(i) infra and DTI/45.2.2808

*403 - DTI/72.1.(Folio 11); As to the point made on the EG(C)O 1989, see paragraph C2.61 supra.

*404 - DTI/72.1. (Folio 11)

*405 - FCO/6.4.25 at 28, paragraph 1(x)

*406 - Written comments submitted on 12 June 1995

*407 - Mr Steadman’s written statement dated 25 November 1993, p.66

*408 - transcript of Mr Steadman’s oral evidence Day 47, 1 December 1993, p.156. See footnote at D6.202

*409 - DTI/45.2.2822

*410 - Mr Steadman’s written statement dated 25 November 1993, p.61

*411 - DTI/45.2.2799 at 2801

*412 - paragraph D6.202 supra.

*413 - paragraphs D2.338 to D2.343 supra.

*414 - transcript of Mr Beston’s oral evidence Day 45, 26 November 1993, p.8

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