DEFENCE EQUIPMENT: POLICY ON OVERSEAS SALES

HL Deb 23 April 1980 vol 408 cc779-818

3.26 p.m.

Lord NEWALL rose to call attention to the present policy for overseas sales of defence equipment; and to move for Papers. The noble Lord said: My Lords, it is most appropriate that, on St. George's Day, we are discussing a problem which is vital to this country. In fact, we have two debates which touch on defence aspects and I consider myself fortunate that we have been able to have this debate ahead of the White Paper debate and dealing with only one narrow aspect of defence. I can assure the noble Lord, Lord Noel-Baker, and his colleagues that I will not be touching on the nuclear aspects at all.

The Defence White Paper, on pages 81 and 82, deals specifically with defence sales. It is only a summary and there is nothing there that anybody who has a reasonable mind could disagree with. But it cannot go far enough as it is only a summary. In the Hansard of the other place of the 15th of this month, an Answer was given by the Government that 61 countries bought some sort of defence equipment from this country in 1979. It may surprise some noble Lords to know that our defence exports total 21 per cent. of our total exports, a very significant figure and one which, I believe, is not beaten by many industries, if any at all. These defence equipment manufacturers employ some 80,000 people. I expect that the Ministry of Defence are fairly pleased with this sort of figure of employment, but I hope that they are not complacent. I believe firmly that we have the best industries to make things like this; we have the best brains to design and devise new defence equipment and different systems, some of which are produced to kill or to hurt an enemy. But if we can produce better ones than others can, surely we can save lives by so doing. No one wants war, but it is only from strength that we can avoid one. The Russians, I believe, are currently proving this point that strength can count.

Our forces and our equipment have been run down to a somewhat abysmal degree under the previous Administration. I am glad to see that the noble Lords, Lord Shinwell and Lord Winterbottom, are to speak from the opposite side of the House; and I feel that they will probably not disagree with much of what I have to say. If and when we need weapons in an armed conflict, we certainly need the capacity and the expertise. Our own defence requirements are fairly small so that we have to sell to others. We have to keep the industry going and our costs down; and we have to be ready to expand if an emergency should arise.

In 1980–81 we expect to sell something like £1,200 million worth of defence equipment. I do not think that that is nearly enough. In 1973–75 we sold more and I think that we can do much better. We could be more efficient. We even import arms. In 1979, according to the White Paper, we spent £41 million-plus on imports of small arms and ammunition. I consider that this could have been done much better by using our own industries and so helping our balance of payments instead of hurting it. Some ammunition was made in India and Pakistan because our own Royal Ordnance factories could not supply enough. I do not think that that is good enough. We are a leading industrial nation and it was certainly wrong that we were an importer of small arms in both world wars to meet our military requirements. Through our continued policies we have bolstered the profits of many foreign manufacturers, especially the United States.

The world is not a peaceful place. Terrorism has grown alarmingly, to enormous proportions in some areas. We have security checks every time we travel by air and sometimes in hotels and shops. A person's life often seems less valuable than it was a few years ago. The divisions that there have always been between police, special security personnel and the army have narrowed somewhat due to the times in which we live. If anybody is against arms sales—and I am sure that there are some—they must be living in something of a dream world. We cannot have a perfect world. If we could we would say: "Right, no more arms, no more ammunition". That obviously is the real solution; but we know that it is not practical. We must defend our own country and we must have that capability.

Defence sales of course should be made to Governments—and I stress "Governments" and not to individuals. Sales on an individual basis are usually purely for profit and they are not to be welcomed in large numbers. Even Governments are not blameless—sometimes they have been known to buy defence equipment and sell it on, making a profit on the way. Sometimes also this is only a limited possibility, and they are often accountable for their actions. Perhaps we should press harder for an international arms registry for all defence sales. That would be welcomed by many in the West even though we may not get the co-operation that we should like from those in the East.

Perhaps I could mention some anomalies in defence sales. When we consider sales to other countries, we often apply our own strict guidelines from the outside on another country, based on our own view, and we apply sanctions to them. We often refuse to sell things to them. But are we always in the best position to judge? Many Western nations pay lip service to not selling things to South Africa because of their apartheid policy; yet the Russians and the Czechs openly sell arms there. We refuse to sell diesel engines for tanks that we supplied some years ago, some new engines to refurbish Centurion tanks. Now who is supplying them?—the Americans, one of our major allies. The German and United States Governments have made many statements about not selling arms to South America, yet there are German rifles and American revolvers being assembled in Colombia. We even have a factory in this country which is assembling German rifles and sending them to Jordan. I do not think that this is the best policy. It is just as well that there are some good things, too. We allow India, for instance, to manufacture British-designed tanks under licence.

Lord PEART

My Lords, the noble Lord referred to a British factory assembling rifles. Is he in a position to reveal the name of the factory?

Lord NEWALL

My Lords, I should not like to reveal the name here. Perhaps we could speak about it afterwards. It is a fact and I have it on good authority though I have not seen it myself. So far as India is concerned, there is something good to say. We have an agreement with them that they will manufacture British-designed tanks under licence. I think that we could do much more, and I consider myself extremely fortunate that less than two weeks ago I was able to raise this question with Mrs. Ghandi in Delhi and discuss defence sales with her on a broad basis.

There are many other examples referring to different countries, but perhaps I have said just enough to show that Government can use many devious means for selling their arms and defence equipment abroad, sometimes assembling them in a third country for purely commercial reasons. I wonder whether the Government know of another small instance where German small arms were given to our own SAS; and now our own soldiers, as they travel around the world, have often been heard to be recommending these German arms to foreigners. I do not think that that is a good idea, any more than the idea that we should ask for the Americans to supply revolvers in Ulster.

I have already mentioned the great need for industry to export. Exports help to retrieve our research and development costs and minimise our expenses. Much of our defence sales industry has been run down to a rather depressing degree in the past. Much of the equipment that can be used for military purposes can also be used for civilian purposes; things like tents, boots and even uniforms. I am glad to say that Rolls-Royce, who design many excellent diesel engines for tanks, have nearly always been able to put them to good industrial use and recommend that they should be used for such purposes. I do not think that we do enough to encourage our defence industry. Our own annual production of small arms will probably sustain us for only two weeks in an emergency.

What do other countries do about it? The French are nearly always quoted by commercial firms. They sell very hard and in their ex-colonies they virtually control all defence sales. Their embassies sell. Their Government supports them frequently and fully, knowing how helpful it is to a healthy economy to have export sales of defence equipment. The Italians and Belgians also sell hard. I believe that they have made great strides in Libya where we banned our own people from selling, and now they are reaping the benefits which we were not able to do.

Lord AVEBURY

My Lords, was it not alleged on very good authority that the Libyans supplied arms to the IRA? Does the noble Lord think it is a good idea for our European allies to sell arms to a country which is prepared to do such a despicable thing?

Lord NEWALL

No, my Lords, there are many anomalies in the whole thing. I am only bringing out one or two small instances to show how if we do not sell it does not deprive another country. Some of our own allies in many fields go out and make the money that we could have made, although we perhaps should not do this. I am not suggesting that we should always make all these sales; but I just want to make the point that we often do things for the wrong reasons.

The Germans are good salesmen and are quite prepared to sell all over the world. Nearly all these countries get full support from their own Governments. Salesmen plan ahead. They study the basic future needs of different countries. Replacement times on equipment can be forecast. There are many lists available of who buys what. I can mention one: the Stockholm International Peace Research Institute. It is a very useful guide for arms salesmen, even if there are some details omitted regarding smaller countries. Foreign salesmen often go and sit in a potential customer's country. They get the right contacts and talk to the right people. If a deal becomes imminent their Governments are ready with credit, reciprocal bartering or package deals. These salesmen stalk their prey and get the deals. They often break OECD limits. There are limits on defence sales and on credit. They blatantly defy these rules. As credit is the one key to defence sales, we are sometimes at an enormous disadvantage by playing to the rules.

What do we do? There are many commercial firms who are excellent at selling. Sometimes they are helped by the Government; sometimes they are hindered. There is a very good organisation which helps companies to sell defence equipment. It is called the Defence Sales Organisation. Most firms are high in their praise of this organisation and they have only good words to say in its favour. I believe that the Iranian tank deal—which of course now is defunct—could not have gone ahead without the great help of the Defence Sales Organisation. They have helped in many other areas as well.

However, they have limitations. They are not part of the cut and thrust of company incentives, commissions and bonuses. They cannot really challenge the private salesmen. Perhaps I could give an example. In marine defence sales prior to 1977, which was the nationalisa- tion year, the three leading warship builders were Vosper Thorneycroft, Yarrow, and Vickers. They had good order books and they were profitable while most other yards were making a loss. Since then, their order books have shrunk alarmingly despite major rearming in NATO countries and other non-communist countries. The British shipbuilders have had only one new major naval order since that time, which is a frigate for the Sultan of Oman. They have had nothing else at all, and I am very glad that some reorganisation is on the way for warship sales.

In my view, nationalisation is obviously not good for sales, whatever other attributes it may have. Nationalised industries lack an instinct for competitive survival. In the private sector, if you do not get orders you do not have a company and you do not have a job. It pays to work hard. Also, foreigners do not like dealing with Governments and they do not like dealing even with companies which are one step away from Governments. Governments have a habit of changing their minds at the stroke of a pen. For instance, the president of some banana republic may put on red socks one day and be in a bad temper. He says something detrimental about this country and so the Foreign Office decides "no sales today", and that can also affect spare parts.

I have great admiration for many of our military defence attaches abroad. They are tremendously useful sources of information, but they certainly are not chosen for their effectiveness in selling. They have been known to suggest that it was beneath them to sell, and certainly their knowledge of methods being used by foreign competitors falls far short of reality in some cases. They change every two or three years, and contacts are vital in these matters. I believe that a recent order from Iraq for ships worth about £900 million, which was obtained by Italy, was denied to us because of advice given to private and public companies by the local embassy.

The bad selling that we have become renowned for helps the "cowboys". They proliferate; they are entrepreneurs—sometimes British—who willingly barter arms for large or small commissions and are always motivated by their pockets. They have no allegiance to their country; they often sell foreign arms and they do not worry where they go to.

How do our sales work in practice? Supposing I have a recoilless ground-to-air missile to sell to the President of Utopia: probably I will get an unofficial view from Harry or Bill at the Defence Sales Organisation and they will tell me whether or not it is worth while putting in an official request. But if I have some new and untried fuel on which engines can run at 100 miles per gallon, and that was an unknown quantity, then Harry and Bill could not readily give an opinion. Therefore I have to go through the official channels—through the Defence Sales Organisation, to the Foreign Office for political clearance, which often changes its policy from time to time, through to the Ministry of Defence to see whether or not it is a sensitive product. All that has to be co-ordinated by the Department of Trade and Industry, who do not really know a great deal about it—masses of faceless men who are answering repeated inquiries without a decision. Months may pass and sometimes after more inquiries a "no" is easier than a "yes". The system seems rather prehistoric. Sales are like hot potatoes and they often have to be made very quickly if they are to succeed. Quick decisions are needed to sell, and so the system has to be streamlined drastically. Licences have to be granted much more quickly.

There are many doubts about the defence sales policy going around in industry today. For instance, do they sell only for the public sector or for the private sector as well? Is their role to open doors at high level or will they project-manage a potential sale, using the supplier as a sub-contractor? Many people consider that they lack product expertise, and the channels of communication between industry and defence sales are not at all clear. Some large companies with big export order books are not clear, and so I believe the situation ought to be reorganised and should undergo some structural changes. I hope the Government are looking at that.

May I also ask the Government to look at certain elements of the post-Rhodesia sanctions problems? If an amnesty is to be given to companies who have done naughty things, what about the good boys'? I have been told about one case, a company called Racal which sells radio equipment. They sold to Rhodesia through South Africa and are now poised for a big break-through as a supplier which is known to Zimbabwe. What about the people who behaved, such as Marconi? They refused to break sanctions and now they are at a very distinct disadvantage. I hope that the Government will give them some help.

I have already mentioned that the key to good sales is credit finance and ECGD help on defence equipment is often very difficult to obtain. Another branch of the Ministry of Defence is International Military Services, which sometimes seems to compete with the private sector and sometimes works as a Government agent to help companies. Its exact role is uncertain, and many companies are not sure about it. Often American banks can lend money more quickly on better terms than British finance houses. This area of credit finance and the exact role of the IMS is a vital area which needs to be streamlined and closely re-examined so as to avoid the uncertainty that is definitely felt by many people I have talked to. Today's Financial Times carries a very good article which bears out some of these points and I hope that my noble friend Lord Strathcona will tell us today of some improvements that are on the way. I know that consideration had been given to changes in structure since last spring, and the time is now ripe for some decision.

The United Kingdom has international goodwill and technical expertise in the defence field, but currently we are not gaining our rightful share of the world market. We are depriving our own people of readily available jobs and we are not adequately building up our defences in a realistically priced market. We must give defence sales a higher national priority. I beg to move for Papers.

3.47 p.m.

Lord SHINWELL

My Lords, the well-informed and admirably delivered speech of the noble Lord, Lord Newall, might be regarded as an overture to the important defence debates which will come before your Lordships' House shortly. He will, of course, agree that the subject is highly controversial: it always has been. Even before the First World War there was controversy to an intense degree among politicians of the various parties as to the desirability of selling arms to other countries. It was regarded by some as immoral and improper—a contribution to further wars and conflicts of various kinds, both minor and major.

The advantage of this debate is that when the major debate comes before us we shall have disposed of a controversial subject, because the Defence Estimates themselves are highly controversial. After all, a nation cannot engage in expenditure of something like £10,000 million and expect to avoid controversy—controversy that is based on the need for economy and also based on what are regarded as moral principles. So the noble Lord, Lord Newall, may be congratulated not only on furnishing information of a wide-ranging character, but also on enabling us to avoid this aspect of defence controversy when it comes to the crux of the problem.

Therefore, almost every aspect of the subject having been covered, I find myself confined to two what might be called minor aspects of the problem. In speaking to them, it is likely I would not regard it as probable—that I may be able to refute some of the absurd allegations that are used by those who are opposed to the sale of arms by the United Kingdom to any other country.

I take, to begin with, what might be described as the moral argument, psychological, philosophical and ethical in its aspects, according to one's opinion and judgment. But in my view, for what it may be worth, the sale of arms to another country, whichever form it may take—tanks, rifles or even in a wider and more destructive and dangerous form—is no more immoral than selling to another country oil which might be used in battleships, in frigates, in carriers and the like, and even in aircraft; or even selling, as the United States and Canada have been doing for some considerable time, thousands of tons of grain to Soviet Russia and to some of the Soviet Union's satellites. That could, I should think, on careful analysis, be regarded as just as immoral in its subsequent effects as the sale of arms. So, from that point of view, and dealing with that aspect, I would regard what might be described as the moral objection to selling arms to another country as hardly worth consideration.

Anyhow, no matter what the objection may be, no matter what controversy is raised, the fact is that almost every nation which produces arms for itself endeavours to sell arms to other countries. It is a remarkable fact. I suppose that Members of your Lordships' House who are interested in defence matters are aware that there is not a single country in the world, throughout the whole globe, the whole of the cosmic scheme—superpowers, those who would like to be super, some who think they are super and some not much larger than this Chamber in which I am venturing to address your Lordships—which is not in possession of arms. What for? Ostensibly, they are for the purpose of protection, of security.

That is precisely why we produce arms for ourselves and create a force, which is not as large as I should like, but which is quite adequate alongside our allies—perhaps they are more adequate than we are. We do this not to engage in a conflict, which is not our desire, never has been our desire and, I hope, never will be our objective, but to deter a conflict which we, at some time or other, apprehend. So when there is talk about nations defending themselves, purchasing arms and all the rest, I sometimes think of a country like the State of Israel. Without the arms, where would it have been? It should never have been a State at all. The same can apply to several countries. So much for the moral argument.

There is another argument, which is that by selling arms to other countries we are assisting in the promotion of another conflict, promoting war. What is the answer to that? I am venturing on a challenge to those who disagree with the noble Lord, Lord Newall, and myself on the subject of the sale of arms to other countries. Let them produce evidence of any country that has gone to war with some other country because it has purchased arms from a super-power or from any quarter. That has never happened.

There are two instances that occur to me, as I seek to address the House. There was the Korean affair, when North Korea sought to invade, and did actually invade, South Korea for political motives. One was Communist, the other was non-Communist and it obtained the assistance of the United States having obtained, not immediately but eventually, in the course of events, the consent and endorsement of the United Nations and the Security Council when that event occurred. North Korea did not go to war against South Korea, nor did China assist North Korea—which it did at the time and which may, eventually, have led to the Vietnam affair—because they had purchased arms from a super-power or from any quarter. That had nothing at all to do with it.

The same applies to the Middle East. I challenge contradiction on this issue. Nothing that has occurred in the Middle East—the Suez affair, the seizure of the Suez Canal by Nasser and a variety of other misdemeanours that occurred in that area, leading to some conflict—was in any way attributable to the purchase of arms from the United Kingdom, the United States, Czechoslovakia or any other country. All that happened was that Czechoslovakia sold arms, we sold arms and the United States sold arms wherever we could. But there was no contribution to conflict. Conflicts occur for other reasons into which I need not enter, but of which I think Members of your Lordships' House are fully cognisant. That is the situation. So much for that.

This controversy has been interminable and I recall it taking place before the First World War. If I may turn to that period for a moment, there was the action of Germany, the attitude of France, which was a little ambivalent, the attitude of the United Kingdom after some controversy and difficulties in the Cabinet of the period, and even division in the country. There was certainly more division in the country then than there was in the Second World War, when the country was, if not unanimous, united. But the Germans did not go to war against the United Kingdom and France because they had purchased arms from other countries. This is a foolish argument, a stupid allegation, which is used by those who claim to be ethical, and who indulge in moralising, sermonising and all the rest of it. I would regard it—and I say so with the greatest respect—as just hypocrisy, sometimes humbug. Wars do not occur because of the sale of arms. Sometimes they could occur because of no sale of arms and no possession of arms if a country is incapable of defending itself. So I dispose of the arguments against the sale of arms and I agree with almost every word the noble Lord, Lord Newall, has said.

I would rather it were otherwise. If international tension vanished, if there were no danger of conflict, if our apprehensions were disposed of, for one reason or another, how happy we should be. We should not require to spend £10,000 million—or perhaps more in the course of time—or to rely upon our allies to assist us, and sometimes to rely on allies who let us down at the last minute. I do not want to mention any names or to be too controversial on this subject.

It seems to me that, in all the circumstances, there is nothing particularly wrong with the sale of arms. Although I would rather it could be avoided, it has to be done. It helps to build up our own industries. It contributes to the manufacture of adequate arms for the United Kingdom for the purpose of deterrence and for the purpose of security. That is our purpose. Therefore, I support the Motion and have not the least doubt that your Lordships' House will accept it.

4.2 p.m.

Lord ORR-EWING

My Lords, I think we all owe a debt of gratitude to the noble Lord, Lord Newall, for his raising of this very important subject and for the admirable content of his speech. He always takes infinite trouble in collecting information, and it was a speech which was full of very useful information. It also had the benefit, as it always does when he speaks, of being succinct and to the point. As I have to chair a meeting shortly after 4.15 p.m., I was particularly grateful for his shortness. I would ask for the indulgence of the House if I go away, but I shall of course return to this debate as soon as the meeting is over.

First, I have to make an apology. On 18th December we had a short debate initiated by the noble Earl, Lord Kimberley, on the British nuclear deterrent. I had cause to criticise the BBC "Panorama" programme on that same subject which was transmitted on 10th December. 1, and many others, thought that it was biased towards the political Left. In referring to Doctor Rotblat I said that his views were of the extreme Left, or Marxist. Since then I have had the opportunity to meet and discuss this matter with him. I now believe that I did him a grave injustice and that I was wrong. Ever since he worked with the United Kingdom team at Los Alamos he has believed passionately, and understandably, in nuclear disarmament—and even in unilateral nuclear disarmament. Therefore he has taken part, in the past, in Aldermaston marches, but unlike some others on those marches I believe that he was motivated by horror and by compassion, not by sympathy for Marxist or Soviet views. I accordingly withdraw and apologise and try to correct the injustice I did him. I make that statement now because this is the first opportunity afforded to me to do so in a defence debate. Unfortunately, our main defence debate has been brought forward to May 8th, when it clashes with a meeting which I shall have to attend of a Panel of the International Chamber of Commerce in Paris; I shall not therefore have the opportunity to be here on that occasion.

I want to concentrate on the importance, as I believe it to be, of increasing the total of our overseas sales—not that I think that we have done badly. In 1970 and 1971–10 years ago—we were exporting in 1979 terms £870 million of defence equipment. In 1973 and 1974 there was the peak of £1,229 million of equipment, but that was helped by large sales to Saudi Arabia and to Iran. In the year just ended, 1979–80, we exported £900 million of arms. To that should be added another £140 million for works services, for support and for advisers. This latter item of £140 million is becoming increasingly important as we sell arms. The arms have a high technological content; therefore instructors and support are very necessary.

Looking back, I think that one of the blunders of the Labour Government, apart from the rundown of defence, was made in 1964. They have always been slightly pathological—though excuse my saying so—about Spain. When I left the Admiralty in 1963 I knew that we were a long way towards receiving an order for ships of British design, fitted with a great deal of British equipment, for the re-equipment of the Spanish navy. Unfortunately, all that was cancelled because at the time Franco was at the helm. Had they been able to see ahead, I think there would have been very, very valuable orders for our ancillary maritime equipment and that we should have had ships designed to British standards now equipping the Spanish navy. The same applies to Portugal. Even manoeuvres with Portugal were forbidden. Both of those nations are now democratic and an important part of Western defence.

I think we have been well served by successive heads of defence sales. I knew them all. Sir Raymond Browne was the first; Sir Lester Suffield was the second and Sir Ronald Ellis is currently in office, and has been for some years. They have done outstanding work and have certainly opened doors which those in industry would not have been able to open without their help. It was well worth while setting up, and I pay tribute to the Labour Government. It was their initiative which did it. I think that it was brave and that it was correct.

Despite that, I still think that we ought to be and should be doing even better. One only has to look and see how France has done to realise the potential. France had a smaller aerospace industry than ours and certainly was insignificant compared with our strength in avionics and electronics. Let us, however, take the figures from SIPRI, the Stockholm International Peace Research Institute. I realise that all such figures are liable to error because sometimes the bases are different. There it records that in 1978 France was selling three times as much as this country.

There is one place where our imbalance of sales has not got any better. It was in September 1975, nearly five years ago, when a Memorandum of Understanding was signed with the United States of America to try to improve the two-way flow of arms—the two-way street as it was called. Even today, despite efforts, there is a grave imbalance, in that we are buying between three and four times as much from the United States as they are buying from us. If we succeed, as is likely, in selling the Rapier surface-to-air missile, or if they place the order, as we urgently hope they will, for the AV8B—the United States version of the Harrier—this will make a very big impact on that balance. But it has not yet happened. Every opportunity therefore must be taken by our Government to make clear to the United States that that obligation still is there so that we may hope to keep them to the understandings and the undertakings which were signed nearly five years ago.

I think that we in this country must particularly specialise in our defence sales in the high technology industries. As our prowess and, regrettably, our leadership in the traditional heavy industries of shipbuilding and heavy engineering—and, in the earlier days, railways—have declined, and as our sales have deteriorated in those areas, so it has become vitally important that we should renew our efforts in aerospace, electronics, and other high technology industries.

I have spent the whole of my working life associated with electronics and aerospace and light engineering, and I know how vitally important the research and development contracts emanating from the Ministry of Defence are to the success and competitive position of British industry. Profit margins are not great and they are controlled. Of course they are limited, in favourable cases, to as high as 14 per cent., but they can be as low as 11 per cent. It is very difficult in an inflationary world, when delivery is wanted in three or four years' time, to quote a price, sometimes a competitive price, which will hold up against the inflation of three years—inflation which is perhaps much greater than one estimates.

Moreover, in quoting for long-term sales, both here and for export purposes, it is very difficult to forecast the borrowing rate which will apply over the intervening years, and if one is having to borrow money from one's bank at something like 20 per cent. it makes desperate inroads on the profit margins available. So I urge my noble friend to have a look and to see whether the profit margins today are realistic in view of the 20 per cent. inflation and the difficulty when borrowing rates are very high of making ends meet.

A further difficulty arises if a firm is locked into a development contract to meet a Ministry of Defence requirement or perhaps to meet the demands of the Civil Aviation Authority or some other public body: that contract may be cancelled at short notice and one is placed in a parlous position when one has set aside the efforts and the brains of one's research and development staff, and gets no orders and does not fill one's production factory, and yet all the overheads have to be carried as a result.

I do not think we should forget the enormous contribution which defence work makes to employment in this country. This admirable White Paper sets it out extremely well in paragraph 735, where it points out that 200,000 people owe their employment directly to the production of defence equipment and another 200,000 are working for sub-contractors in the defence field. So that is a total of 400,000 people directly and usefully employed in the defence of our country and in the sales of defence equipment.

I would also ask my noble friend to see what France is doing to increase her share of the export markets for defence equipment. A circular has come into my hands which states: France dominates the Middle East defence sales". It goes on to say that there is a possible sale of as many as 450 Mirage 2000 fighters to Saudi Arabia within the next ten years. It quotes the setting up of a joint French-Jordanian factory in Jordan for the manufacture of the Mirage 2000. It is perhaps significant that President Valéry Giscard d'Estaing recently made a 10-day visit to the Middle East and to the Gulf and it may be that these orders have been helped by that.

Let us take an example—the French effort. They have done one thing: they have driven for sales and they have succeeded in making them and above all else they have looked after their own defence industry within their country. It may be said that we are bound by international law not to do the same. Self-interest is a very important and dominant factor in any nation's economy and I ask my noble friend to take notice of a memorandum prepared by the Electronic Engineering Association and submitted to him. Could he take counsel with Sir Keith Joseph and the noble Viscount, Lord Trenchard, to see what can be done to help our British industry to no greater extent but to no lesser extent than France and the USA look after theirs? If we could do half as well we should not be exporting £1,100 million or £1,200 million of defence equipment in the coming year but I believe we should be able to raise the figure to £1,500 million and to £2,000 million and perhaps even approach the level which France has succeeded in attaining.

I urge my noble friend to consider the consequences if we always buy in the cheapest markets. If we do not look after our own industry we shall become a deindustrialised agricultural country again and in that instance this Government will not be in power and I suspect that the social democrats will not be in power either. We shall have an extreme Government of some sort in this country; we shall have serious unemployment and we shall no longer play a leading part in the free world. So I urge my noble friend to look at this memorandum, to consider its implications and to see what action can be taken to protect our high technology industries and make sure that they are kept usefully employed and exporting, as they have always done in the past.

Lord CARVER

My Lords, before the noble Lord sits down, will he say whether he has considered the point, which was frequently made to me by my French colleagues, when I was a Chief of Staff—that their forces suffered very considerably from the fact that the French Government put the needs of defence sales overseas before the needs of their own forces, and the forces were therefore forced to accept equipment which they did not want and which was designed primarily for overseas service? I would have said that this applied very much to French aircraft.

Lord ORR-EWING

Yes, my Lords. I recognise the point made by the noble Lord, Lord Carver. The French build naval ships on spec hoping to sell them to overseas customers, and if they do not do so they are added to the strength of the French Navy. They may not be the ideal weapon, but they are at least something in the hand. I feel at the moment that it is better to have something in the hands of our troops, who are under-armed (and, where they are armed, it is not with the most modern arms) than to wait for the most perfect weapon which completely meets our operational requirement. So, although I am most grateful for the noble Lord's intervention, I think there is another side to the question.

4.18 p.m.

Lord WINTERBOTTOM

My Lords, I should like to join with other noble Lords in thanking the noble Lord, Lord Newall, for introducing this debate. His speech was factual, cogent and short, and these are virtues in speaking which this House appreciates.

One of the things which surprises me as I look at the defence scene is how little we look at the experience of previous generations. The Romans said quite clearly, If you wish for peace, prepare for war"— si vis pacem, para bellum"— and they knew something about running a world system. In today's debate I think that no speaker would deny that the actual selling of our defence projects abroad is not to our national interest. It involves 75,000 jobs; £1,200 million worth we hope will be sold next year. These are very important economic figures, and perhaps more important still is the fact that by selling some of our equipment abroad the unit cost of that equipment drops. Because of the very high cost of research and development and of production facilities, it is cheaper for us to buy our Rapier air defence system if we are selling it in larger numbers abroad. I wish to put four questions to the noble Lord, Lord Strathcona and Mount Royal, who is to reply to the debate. I give him due warning, and I think he might perhaps indicate what is the significant saving in cost to this country in perhaps one or two weapons systems, where we have been successful in selling abroad substantially, for instance, the Rapier air defence system and, say, the Lynx helicopter.

My second point is to discuss what my noble friend Lord Shinwell (who speaks much better English than I do) described quite simply as the "moral argument". I was going to use the rather more pompous phrase, "the ethical parameters of selling weapons abroad". It is quite clear that as a nation we cannot neglect our moral views or our national interest in selling weapons abroad. The noble Lord, Lord Orr-Ewing, who has made an important contribution to this debate, made a point of praising France for her activities in the field of defence sales overseas. She has, of course, been very successful, but I doubt whether her ethical parameters are as narrow as ours.

One would perhaps draw attention to her selling a type of nuclear power station to Iraq, which she is attempting to force through, as an example of a very destabilising operation closely related to defence sales. For that reason we are not quite as limited as the French in our thinking when we come round to our defence policy and selling abroad. It is quite clear that a very large amount of equipment and materials which we send abroad are morally neutral, defensive equipment, defensive clothing, anti-riot equipment and so on. There is a whole range of other equipment which is purely defensive.

But at a certain point we must start questioning what we do and what we permit our industry to sell abroad. Of course one sells to one's allies, and I want to talk about the two-way street in a moment. We sell to many neutral nations and one must question what we sell to them. We even sell to communist countries. Do not let us forget that we are supplying and helping to create a production industry both in Romania and China for the Spey engine, which is an absolutely first-class jet engine for use in military aircraft. We do this because we believe that our interest is to support the Romanian and Chinese defence industries. That is a most unusual exception.

Whatever we do in this field must be related first of all to national interest and, secondly, to moral attitudes within this country. No one is going to expect us to sell abroad tactical nuclear weapons, although I presume it would be within our power to do so. I think it would be very helpful in this debate if the noble Lord, Lord Strathcona, would give certain indications—it is a very large subject, so he will want to limit his contribution—of what the ethical parameters are for the selling of weapons abroad.

The next point I want to make is again a comparatively simple one and contains a question. We enter into agreements with foreign nations to supply them with equipment and after-sales services and spares. Then the leadership of that nation collapses, the nation becomes unstable. We are left with vast unfinished contracts. I am thinking in particular of Iran. I should like to ask the noble Lord how, for instance, we are coping with the problem of the Shah-Iran tank. The Shah-Iran is a very important development of the Chieftain. It is a magnificent piece of military equipment. I expect that in the ordnance factories of this country there are pieces of Shah-Iran in all sorts of stages of production, from heaps of spares to finished vehicles.

Have we any policy for absorbing into our own armed forces half-finished equip- ment which could be of value to our own armed forces, at considerably less cost than if we were starting from scratch, because a substantial part of the development cost and manufacturing cost has been paid for by some other nation? In particular in relation to this problem, I believe there is a fleet supply ship for Iran completed and awaiting dispatch, but apparently not being dispatched for reasons which perhaps we shall be told today.

I come to my last point. The noble Lord, Lord Orr-Ewing, raised the question of the two-way street. Of course, it is not only the two-way street with America; there is the general collaborative effort we are bringing about with our allies within NATO. Is the noble Lord, Lord Strathcona, satisfied that the collaboration is as close and as active as we would all wish it to be? We are, of course, having our successes; the Tornado, the Howitzer, and, of course, very interesting future development work, are examples of collaboration. In his summing-up would the noble Lord indicate whether the Government are satisfied that our allies are collaborating to the degree we would all wish to see?

4.27 p.m.

Lord CLIFFORD of CHUDLEIGH

My Lords, I also would like to congratulate the noble Lord, Lord Newall, on bringing up this very important subject, particularly at this time. An ex-agent of mine, now in his eighties, has just written a book which is called Twice in a Lifetime. When he deals with the Second World War he says that so many of his contemporaries who had also been in the First World War entered into it in a great sense of disgust at having been let down twice in their lifetime by our politicians who had not prepared them for the holocaust that was to come.

A successful arms industry is an absolute essential for being prepared for war, or even continuing one once we are forced into it. That is why I think we should do all we can to encourage our overseas sales of arms, so as to have, if and when war does break out, a successful arms industry for ourselves, as well as for equipping ourselves at the moment. What better way than encouraging the private sector? What better way than ordering twice the number we need, for example, of ships, tanks, wireless sets, planes, et. al., for our forces so as to sell the surplus overseas? Of course, you can make a greater number more economically because you thereby reduce the unit cost.

What better way than encouraging industry to try out new ideas? Though it was not for sale overseas, the example we can all think of is the Spitfire and how it came to be developed before the last war in spite of official lagging behind. During the debate on 5th March we heard, for example, from the noble Lord, Lord Renton, how the countries which are now cited as the best prepared for civil defence—Switzerland, Sweden and so on—came to us for ideas and equipment, and that is what started off their civil defence. What happened to ours? We abolished it in 1967. We did not go on producing, except for a few minor smaller companies, because there was no longer the demand for the volume of equipment. Now when they come to renew, for example, their radiac equipment, they are quite likely to go elsewhere. Why should we not get back into the race by re-equipping those forces to which I have just referred and to which the noble Lord, Lord Renton, referred, and at the same time get that industry going again and back into the export market that we had previously?

Other examples can be quoted which are on the borderline, for example, between military and civil matters. When we had the old civil defence organisation we had what was then quite a good fire-fighting machine. We abolished civil defence and we put the green goddesses into mothballs. As regards civil defence we do not have an up-to-date vehicle. But why not help ourselves and our exports by, if necessary, subsidising to a certain extent this type of equipment? Surely the best thing economically is to get up-to-date and to sell as much of our equipment as possible. Home defence forces are road bound and are equipped with two-wheel drive vehicles. Why not give an impetus to equipping them with what they should have—namely, four-wheel drive vehicles, which is the modern up-to-date equipment for regular forces and which could, in a way, be self-financing by selling a proportion. We have dropped behind, having lead the way in four-wheel drives. Those are only a few examples of the way in which we could help our industries and ourselves to have a good machine and to be prepared.

Finally, pay no attention to the moaners of the "defence at all costs" school. Their taunts of being "merchants of death" are purely hypocritical. I remember an ex-Labour Minister of Defence talking to us—I think that I see the noble Lord, Lord Winterbottom, nodding his head—and saying that his strongest critics in another place would come to him privately and say, "What about a defence order to my constituency?" and so on. I hope that he told them, "You cannot have it both ways".

I hope that the Minister and the Government will take heed of the Motion of the noble Lord, Lord Newall, and that we shall have in future Government assistance for defence arms sales to get us off the ground and back to where we were previously.

4.34 p.m.

Lord BETHELL

My Lords, I should like to join with others who have congratulated my noble friend Lord Newall on introducing this extremely timely debate on arms sales overseas. At a time when our arms sales in various parts of the Middle East are severely hit by international crisis and various disagreeable events in Saudi Arabia and Iran, it is particularly appropriate that we should concentrate our minds on how the situation can be remedied.

If your Lordships will permit me, I should like to concentrate for a moment on what I see as the fundamental difficulty facing the United Kingdom in building an efficient and profitable arms industry at present. Let us face it: we are no longer the major arms producing country that we were decades ago. We are now a medium-sized industrial country and probably a less than medium-sized military country. It is very difficult for us to produce weapons profitably—given the difficulties that face British industry at the moment—from our present industrial base. The result has been what my noble friend Lord Orr-Ewing referred to as the one-way street with the United States—the sad fact that we sell to that country only one quarter of what we buy from it in the field of military equipment.

How can we right that wrong? How can we turn the one-way street into a two-way street? I shall suggest a possible solution to which I hope my noble friend Lord Strathcona and Mount Royal will be able to give attention. He will recall that we have already been in correspondence about it. I am referring to a greater involvement on behalf of our partners in the European Community. The Community is, after all, the only comparable industrial market to those of the super powers, the only market which could—if a system could he worked out—enable us to produce weapons with the same sort of markets and the same sort of outlets, as the United States.

In the past we have tried to approach the problem of the narrowness of our market by the system of the consortium. With the aid of the Independent European Programme Group, we have set up consortia among our European allies bilaterally, trilaterally and quadrilaterally. But I think that it is generally agreed among producers of sophisticated arms in this country—including those who have taken part in consortia—that it is not the ideal way to produce the best weapon and the weapon that will sell the most and make the most profit.

Different countries have different systems of subcontraction and they will not undertake to purchase a weapon unless they, as part of the consortium, make part of the weapon. The result is often cumbersome. If it is said that a camel looks like a horse designed by a committee, I must say that a sophisticated weapon produced by a European consortium very often looks like a machine designed by a committee. No wonder the United States manages to outbuild us, outpace us scientifically, and out-sell us in this extremely important market.

Therefore, I should like to urge the Government and my noble friend to take another look at the whole question of European arms procurement. He will know that it has been considered in the European Parliament many times" in the past years and he will, of course, he familiar with the Klepsch Report. He will know of the debate last September in the European Parliament, when a broad consensus was felt among members from all member States that some Community element needs to he brought into arms procurement as part of a common industrial policy. I do not mean a common defence policy; I mean an industrial policy of the Nine, which already exists in many areas, but which for the moment is excluded from the Treaty of Rome. It is particularly right that we should think about this at the moment because there is a new mood on the question of defence coming to the fore in the European Community.

I wonder whether your Lordships have read, for instance, the interview given by President Giscard d'Estaing in Le Figaro two weeks ago, in which he spoke in a way which no French President could possibly have spoken a few months ago on the question of European defence and European co-operation in defence. Until a few months ago that was anathema to every French party, but now across the Channel they are beginning to think about it and, of course, it needs little imagination to understand why they are beginning to think about it. The matter is now urgent. It must be considered and it seems to me that this is the only solution to the problems of middle-sized countries which cannot efficiently produce sophisticated weapons.

Therefore, can I ask my noble friend to give us his latest ideas on this subject of European co-operation? What has he done about the ideas expressed in the Klepsch Report? Does he still have a fundamental objection to participation by the European Commission in building a defence element into European industrial policy? It seems to me that very often there is something of a block on this subject—the question of involvement of the European Commission in the industrial base—in the Ministry of Defence.

Finally, I am not suggesting that the European Community should produce rifles and ammunition; this can quite simply be done on a national basis, provided that basic agreement can be worked out among allied countries about harmonisation. But it seems to me that just as in the field of energy it makes no sense for a country of our size to go it alone, so it makes every sense for us to combine with countries of similar industrial potential to pool our resources and build an energy policy. It makes every sense to have the JET project, with the help of European industry, sited in one Member-State, which in this case happens to be this country. By the same token it makes sense to conceive a European element in arms procurement, not in order to produce small arms—such as revolvers—but in order to produce the underwater weapons, the satellites, the computers and the tracking equipment which only very sophisticated industry and very large investments can produce on a profitable and high-level basis. Can my noble friend please consider this matter and let us know his thoughts?

4.42 p.m.

Lord PEART

My Lords, first, I should like to congratulate the noble Lord, Lord Newall, for introducing this short debate and for the way in which he did so. As one of his colleagues said, he always speaks succinctly; it is a credit to him and I am glad that he has raised this subject. In a way it is rather a pity that we are not debating this matter when we debate the major Defence Estimates.

I understand the idealism in relation to European unity and the Community which prompts the noble Lord, Lord Bethell, but I take the view that the French should recognise that NATO is the main organisation for the defence of Europe and the West. Whatever the noble Lord may say about the French attitude, that is their problem and they should show more sympathy towards NATO. As he knows, there have been difficulties. I am sure the noble Lord, Lord Strathcona and Mount Royal. who will be replying for the Government. will agree with me that the policy of Her Majesty's Government is to strengthen NATO. The noble Lord. Lord Bethell, referred to the need to have a European arms organisation; that body should be within NATO, and quite separate from the European Community as such. I think that the noble Lord would probably appreciate this if he were to read carefully the treaty that set up NATO itself. I am not opposed to the EEC at all, unlike my noble friend Lord Shinwell. who takes a very different view from me. But I believe that defence should be in the hands of NATO and not in the hands of the European Community.

Lord BETHELL

My Lords, if I may interrupt the noble Lord, Lord Peart, very briefly, may I ask him whether he appreciates that defence is not an isolated matter; it must be connected with the industrial base of allied countries? If one has a united industrial policy among the European Community, does it not follow that there will be overlapping with the defence procurement policies of those same countries?

Lord PEART

My Lords, we can still have a common industrial policy, but there should be no overlapping; NATO is the main body and should be responsible. The noble Lord shakes his head; I am sorry, but we disagree on this. I think that this has been a good debate. The noble Lord, Lord Newall, mentioned the value of defence for our people, with exports also affecting the employment of 80,000 people. Many parts of this industry employ skilled technicians; indeed, the noble Lord, Lord Orr-Ewing, is an example—he is a physicist and knows the industry. It is true that with the sophisticated methods that we now have, inevitably this industry attracts distinguished people and makes a major contribution to our country. I believe that the noble Lord, Lord Newall, asked whether we could expand our small-arms sales and mentioned that we import from different parts of the world. Reference has been made to how we import from the United States on a ratio of 4 to 1, which shows that we have a long way to go in the field of supplying equipment which is so important.

I know that we have had our successes. Tornado, which we debated recently, is one example, and another is the Harrier aircraft. Therefore, do not let us be too pessimistic. Let us remember that the arms sales' department is important. The noble Lord, Lord Orr-Ewing, rather chided the previous Labour Government! we did set up an organisation; it was a Labour Government which started it. When my noble friend Lord Shinwell was Minister of Defence, generally speaking, he always got his way in a Labour Cabinet. Therefore, it is wrong for anyone to assume that this is a party issue. I have been a member of several Labour Governments and have played my part. not as a Minister of Defence, but as a Minister for another department. I can assure noble Lords that we always concentrated upon seeking to build up our defence position.

Therefore it is very wrong to drag up old arguments of who was responsible in the past. After all, I could go right back to the 1930s when Mr. Chamberlain ran this country, and mention the sorry mess that he made of it, including the AngloGerman Naval Agreement, and matters of that kind. But we must forget that; we must think in terms of building up an efficient sales organisation. I believe that this will be appreciated by many people and will improve our trade.

The noble Lord, Lord Newall, said that he wanted small-arms in an emergency. He asked about France; I have dealt with France; I think that France should play a bigger part in NATO, but so far she has not. There is no question about the home Government on this matter. I believe that the last Labour Government and the present Government are still seeking to build up our organisation. The Defence Sales Organisation exists. Mention has been made of the Iranian tank; there is also the marine defence sales, dealing with Vospers, Yarrow and Vickers, which was mentioned by my noble friend Lord Winterbottom who, as noble Lords and I know only too well, is a very distinguished former Minister who has played a major part in speeding up the defence needs of our country. I pay tribute to him. I was only sorry that he left me at that time. Nevertheless, he still takes a passionate interest in this matter.

Then there is the question of a larger share of our market. My noble friend Lord Shinwell spoke about some of the moral aspects of the problem, and about those who oppose arms, and I agree with him. On the other hand, I recognise that we must have a correct balance. There is no question that in some parts of the world tractors are as important as tanks; I remember making a speech in the Council of Europe on this matter. But we need to ensure that we have adequate defences and if, at the same time as supplying our own industry, we can export, that is all to the good. I would argue that our country is well aware of the importance of this matter. Indeed, the Statement on the Defence Estimates mentions a figure of 200,000 people. It is a very admirable document and one of the best documents that I have seen emanate from the Ministry of Defence over the years. I say to the noble Lord, Lord Strathcona and Mount Royal, that his colleagues have done well to produce this.

Mention has been made of France, how she dominates the Middle East, and her Mirage fighters, and how important it is that we should have a sensible diplomacy which will enable us also to play our part there. Whether this can be done, I cannot say. In this short debate I would only argue that we must try to do our best, and over the years we have been fairly successful. Some of our tanks have been sold in different parts of the world—the Chieftain is one example—and the aircraft which I mentioned. I am not going to waste the time of the House tonight. I believe that the noble Lord has made his case. There are others still to join in the debate, and I said I would be brief. We have nothing to apologise for, and we should not have any party policy on this issue.

4.51 p.m.

The MINISTER of STATE, MINISTRY of DEFENCE (Lord Strathcona and Mount Royal)

My Lords, I, like all other noble Lords, am grateful to the noble Lord, Lord Newall, for the fact that he initiated this debate and for the manner in which he did it. May I start by telling him that, as I hope I shall establish, we certainly are not complacent on this question of defence sales. Indeed, I am not even sure that it is true to say that we are wholly pleased. Nevertheless, they are an important and not totally unsatisfactory part of the defence scene.

I said before, when we were talking about the Harrier, that defence debates of this kind on comparatively minor issues make a contribution, and this was something that the acting Leader of the House was pursued about almost to the point of harassment earlier this afternoon. I believe that debates of this kind are extremely useful for clearing the air on specific issues before we get down to the major debate associated with the defence White Paper. I must not lose this opportunity of thanking the noble Lord, Lord Peart, for the kind remarks he has made about the defence White Paper. I shall return in a minute to the question of dis- closure of information, which is always a vexed issue in the defence world.

On a number of occasions in the past noble Lords have voiced concern about certain aspects of the arms trade. In a way, it is rather sad that those noble Lords who feel like this have not chosen to participate in this debate, because we have had almost total unanimity. I suppose I ought to be grateful for that, but in a sense it blunts the thrust of our debates when we get quite the degree of agreement we have had this afternoon on this issue. I am sure that underneath that surface there in fact exists a considerable body of opinion, which I believe we should respect, which differs from us on this issue. I shall try in a moment to deal with the ethical parameters of the noble Lord, Lord Winterbottom, but may I start by addressing myself to the problem of human rights, which has occurred on a number of occasions, and this might give some indication of the ethical approach of the Government to this difficult question.

The views of our critics are strongly held and sincerely felt, and we respect them. We also have to accept that the sale of defence equipment is an emotive subject. It brings in all kinds of contentious moral and philosophical views. In particular, defence sales to countries where there are gross abuses of human rights inevitably raise controversy, and the Government recognise this. But the situation varies from country to country, and we believe that it is unrealistic and impractical to try to adopt a simple single rule of thumb by which we can measure the extent of these abuses which should, or should not, influence the sale of defence equipment.

Governments not only in this country but elsewhere are bound to take a more pragmatic view. This is not to say that in this country and in this Government we do not take full account of the character of the regime concerned in arms sales and its record on human rights and the use to which equipment is likely to be put. I am saying that human rights are a factor which is constantly in our minds in the consideration given to individual sales proposals and in the decisions which are reached upon them by Ministers. It would be too much to expect that noble Lords would accept that the Government always get the right answers, but I should like to assure noble Lords that human rights are invariably taken into account and are given their full weight. Of course any United Nations' embargo is fully respected.

This gives me an opportunity to deal with some of the specific questions I was asked on 10th March in this House. Perhaps I can do a brief tour d'horizon of some of the countries concerned. First, Uganda. Once the nature of the Amin régime emerged, the current contracts for the delivery of armoured vehicles were cancelled and no further export licences for military equipment were granted. Secondly, the Palestine Liberation Organisation. I am sorry that the noble Lord, Lord Janner, is not here. British-made equipment may well have found its way into the PLO hands—perhaps they have a recognition of the superior quality of British-made equipment. But the sale of equipment by the Government to the PLO has not been, and would not be, considered, much less approved.

Thirdly, there is Ethiopia. Defence equipment has not been supplied to Ethiopia in the last two years or so and there is no intention that it should be at present. Fourthly, Argentina. The Government's view is that a general embargo on defence sales would not be justified. However, we continue to withhold approval for the supply of equipment which could be used against the civilian population in Argentina. It is in this sense that I referred, during the debate on 10th March, to withholding the supply of arms to those countries which were guilty of torture.

Fifthly, Iran. Here I am in a slight difficulty because the situation may have changed even since I got myself briefed for this debate. However, no arms or defence equipment have been sent from this country to Iran since the hostages were seized in November of last year. You have to remember that in taking action of this kind you run the risk of losing your credibility with the countries with whom you have signed contracts. Britain's reliability in their willingness to perform contracts into which they have entered is an important input into the likely success which you will achieve in arms sales.

The noble Lord, Lord Winterbottom, asked me—and I should love to duck the issue—about the question of the "Kharg". She is indeed completed. It is an embarrassment to us. She has not been delivered to the Iranians, and we sincerely hope that she will not be until the hostages are released—in fact, she certainly will not be. But it is a very difficult situation. A large sum of money is involved. The shipyard concerned stands to lose a lot of money on a day-by-day basis until the ship is delivered; and it is a contract that we are having to dishonour. We are doing our best to avoid this becoming a major disagreement with a country with which we believe ultimately we shall once again want to do business.

Perhaps this is a good moment for me to deal with another question that the noble Lord raised, regarding the frustrated contracts that were entered into with the Shah; and in particular the question of the large number of tanks. As is known, some of those tanks have now been sold to the Jordanians, and we are looking at the possibility of taking some of the improved version, of what used to he known as the Shir II and which is now known as Challenger into the British Army in order to give it the benefit of the Chobham armour with which they are equipped. There is also the Rolls-Royce engine. It is currently the engine for those tanks, and it is intended to be the engine to be used in the next generation of tank to be developed for the British Army. This is a matter which is not easy to accommodate within the defence budget, but we very much hope that we shall be able to do so, and a decision cannot be very long delayed.

Coming back to arms exports to certain countries, I should say that Pakistan has also cropped up. Pakistan now has 80,000 Soviet troops in neighbouring Afghanistan, and we believe that in these circumstances it would be imprudent for us to withhold the sales of appropriate defence equipment, should the Pakistanis look to us for it. Of course there is always the little matter of finance. So far as Indonesia, Singapore and Turkey are concerned, a refusal to sell defence equipment there would be totally at variance with our overall relationship with these friendly countries. Turkey's position as a member of NATO on the exposed flank is an added consideration, but it is no secret, my Lords, that the Turkish economy is in a mess, and the Turks have no money. However, that particular issue is not the one that we are addressing this afternoon.

I hope I have indicated that the Government take a responsible attitude towards defence sales. I merely thought, particularly since the noble Lord, Lord Winter-bottom, had raised the issue, that it was right to emphasise that this Government, and other governments, are bound to take into account a range of factors—political, strategic, security, in the world sense and in the economic sense—when considering our arms control and our international obligations. These also bear on the question of defence sales—

Lord AVEBURY

My Lords, is the Minister aware that there will be great disappointment that he has resiled from the categorical statement that he made in the House on 10th March that we would not export arms to a country which is guilty of torture? Is he also aware that that statement is readily monitored and policed, whereas the general assurances that he has given, following his predecessors, that we take into consideration human rights factors in the sale of arms, are very difficult to evaluate in particular cases? However, in the case of Argentina, which he was talking about the other day when he said that we would not export arms to a country which is guilty of torture, does the fact that we would not sell arms of a particular kind where they could be used against the civilian population show that we recognise the truth of the assertions which have now been made—following many others, such as those by Amnesty International—in the recent report of the Inter-American Human Rights Commission, which indicated that torture is still prevalent in that country?

Lord STRATHCONA and MOUNT ROYAL

My Lords, the question of establishing the existence of torture and the definition of torture is inevitably a very difficult and an emotional one. After all, it is worth reminding the noble Lord that this country has been found guilty of practising torture. I think that we would be rather keen to deny that, but the fact is that we have been accused, and indeed to a limited extent have been found guilty, of so behaving. So I believe that this matter is exceedingly difficult, and I dare say that under some definitions there are practically no countries in the world which do not resort to what some people would regard as torture. I suggest to the noble Lord that this is not a black and white issue. We must do our best to try to use a balanced judgment in a matter of this kind. If what I have just said disappoints the noble Lord, I am sorry, but it represents a statement of the Government's position on certain countries, one of which is Argentina. I should like to add one further point on this. Because we choose to do a trade in arms with a country, it does not necessarily mean that we are placing any kind of seal of political approval upon the complexion of the government in that particular country.

Perhaps slightly late in my speech I may turn to the more positive aspects of defence sales, which in fact have already been covered very well by a number of noble Lords. First, may I say that there is no doubt of the Government's view, with which I wholly go along, that there are substantial benefits for this country associated with defence sales. It is an obvious point that these sales make a contribution to both the economy and employment. Noble Lords have already produced a number of figures, but I think that they bear repeating. Defence sales overseas represent between a quarter and a third of the output of the defence industry of the country and over half the output of the Royal Ordnance factories. As the noble Lords, Lord Newall, and Lord Orr-Ewing, paid, the value of defence sales in 1979–80 was estimated at about £1,100 million, which represents about 2½ per cent. of total United Kingdom exports. It is worth making the point that the figures that the noble Lord, Lord Orr-Ewing, used have been corrected for the purposes of inflation, and in fact the figure for defence sales has remained remarkably steady, apart from a rise during the two years when we were selling to Persia.

It has also been said that defence sales are estimated to maintain about 70,000 to 80,000 man-years of employment per year directly, with probably as many man-years again indirectly, although that is of course more difficult to estimate—

Lord STONE

My Lords, may I interrupt the noble Lord for a moment to put just one question? Have the countries referred to paid for all these items?

Lord STRATHCONA and MOUNT ROYAL

My Lords, I wonder whether the noble Lord is referring to the countries involved in the defence sales of £1,100 million, or to the other countries that I was talking about. I would hope, and believe, that the general answer to the question is, Yes, but I have no doubt that the countries are not all perfect in this respect—and here I can think of one country in particular. However, generally speaking, the answer is, Yes, and, again generally speaking, fairly specific arrangements are made to ensure that the money is successfully collected. It is true that many of the Iranian contracts were paid for ahead, but perhaps we should not draw too many deductions from why that was done. The fact is that it was done.

We are saying that there are distinct benefits to be derived from defence sales, which we should not lightly cast aside, and they help us to maintain a vital industry for ourselves. I cannot give the figures for which the noble Lord, Lord Winterbottom, was asking regarding the effect on the unit costs to us of selling equipment overseas. This is not a very easy equation to work out, as the noble Lord will appreciate. However, I think it beyond question that any sales made overseas are bound to contribute to reducing the initial overhead costs incurred in designing the equipment and in setting up the productive capabilities for making it. Of course, having our own defence industry is an important safeguard for our own security; and, indeed, it is also a very valuable source of technical innovation which it is very doubtful we could achieve in almost any other way. The spin-offs that we get from research done for military purposes are extremely valuable and very considerable, and would probably be unobtainable were it not for having our own defence industry.

My Lords, I have dealt with the question of the contribution which is made by longer production runs, but it is difficult to produce chapter and verse and to give your Lordships an indication of what contribution this makes. There is a slightly less specific but nonetheless valuable benefit in terms of the political and defence relations that we maintain with our friends and allies to whom we sell equipment, and I believe this is possibly an aspect which is of increasing importance as we witness the kind of Soviet aggression which we have seen recently in Afghanistan.

In the past, questions have been raised about the Government's general approach to the disclosure of information on defence sales and the details of individual transactions. This is one of those items which have traditionally not been answered by way of Questions in either House. This is something that was touched upon in the Question period on 10th March, and contrasts were drawn between our practice and that of the Americans. The release of information to Congress is a well-known feature of the American system, and potential customers are of course aware of this. They are prepared to accept the penalties—and they are penalties—which this involves. The fact remains that, as in the civil sector, the sale of defence equipment is a very competitive business, and we are in no doubt that, in general, our customers prefer to maintain the confidentiality of their transactions. There may be a number of reasons. There may be political reasons, there may be national security reasons or there may be commercial reasons which lead them in this direction; and, frequently, this is an attitude which is shared by the supplier of the equipment, as well. We seek to respect the views of both the supplier and the customer in this respect, but if they are prepared to release the information about their transactions, we take the view that that is a matter for them and it is not one in which the Government would wish to intervene. But in fact the Government do release rather more information in connection with defence sales than some people realise. We believe that, taken together, all that is available represents a considerable flow of information on the defence sales issue which enables those who are interested to study it.

Perhaps I may now turn to some of the more specific issues about which I was asked. There was the question, which I do not think was asked in a wholly kindly way by my noble friend Lord Newall, about International Military Services, and whether we were about to restructure them. We see undoubted advantages in the commercial approach to defence sales, and the IMS are well placed to bring this to bear. But consideration of policy of this sort involves questions of both commercial and Government accountability, and it takes a little time. As soon as we are able to announce anything on this, Parliament will be informed. Then the noble Lord asked me about delays in export licensing. The Defence Sales Organisation aims to provide general guidance in response to preliminary inquiries within about three weeks, and I really do not think it would be reasonable to expect this period to be shortened. But if my noble friend has examples of longer delays I should be very happy to look into them. The licence applications are a matter for the Department of Trade. We try to establish overall policies, but for reasons I have already explained it is not a very easy matter.

So far as concerns the question of German arms and the use by us of American small arms for our forces in Northern Ireland, these are not the same issue; and there was in fact a third issue of the SAS use of German equipment. I would say as a general point that it ill becomes us to be too narrow in our outlook about our willingness to buy better equipment when it is available abroad. If we are going to claim the right to sell our equipment abroad and expect people to give it a fair assessment, then it is difficult for us to say that we will not buy it if it is not invented here. So far as concerns the question of the manufacture of German-designed equipment in this country, to which the noble Lord has referred, I am bound to tell him that it is news to me but if he would like to give me some more details I should be very happy to look into the matter.

I ought perhaps to deal with the matter of the two-way street. It is true that the ratio between sales by the Americans to us and sales from us to the Americans is still between three and four to one, but one has to bear in mind in judging this that there is an enormous disparity in the industrial base and the purchasing power of the Americans. I do not think we do all that badly, but we are constantly seeking ways to improve this situation. I can assure noble Lords that some of the bargaining is tough and very long-winded, and they should never under-rate the power of the American industrial lobby, which makes it exceedingly difficult. A lot of noble aspirations are mouthed, but it is very difficult to turn these into reality. Noble Lords who have had experience will know very well that there have been many disappointments down this road. There is one other point which my noble friend made. I thought my noble friend Lord Newall was rather over-sweeping in saying that arms buyers do not like negotiating with Governments. In fact, there are certain Governments, notably the Governments of the Middle East, who do not like doing business with anybody other than other Governments. One has to recognise that practice and attitudes in different countries vary to quite a substantial extent.

I turn now to the question raised by my noble friend Lord Bethell. With great respect to him, I do not think it really has a great deal to do with the question of arms sales. I do not think our view has altered, and I was grateful for the contribution of the noble Lord, Lord Peart, on this question. This is essentially a matter for NATO. The countries in NATO are different from the countries in the EEC. It is exceedingly difficult to see how you could relate having an armament industry policy in the EEC, which is one group—and goodness knows they are not noted for their ability to decide about anything—to a coherent policy within NATO—and it has to be said that even that is not too easy. I have said in this House before that the difficulty of collaboration on equipment goes up in geometric proportion to the number of countries engaged. It is very difficult to get collaboration with one other country; it is at least four times as difficult to get collaboration with two other countries, and I have no doubt that it will be 16 times as difficult to get collaboration with three. It is a much tougher proposition than many people would imagine. I am bound to say to the noble Lord, Lord Bethell, that I would view with the gravest of doubts the prospects of getting involved in a major bureaucratic operation involving the EEC in an arms production policy for Europe. That is not to say that we do not recognise the need for standardisation and the many logistical benefits and production benefits that come from it if it can be achieved successfully.

Baroness GAITSKELL

My Lords, do we have to say that there is torture in this country in order to point out that there is a great deal of immorality about the sales of arms? I have been troubled about noble Lords saying that we have torture in this country.

Lord STRATHCONA and MOUNT ROYAL

My Lords, I must tell the noble Baroness that I was not saying we had torture in this country. I was saying that other people have said that we have torture in this country; and I was saying that to indicate to her that assertions about the existence of torture are extremely difficult to establish and it depends on who you are listening to. Very few people would agree on exactly what constitutes torture in the sense that the noble Lord, Lord Avebury, used the expression. That was my point.

The matter of the French. Very difficult. I was grateful for the contribution from the noble Lord, Lord Carver, nobly standing up, as no doubt he did in his uniformed days, for our services. The French services occasionally feel that they are having to take second place to their industrial lobby. As one who deals with the matter of equipment and who passionately believes in exports as a benefit to this country, I am bound to tell him that there are moments when I wish we had a policy more on the lines of the French policy so far as the relationship between our industry and our services is concerned. But it is not our present policy. Currently we aim to get the best equipment, and what we believe to be the most appropriate equipment, for our own forces and then to try to persuade other people abroad that what we think is good for us ought to be good for them.

I do not know that I should try to sweep up the various comments I have made because I should be in danger of repeating myself. Already I have gone on for too long. We try in all our examination of export issues to give the proper weight to all the issues, including those of human rights to which noble Lords have drawn attention, but at the end of the day—let us say it again—this is a trading nation and my noble friend Lord Orr-Ewing is right that we must go increasingly for the sale of sophisticated equipment because that should be our expertise and this country will not survive unless it maintains it.

5.23 p.m.

Lord NEWALL

My Lords, with half an hour left of the two and a half hour debate there is a small temptation for me to go on a bit and say all the things I wanted to say and, perhaps, pick up some of the pieces. I can assure noble Lords there is no chance of that happening. I think that the subject of defence sales is undoubtedly a very controversial and emotive one. We have heard some good speeches. I am grateful to all noble Lords who have taken part, although, like my noble friend Lord Strathcona, I am rather sad that we have not had a fighting speech from somebody who thinks that the whole thing is totally wrong. Everybody who wanted to speak has had the opportunity. Many points have come out which I hope the Government will study. I am quite sure we have a long way to go before we get the picture right.

I know that the difficult question of human rights which has been mentioned recently by my noble friend Lord Strathcona is a very tricky one; but sometimes I think we ban the sales of arms to the wrong countries. However, I did not go into that in my original speech; neither did I discuss different countries; so, without further ado, I should like to ask leave to withdraw my Motion.

Motion for Papers, by leave, withdrawn.