Export Control Bill

HL Deb 08 January 2002 vol 630 cc468-518

4.36 p.m.

The Parliamentary Under-Secretary of State, Department of Trade and Industry (Lord Sainsbury of Turville)

My Lords, I beg to move that this Bill be now read a second time.

The Export Control Bill is intended to provide a new legal framework for our strategic and cultural export control regimes. It will replace the export control powers contained in the Import, Export and Customs Powers (Defence) Act 1939. In his 1996 report on the export of defence equipment to Iraq, the noble and learned Lord, Lord Scott of Foscote, rightly criticised the continued reliance of successive governments on the export control powers contained in the 1939 Act. He recommended that the Government consult publicly on the matter with a view to replacing those powers with new legislation more suited to peacetime requirements.

The Bill is the result of the thorough and comprehensive review of legislation for which the Scott report called. In 1988, we published a White Paper inviting views on proposals for new legislation. Last March, we published the Bill in draft. A wide range of organisations and individuals—in particular, industry and non-governmental organisations—have contributed their views and played an important part in the development of the Bill.

The Bill has two basic aims. We need to modernise our export control powers to meet the reality of today's world, which is very different from that of 60 years ago. The 1939 Act provides powers to control only physical exports from this country. The growth of electronic communications and international business mean that that power is no longer adequate if we are to continue to meet the objectives served by our control of military and dual-use exports. The Bill therefore provides new powers to control the transfer of technology by intangible means, the provision of technical assistance and trafficking and brokering. I shall say more about those new powers in due course.

At the same time, the Bill will ensure that the Government are accountable to Parliament for the exercise of those powers. It does so by setting out the purposes for which control orders can be made and by providing for parliamentary scrutiny of those orders. It also makes clear for the first time in legislation the basis for licensing decisions on strategic exports, and it requires the publication of annual reports.

Those measures build on steps that the Government have already taken to improve accountability to Parliament and the public for strategic export controls. In July 1997, we published for the first time the criteria against which licensing decisions on the export of military and related equipment are taken. We pushed for the agreement of similar criteria across the European Union, and in 1998 the EU code of conduct on arms exports was agreed. Since then we have consolidated our national criteria with the EU code. Those consolidated criteria were announced to Parliament on 26th October 2000. As I shall explain in more detail, the consolidated criteria are referred to in Clause 8 of the Bill. We have also published detailed annual reports on strategic export controls for each year since 1997.

As I mentioned, the Bill provides the Government with the powers to introduce controls on exports, the transfer of technology, trafficking and brokering and technical assistance. The detailed controls themselves will be set out, as with export controls now, in secondary legislation. This is necessary because the goods and technologies to be controlled need to be capable of frequent amendment. In most cases these goods and technologies are identified by the various international export control regimes, such as the Missile Technology Control Regime and the Wassenaar arrangement, in which the UK participates. Technologies change, so does the international situation. The items that need to be controlled are therefore kept under continual review. We need to be able to adapt our export and other controls in response. That is why the detail must be set out in secondary legislation.

We recognise the importance of the proposed secondary legislation for a full understanding of the Bill. We therefore published in early October a full set of "dummy orders". These provide a clear and detailed indication of how the Government propose to use the powers that the Bill would confer. We have also announced our intention of holding a full public consultation on draft statutory instruments to be made following enactment of the Bill. We expect to hold this in the spring. This consultation will give all with an interest in this legislation the opportunity to comment on the details of the proposed secondary legislation.

I turn to the individual provisions of the Bill. Clause I would replace the export control powers in Section 1 of the 1939 Act. The difference is that orders made under the clause are subject to parliamentary scrutiny, and they can only be made for the purposes set out in the schedule to the Bill. As indicated by the dummy orders, the controls to be introduced under the clause will simply consolidate and, where necessary, rationalise export controls in force at the time.

Clause 2, which provides a power to impose controls on the transfer of technology by any means, is a modernising measure. Under existing legislation a licence is already required for the export of the technologies required for the development, production and use of military equipment. However, at present we only have the power to require a licence when it is exported in a physical form. So the export of a blueprint or technical manual printed on paper would need a licence. But we cannot at present impose a licensing requirement where the identical blueprint or technical manual is to be sent abroad electronically, for example, by e-mail. This clearly does not make sense. It is a problem with which the international export control community has been grappling in recent years. Many countries, including the US, France, Germany and Japan, have already introduced controls on intangible transfers.

Still more to the point, European Community legislation has introduced controls on the electronic transfer of dual-use technology both here and across the rest of the European Community. These controls have been in place since September 2000. If the electronic transfer of dual-use technology—that is technology not designed for military use but which has a potential military application—is controlled, then it clearly makes sense that the electronic transfer of military technology should also be controlled. Clause 2 will enable us to do that.

Technology can of course be communicated in other ways than by exporting physical items or communicating electronically. It can be communicated in person, for example, through the spoken word. As the relevant dummy order makes clear, we propose to introduce such controls for the transfer of technology which a person knows, or is informed by government is, or may be intended, for use in weapons of mass destruction programmes and missiles capable of their delivery. We recognise the difficulties of imposing controls on personal communications, but we believe that the step is justified in these very serious circumstances. Moreover, we are not taking unilateral action as these controls will implement a joint action agreed with other EU member states in June 2000.

Clause 3 provides for the imposition of controls on the provision of technical assistance; that is, services connected with the development, production or use of goods or technology. We will use this too to impose controls on the provision of services which the provider knows or is informed by government is, or may be intended, for weapons of mass destruction or related missiles. This measure is also required by the joint action I mentioned earlier. The fact that these controls are being introduced across the EU will help to ensure that they are an effective mechanism in combating the proliferation of weapons of mass destruction and missiles for their delivery.

The important new power to impose controls on activities connected to trade between overseas countries—usually referred to as "trafficking and brokering"—is contained in Clause 4. These activities include the acquisition, disposal or movement of goods and related activities. At present we can introduce such controls only where this is a requirement of a binding UN arms embargo. However, as the dummy orders that we have published make clear, we intend to impose controls on trafficking and brokering by UK persons and anyone in the UK to any destination subject to an embargo. This will include destinations on which embargoes have been imposed by the EU and the Organisation for Security and Co-operation in Europe or on which we have a national embargo, as well as those imposed by the UN. We will also introduce similar controls on trafficking and brokering in equipment whose export has already been banned because of evidence of its use in torture and long-range missiles. And, finally, we will also introduce controls on trafficking and brokering from the UK of all military equipment to any destination. This last was a new proposal not contained in the 1998 White Paper, but introduced in response to that consultation.

Some supplementary provisions to Clauses 1 to 4 are contained in Clause 6. These include provision for enforcement and record-keeping and a maximum penalty of 10 years imprisonment. This is higher than the current maximum of seven years, reflecting the seriousness with which the Government view potential offences under the Bill.

Clauses 1 to 4 set out the substantive powers in the Bill. The exercise of these powers by the Government, however, is subject to important restrictions, as I shall explain.

Clause 12 provides for the first time that export control orders, and the other control orders that may be made under the Bill, are subject to parliamentary scrutiny. This contrasts with the 1939 Act which makes no provision for parliamentary scrutiny of the secondary legislation made under it. While the Government have laid export control orders voluntarily before Parliament since December 1999, the Bill will make this, as it should be, a statutory requirement.

Clause 5 specifies that, with one exception which I shall come to, orders introduced under Clauses 1 to 4 can only be made for the purposes set out in the schedule to the Bill. This means that for the first time limits are set on the controls that the Government can introduce. Goods and technologies may only be brought under control if this is justified by reference to the schedule. These purposes include meeting international and European Community obligations and avoiding certain adverse consequences such as damage to the UK or the national security of other countries, to regional stability or contributing to the development of weapons of mass destruction, human rights abuses or terrorism and crime.

The schedule also provides for controls to be imposed on objects of cultural interest. As I mentioned, the point of the schedule is to set limits on the goods and technologies that the Government can include in the control lists in the orders. So far as the strategic export control regime is concerned, we must be able to control military dual-use and paramilitary goods and technologies both to ensure that we have an effective strategic export control regime and to meet all our international obligations.

Concern was expressed in another place about whether the schedule, as drafted, will allow us to control all the goods that we wish to control. I can confirm that the schedule, as drafted, ensures that we can continue to control military, dual-use and paramilitary equipment and that we can meet all our international obligations, including under the EU code of conduct on arms exports.

It is appropriate to mention Clause 11 here. This will enable us to make changes to the schedule if future developments, such as changes in the international situation, make that necessary. That can be done only with the express approval of Parliament, as Clause 12 provides for any orders changing the schedule to be subject to the draft affirmative procedure. The Bill originally provided for changes to the schedule to be made by the delayed affirmative procedure, but the Government accepted the recommendation of the Committee on Delegated Powers and Regulatory Reform that the draft affirmative procedure should apply.

I mentioned an exception to the requirement that all control orders must be made for the purposes set out in the schedule. The Bill includes a power to introduce temporary controls under Clause 5(2) for reasons not included in the schedule. The delayed affirmative scrutiny procedure will apply, so such orders will need Parliament's approval if they are to remain in force after 40 days. Additionally, the orders will expire at the end of 12 months unless expressly renewed with the approval of Parliament. The Government consider it prudent to take powers to deal with unexpected emergency situations that must be acted on quickly or which would not justify longer-term changes to the schedule. Recent events have shown how quickly the international situation can change, but we have built in protections to ensure that the power cannot be abused.

Clause 7 deals with the exercise of the power to grant licences and provides that the schedule is one of the factors to be taken into account in the use of that power. The clause makes clear that other factors can be taken into account.

Clause 8 enables the Secretary of State to issue guidance about licensing matters or any of the other functions under the order-making powers in the Bill. Any such guidance must, like the schedule, be taken into account in licensing decisions. The clause also designates the consolidated criteria as announced by the Foreign Secretary in October 2000. The consolidated criteria incorporate the EU code of conduct on arms exports and additional national criteria. Together, the criteria are the basis for the Government's export licensing decisions.

I said that the introduction of national criteria and of the EU code was a major step forward in promoting transparency in strategic export controls, but we want to build on that. Clause 8 requires, for the first time, that the Secretary of State must have regard to the criteria in licensing decisions.

Concern was expressed in another place at the absence of a reference in the schedule to sustainable development. It was suggested that that might undermine a licensing decision taken on the basis of criterion 8 of the EU code, which requires the Government to consider the impact of an arms export on sustainable development. That concern is misplaced. I can assure noble Lords that the Bill will make it possible for the Government to reject an export licence application for an export of arms or dual use goods solely on sustainable development grounds. The fact that sustainable development is not mentioned in the schedule in no way undermines our ability to continue to consider, as part of the assessment of licence applications, the impact of arms exports on the sustainable development of a recipient country.

We are committed to observing all aspects of the EU code, in the negotiation of which we were instrumental. Nevertheless, I promise the House that we take seriously the concerns that were expressed. Moreover, we are considering ways of making clearer in the Bill the Government's continuing commitment to sustainable development. That commitment was made clear when we first published national criteria in 1997 and has been enshrined in the code of conduct that we agreed with our EU partners. Noble Lords will be aware that the Bill states that the consolidated criteria constitute guidance for the purposes of the Bill. We are considering whether the terms of the Bill that relate to guidance can be strengthened and whether we can clarify the role of the schedule in allaying the fears that some have expressed.

I hope that what I have said will reassure the House that we are listening to the concerns expressed in another place and elsewhere. We are considering how we might meet those concerns.

Clause 9 requires the Secretary of State to lay before Parliament each year a report on the operation of the powers in the Bill. The Secretary of State already publishes an annual report on strategic controls. Clause 9 places that practice on a statutory basis, which would allow for effective retrospective scrutiny of the licensing decisions taken by the Government. The clause will also require the Secretary of State to publish an annual report on controls on objects of cultural interest. That report will cover cases considered by the Reviewing Committee on the Export of Works of Art, which are currently presented by the Secretary of State for Culture, Media and Sport in a separate annual report to Parliament. Clause 9 provides another example of the way in which we have sought to build on the measures that the Government have already introduced to provide better transparency and accountability in export licensing.

I have described the main provisions of the Bill. The Bill will modernise our controls and subject them to proper parliamentary scrutiny, and it will provide a framework for more comprehensive—and therefore effective—controls. The introduction of the schedule, the requirement to take account of guidance in licensing decisions and the introduction of a statutory requirement to publish annual reports will help to improve accountability and transparency and build on our recent achievements. For all those reasons, I commend the Bill to the House.

Moved, That the Bill be now read a second time.— (Lord Sainsbury of Turville.)

4.57 p.m.

Baroness Miller of Hendon

My Lords, I thank the Minister for that helpful description and explanation of the Bill. We welcome the Bill in principle, although we have some reservations about the methodology used by the Government, the form of the legislation and the way in which the Government propose to achieve their objectives.

There is undoubtedly an urgent need to update the legislation on this topic. Many of your Lordships will have been as surprised as I was to learn that the substantive legislation was enacted as long ago as 1939–63 years ago. In those days, weapons of mass destruction existed in the form of poison gas and chemical and biological weapons, but their use was inhibited by the limited means of delivery available. Terrorism existed in the form of small groups of individuals, not sophisticated international gangs possessing vast funds and aided, abetted and protected by other states—rogue states. Suicide bombers did not exist until the Japanese introduced kamikaze pilots as a weapon against legitimate military targets, not innocent civilians.

The Roman poet Horace's concept that It is sweet and fitting to die for one's country related to brave soldiers fighting other armed soldiers hand-to-hand, not to murderers with nail bombs blowing up young teenagers. So-called rogue states, when they appeared, were often subdued, usually by Great Britain, through the use of what was disparagingly called gunboat diplomacy. Gunboat diplomacy has never gone away; recent examples include Grenada, Iraq, Somalia and Afghanistan. Your Lordships will have noted from that list that Britain has been replaced as the major power involved by the United States.

Just as the form of terrorism has changed, the general form of warfare has changed. Changes have been brought about by enormous changes in weaponry and the fact that many ordinary, everyday objects can be adapted and used as part of a weapons system. Even the machine on which I typed these notes could be used as a guidance system. The enemies of civilised, democratic countries have changed, as have the weapons and means of delivery, which is why we agree that the controls on the export of weapons and the materials that might be used for weapons must be changed and the legislation brought up to date.

We have reservations about the Government's methodology because the Bill is another so-called enabling Bill, the detail of which is left to be fleshed out in later statutory instruments promulgated by the Secretary of State. In another place, my colleagues rightly complained that the Government had not published draft regulations until the Bill had reached an advanced stage there and that, as a result, they were being asked to consider legislation without knowing what they were being asked to agree to. We are a little better off; we have what are known as dummy orders, a new weapon in the Government's armoury of parliamentary non-information. I do not recall having seen it previously, but I stand to be corrected by the Minister if I am wrong.

Those dummy orders are even lower down the scale of elucidation than draft orders, for in the Explanatory Notes they are described as the "first draft" of the proposed orders. However, I welcome the announcement made by the Under-Secretary of State in the Standing Committee of the other place when he promised full public consultation with all interested parties on the regulations before they become law.

I would like to hope that the consultation will not merely be going through the motions and that the Government will pay attention to the representations made to them. I say that because the Government published their response to the recommendations of the quadripartite committee on the Bill three months late—on the very day of the Second Reading in the other place—thus ensuring that honourable Members had no opportunity to examine the Government's views before that very important stage.

It is true that delegated legislation is nothing new. But negative orders are not necessarily debated in the other place and then only if the Government provide the time. We shall therefore be considering the introduction of amendments to ensure that some of the regulations under the Bill are subject to an affirmative resolution of both Houses, notwithstanding the promised consultation which of course is no more than the noble and learned Lord, Lord Scott of Foscote, recommended in his report. That is because it is an important principle that Parliament, and not a number of pressure groups, should have the last word on legislation.

We are concerned about the power to amend the schedule which is at the heart and core of the Bill. It sets out the purposes for which a control order can be made. But in 13 terse words in Clause 11 it gives the Secretary of State power, subject to an affirmative resolution of Parliament, to vary the schedule. She can override the schedule; she can impose export controls but ignore the restrictions in the schedule; she can impose controls which have not been sanctioned by primary legislation.

As my right honourable friend the Member for Wells pointed out at Second Reading in the other place, the Delegated Powers and Deregulation Committee had commented adversely on the proposal, but we believe that the Government are still pressing ahead, ignoring its impartial recommendation.

I want to draw your Lordships' attention to a piece of fine print in the Explanatory Notes to the Bill. Paragraph 10 reads: It is envisaged that the DCMS will establish controls over the export of any goods (with limited exceptions for personal papers etc.) manufactured or produced more than 50 years before the date of exportation". What objects more than 50 years old might, in the words of the schedule, pose a threat to the United Kingdom and other countries? Are the Government thinking about suits of armour and flint-lock pistols or the plans of Nelson's "Victory"? Are they talking about World War 1 or World War 2 aircraft? And why more than 50 years old; why not 49 years old? Why is the DCMS involved in the matter of international security at all? Is this a way for the Government to slip into law further restrictions on the export of historical objects and works of art?

As regards licensing, major complaints have been voiced by all sections of industry, particularly by the influential Defence Manufacturers Association and the Society of British Aerospace Companies, about the inordinate delays in granting licences. The Government's target is to process 70 per cent of licence applications within 20 days. In the year 2000 they achieved only about 57 per cent and on appeal cases the figure is much worse.

Defence manufacturers told my right honourable friend the Member for South West Hertfordshire that some delays had been between two and a half and three years. That is despite the fact that only a small proportion—2 per cent—of applications are finally refused. Delays particularly adversely affect small businesses which lose foreign orders as well as antagonise foreign governments who can easily take their orders to less bureaucratic regimes.

When my right honourable friend the Member for Wells questioned the former Foreign Secretary on the subject of licensing delays, he received the dismissive reply that he had "limited sympathy" with the complaint. She had "limited sympathy". The former Foreign Secretary admitted: We are not moving fast enough". In my view, that is typical of the subconscious and, in some cases, the historical and blatant antipathy of the Labour Party to what it pejoratively calls the "arms trade". Even the Secretary of State in her opening remarks to the other place at Second Reading referred to the arms trade no fewer than three times in her third paragraph. That antipathy exists despite the fact that it employs 350,000 people in the United Kingdom and that arms exports are vital in keeping down the cost of equipment for our own Armed Forces.

The defence industry, not the arms trade, provides about 10 per cent of the output and the workforce of our declining manufacturing sector. And talking about the former Foreign Secretary, your Lordships will recall that virtually his first pronouncement was that he would conduct an ethical foreign policy. In passing, I wonder how ethical it was for the Government to license the sale of £23 million-worth of military air control equipment to Tanzania, one of the poorest countries in the world which possesses just two airfields and only eight aircraft.

We have only recently, at the very creditable initiative of our Government, procured the cancellation of its foreign debt. How does that lack of co-ordination between the DTI, the Foreign Office and the Treasure fit in with the concept of joined-up government? How does that sale of excessive equipment fit in with criterion 8 of the existing EU and National Arms Exporting Licensing Criteria which obliges member states, to look carefully at the compatibility of any proposed arms export with the technical and economic capability of the recipient country and to take into account whether the proposed export would seriously undermine the economy or seriously hamper the sustainable development of the recipient country"? The Explanatory Notes make it clear that Clause 8(2) and (4) require the Secretary of State to take the guidance criteria, published as long ago as October 2000, into account when granting export licences.

I acknowledge—indeed, I am delighted—that the Tanzania order had benefited 250 engineering workers in the Isle of Wight. But still on the subject of delays, this time in introducing the Bill, the present Administration have wasted more than four years in implementing the Scott report, with detrimental effects to British industry. At Second Reading in the other place, the Secretary of State claimed that, we have reached an unprecedented agreement in the European Union on a code of conduct enabling any member states to object if another member state takes up an arms order which has been rejected under the code".—[Official Report, Commons, 9/7/01; col. 548] I will believe the effectiveness of those words when I see them put into practice.

My scepticism is shared by the Quadripartite Committee which stated: There is very little sign that the other member states are taking very seriously the suggestion that they should be more transparent in their reporting of the operation of arms export controls. None of our European competitors has achieved the UN's level of transparency". Indeed, the previous Foreign Secretary acknowledged two instances where export licenses had been turned down by this country, only to be granted by other EU states. We are in danger of putting our own industry at a disadvantage by operating to a set of rules which our European partners are not applying with the same degree of diligence.

Again, while touching on the subject of export controls by EU countries, it is appropriate to mention the lack of them from other arms producing states over which we have no effective influence; for example, China, North Korea and parts of the former Soviet Union. Only last week it was reported that a cache of uranium capable of producing a technologically simple "dirty bomb" had been found in the possession of Al'Qaeda and bin Laden. That is believed to have been stolen by gangsters operating with seeming impunity in parts of the former Soviet Union.

Another major concern is the extra territorial applications of the Bill. The Government in response to debates in the other place altered the Bill as originally drafted. However, there still seems to be an anomaly which we will want to explore at a later stage. I am glad to note that the Government have rejected the entirely impractical idea of prior parliamentary scrutiny of export licence applications.

There are, as I have already pointed out, more than enough delays as it is, to say nothing of the strain on Parliament's time, the politicising of executive decisions and the danger of disclosing commercially sensitive information to competing countries.

The Bill includes provision for the extension of controls on the intangible transfer of technology to encompass oral and electronic means and also training and demonstration. While welcoming that, we are concerned as to how it can be interpreted. Unless it is realistically interpreted in the secondary legislation, it will become a legal and practical minefield for companies in and out of defence and even academia. It will encompass dual-use technology and will undoubtedly inhibit joint industrial ventures such as we have seen successfully conducted in the aircraft construction industry. I also have to ask, as e-mails, faxes and telephone calls are caught by these proposed new controls, how and by whom are they going to be monitored? Only recently the Daily Mail reported that it was possible to obtain details of how to manufacture explosives and bombs capable of bringing down a passenger plane, along with other terrorist weapons, over the Internet.

The DTI has suggested that companies and universities could apply for open general licences to cover business dealings with approved companies overseas. That will create an unprecedented level of bureaucracy for industry as well as put a greatly increased burden on the DTI licensing department which, as I have already pointed out, cannot even come remotely close to meeting its present targets. This aspect will need to be interpreted realistically in the secondary legislation, but I fear that that may not come about.

The dummy order on the export of goods, transfer of technology and the provision of technical assistance runs to 39 pages. Regulation 12 proposes that any person who commits any act under a general licence shall keep records of the material exported or technology transferred, including the date, quantities, the names and addresses of the consignor and consignee, the name of the end user and any further information that a competent authority would require. All that must be done even if a person is merely talking to a colleague or a customer from abroad over the telephone, discussing how to overcome a problem in operating a widget that has been sold lawfully. Regulation 12 also imposes a further seven detailed requirements set out in over a page of close type that will generate sufficient work for an army of inspectors. Furthermore, I am not overly confident that Customs and Excise will necessarily interpret the regulation reasonably.

On the matter of implementation costs, I have to agree with my right honourable friend the Member for South West Hertfordshire in his description of the estimate of £800,000 for the first year, reducing to £500,000 in subsequent years, as "absolutely ridiculous"—those were his words; I merely repeat what he said. The fact is that the Society of British Aerospace Companies has estimated that the Bill will generate a four-fold increase in licensing activity. The CBI has also made known its concerns regarding the amount of extra paperwork that will be involved.

Perhaps I may touch briefly on a further worrisome but connected topic, also covering licensing. Rather confusingly I refer to the granting of licences by a patentee or copyright owner to enable someone abroad to manufacture a product. The dummy regulations provide for this kind of transaction to be licensed in certain types of cases, but there is little that the licensor can do except to bolt the stable door if the foreign licensee, in breach of the licence, puts the goods that he has manufactured or the know-how he has been given to some improper use. Does the Minister acknowledge that this would make an innocent UK licensor, in a situation over which he has no control, guilty of an offence and liable to serious sanctions, even total ruin, as was the case with Matrix Churchill?

Along with my honourable friends in the other place, we are concerned that we still do not know precisely what powers we are being asked to give the Government under the terms of the Bill. We are marginally better off than the other place because, as I have said, at least we have had sight of the dummy regulations right from the outset. However, the regulations are to be put out to extensive consultation and in their final form may not bear the slightest resemblance to what we have at this moment. For that reason, we shall want to scrutinise carefully the detail hidden away in the final form of those regulations.

Finally, perhaps I may remind the Minister of my opening comments. We welcome the Bill, but we have reservations about it which I have already described. I very much hope that the Government will use their best efforts to encourage our EC partners to put in place a similar regulatory regime, including that called for in the EU consolidated criteria. In that way, I hope that our Government will ensure that our vital defence industry will be able to operate on a level playing field with its competitors.

5.14 p.m.

Lord Razzall

My Lords, in rising to speak on the Second Reading of the Bill, we should pause for a moment to look at the history of how it has come before us. That exercise feels like looking at sepia-tinted Victorian photographs of a world in which Mr Major was Prime Minister and the noble Lord, Lord Hurd, who is no longer in his place, was Foreign Secretary. At that point the world assumed that a Conservative government would continue for ever. Over that period of Conservative administration the Matrix Churchill events took place, followed by the Scott report. No doubt, all noble Lords are waiting with eager anticipation to hear the contribution of the noble Lord, Lord Scott of Foscote, who spent more time considering those issues than many of us would care to do.

After a lengthy period of consultation, the present Government have produced a response to the events surrounding the Matrix Churchill affair based on their different political persuasion. On these Benches we welcome the Bill. In her remarks the noble Baroness, Lady Miller, indicated that the Labour Party and the Liberal Democrats have a slightly ambivalent view of the whole question of the arms trade. She mentioned that the language used by Ministers often gives them away. I suspect that references made by the Secretary of State in another place reflected a certain ambivalence felt by the Government and those not on the Tory side of the argument as regards the arms trade which, as the noble Baroness also pointed out, still represents around 10 per cent of the UK's manufacturing capability.

This is not the time to rehearse the complex arguments over whether it is sensible for the British taxpayer to continue to subsidise the arms export trade through the mechanisms of the ECGD probably to the extent of a figure between £300 million and £500 million per annum. Those figures have been put forward in recent academic studies, although I appreciate that the noble Lord, Lord Berkeley, is shaking his head. I understand that those figures do depend somewhat on massive write-offs for Iraq, to whom I suspect that we no longer supply weapons of mass destruction. Nevertheless, this is not the time to debate those issues. However, in expressing in general terms our support for the Bill, we would wish to express our reservations and concerns as regards five matters that were debated pretty heavily in another place. We hope that progress can be made on these as we move through our proceedings in this House.

I turn first to a matter touched on by both the Minister and by the noble Baroness, and which was discussed at length in another place when concerns were expressed on all sides of the House; that is, the omission from the schedule setting out the purposes for making control orders of a definition of sustainable development. I do not wish to take up too much of the time of noble Lords on this point because no doubt we shall return to it in Committee and during subsequent stages of the Bill. Furthermore, the Government have indicated that they are prepared to move further on the matter. We look forward very much to the Minister's further comments. Noble Lords on these Benches will welcome an opportunity to discuss with the Minister and his officials what progress he thinks he can make in order to meet the concerns that have been expressed. However, the recent controversy that arose over the proposed export of arms to Tanzania demonstrates in a nutshell the urgency of reaching a satisfactory position on the question of sustainable development.

I understand that in another place the Minister concerned put forward an argument to the effect that, as the Government intended to exercise sustainable development criteria in the guidelines that are to be applied, there should be no concern over the matter. However, I believe that many are concerned that if those guidelines are changed, then the legislation would no longer provide the protection that is being sought. To that end, the events surrounding Tanzania provide a good contemporary example of those concerns. As I have said, we await the Minister's contribution on this matter when it is raised in Committee.

The second major area over which general concern was expressed in another place was that of prior scrutiny. Given the remarks of the noble Baroness on the Conservative Benches, I suspect that we do not have her support. I found it difficult to understand her argument against prior scrutiny, which was recommended by the Quadripartite Committee but was not accepted by the Government on the grounds that it would hold up exports. However, the United States, which is one of the major arms exporters in the world, has in place a system of prior scrutiny. If the United States can have a system of prior scrutiny, it is difficult to accept that it is beyond the wit of Her Majesty's Government to have one here. The controversy currently raging over Tanzania would not apply to the same extent if a system of prior scrutiny before a licence was granted had been in place.

As to the other three areas—some of which were touched on by the noble Baroness—we welcome the extension of controls on the licensing of production. However, an issue was raised in another place in regard to the licensing of production overseas. We will need to be satisified in Committee that there will be satisfactory controls in that regard.

That leads to the question of the ultimate end use, which the noble Baroness also touched on. Proposals were made in another place in regard to further controls on the end use of armaments. This is clearly a significant problem and we look forward to discovering whether or not the Government have any proposals to help us on that issue.

There is also the issue of arms brokering, which was graphically portrayed by the expert on all these subjects, Mr John Le Carré, in his recent novel, The Nigh Manager. I commend to the Minister the character of Mr Richard Roper. If his officials turn up the appropriate pages in The Night Manager he will see why it is necessary to widen the controls on arms brokers who are based in the United Kingdom and to give those controls extra territorial scope.

Those are the five areas where we feel the Bill needs strengthening. They were considerably debated in another place and we look forward to making progress on them in Committee. We hope that the Government will go a long way towards meeting our concerns.

Finally, everyone who has been involved in these discussions will wish to offer a word of thanks to Saferworld, which has done a fine job of consultation and briefing on this very important Bill.

5.22 p.m.

Lord Scott of Foscote

My Lords, in view of the opening remarks of the noble Lord, Lord Razzall, I have a feeling that your Lordships may be disappointed with what I have to say.

I welcome the Bill. For the first time in some 50 years there are proposals for export controls which will have constitutional and democratic respectability. The Bill is long overdue and thoroughly to be welcomed.

I express my gratitude to the Secretary of State for her kindness—it started off by being "his" but then it became "her" kindness—in keeping me abreast of the proposals in regard to the Bill; for allowing very helpful officials from the DTI to explain to me some of the problems that I was having with the early draft; and for explaining some of the thinking behind the language in the Bill—particularly in the schedule, with which I still have some difficulties and to which I will refer.

The introduction in the Bill of transfer controls, technology assistance controls and trade controls is thoroughly logical and sensible. It obviously makes no sense in a technological age to have prohibitions and restrictions on the export of technologically advanced goods but to allow free dissemination of the technology that lies behind those goods. This gap became apparent in some of the evidence that I was given when I was conducting the inquiry. It has now been filled and is a very good addition to the controls in this area.

One point about the Bill has caused me a little concern. It is a point to which I have already made an oblique reference and, as I understand from the noble Baroness, Lady Miller, it is a point which was raised in the debate on the Bill in the other place. It is not at all apparent to me that the existing controls over the very wide range of goods that they can presently be exercised over will still apply under the Bill. The present position is that the Secretary of State can specify any goods as being the subject of export controls and will therefore require licences for their export. Under the Bill, the Secretary of State has power under Clause 1 to make export control orders—he can impose transfer controls and so on—and Clause 5 states that the export control orders must be made for one or other of the purposes specified in the schedule. So they must be franked by one of those purposes.

One then goes to the schedule and finds in paragraphs 1 and 2, plainly expressed, the purposes—that is, the purposes of giving effect to Community requirements and international obligations. Those are the purposes and they would cover whatever the Community and international obligations require. But paragraph 3 does not express a purpose at all. It states that export control orders can be made for the purpose of imposing export controls. That is tautologous; it tells one nothing. Paragraphs 4, 5 and 6 are to the same effect.

The paragraphs go on to state that an order imposing export controls may be made if it appears to the Secretary of State that the export of the goods in question would produce one of the relevant consequences set out in the schedule. The intention is clear enough—the author is endeavouring to identify goods with particular characteristics which warrant their being subjected to export control—but the method adopted of looking at the relevant consequences of the export is a process appropriate to the licensing decision.

There has been mention of the Tanzanian airfield control equipment, which is the subject of some debate in the media. As I understand it, this concerns radar equipment of a military character which is appropriate for use at a military airfield. Under the present export control regime, it is export licensable, and so the debate has been whether a licence should or should not be granted, and matters such as sustainable development and others have been raised in connection with this argument. That will go, and the licensability of radar equipment for military airfields will have to be justified by reference to the schedule.

I do not know whether it will fall within paragraphs 1 and 2 that we are required to have licensing controls over radar for military airfields under Community or international obligations, but, leaving that aside and looking at the impact of paragraph 3, how can it possibly be said that the export of radar for a military airfield would have an adverse effect on national security, or an adverse effect on the peace, stability or security of some other country, or be relevant in any of the other respects specified in the schedule?

For the purpose of seeing whether goods are appropriate to be subjected to export controls, one should be looking at the characteristics of the goods. I believe that is what the draftsman of the schedule is driving at. That ought to be expressly stated, rather than going off at a tangent and talking about the consequences of the exportation. The consequences in any individual case will be relevant to the question of whether a licence to export should be granted or whether it should be refused. But the characteristics of the goods themselves ought to be the governing criteria for their licensability in the first place.

It occurred to me also to consider the case of parachutes. They may be used by pilots of civilian aircraft in case they get into difficulties; they may also be used by a brigade of paratroopers. Are parachutes to be licensable? If they are dual use goods, presumably they will be licensable—but which of the relevant consequences under the terms of the schedule could be said to apply to them? It is unclear whether paragraph 3 as drafted will be effective in catching all the firearms, military equipment and dual use goods which are subject to export controls under the present regime. I suggest that the Minister might re-examine the provision with a view to seeing whether the entirely appropriate object of the drafting cannot be better achieved by some other form of wording.

The reasons for rejecting or granting licence applications are dealt with in the guidance referred to in Clause 8. The guidance currently published includes the sustainable development points to which reference has been made. However, there is a point of illogicality regarding sustainable development.

Sustainable development as a criterion for the granting or refusing of a licence takes account of what, in the Government's view, the country seeking to import the goods can afford, having regard to the other requirements of health, education, social services and so on to which we may think they should give priority. If these are appropriate criteria—and most people believe that they are—in logic they should apply equally to goods for civilian use as well as those that are for military use. In terms of the sustainable development argument, what difference should it make if the buildings to be erected are for a grand display of wealth on the part of a head of state as opposed to being a barracks for the housing of troops?

The sustainable development criterion is subject to a paradox: it is applied in cases where the reasons for the goods being subjected to export control have nothing to do with the sustainable development point. The goods are subject to export control for one reason, and the decision is taken on grounds that have nothing to do with the reasons why the goods were export controllable in the first place. There is a paradox; I do not know whether there is an answer to it. It is an unsatisfactory feature of the current export licensing regime, and it looks as though it will be imported into the new one.

Perhaps I may say a few words about prior scrutiny—mentioned by the noble Lord, Lord Razzall. Speaking personally, I am against prior scrutiny and am in favour of the Government's refusal to agree to its incorporation into the export licensing regime. But my reason has nothing to do with objections on grounds of bureaucracy. It seems to me that the function of Parliament, whether of this House or another place, is to hold the executive, the government, accountable for the decisions that they take. Export licensing is essentially an executive function. Parliament has a constitutional obligation to hold government to account for their executive decisions and should not become complicit in them by prior scrutiny, which one supposes would disqualify whichever House had conducted the prior scrutiny from conducting a proper accountability exercise. For those reasons I believe that the prior scrutiny proposal was correctly rejected.

As I have said, I welcome the Bill and I am pleased to have had some part in its history.

5.35 p.m.

Baroness Whitaker

My Lords, it is an honour to follow the noble and learned Lord, Lord Scott of Foscote, whose report was one of the chief inspirers of the Bill.

The Labour Party called for proper controls on the export of arms even before I was born, and those of us brought up on "Major Barbara" recognise the historic moment of the defeat of Lord Undershaft.

As has been said, there were some controls before—a temporary measure instituted in 1939. It is more to the point that the Scott report recommended specific measures in 1996 and these were picked up in the Labour Party manifesto. So this Bill meets a high level of expectation.

My noble friend has outlined the range of the Bill, including its welcome proposals for transparency and for parliamentary scrutiny. He has also mentioned the all-important process to obtain commitment within the European Union from all member states to control arms trafficking and brokering. I want to focus on one area where the Bill could be improved, or rather, returned to one of its original purposes.

Following the recommendation of the Scott report, the Bill sets out the purposes of export controls, in a schedule. In the draft Bill published last March, as the noble Lord, Lord Razzall, said, these included the need to consider the consequences of arms exports on sustainable development. This was warmly welcomed, and reflects properly the EU code of conduct for arms exports, whose eight criteria broadly match the Bill's schedule. As Oxfam points out, the development of the code of conduct was a flagship policy pioneered by this Government in their previous term of office and adopted by the EU in June 1998. It marked a major step forward in a common European policy towards the arms industries of EU member states, setting out as it does the ethical criteria as well as the security criteria by which we and our European partners are bound. As far as I know, no one in this country objected to the presence of the criterion on sustainable development publicly during the consultation process. I am proud that a Labour government put a policy in place which recognises the risks of the arms export business for international development.

The point of making the criterion explicit on the face of the Bill, like the others in the code, is that any desire by any future government to amend it would require a full parliamentary debate; guidance can be changed without reference to either House. Without the safeguard of the reference in the Bill, the Government could be vulnerable to a completely avoidable clash between our commitments at a European and at a national level.

We know that the criterion relating to sustainable development has now been omitted from the Bill. My noble friend has given assurances, but according to Matrix Chambers the effect is to prevent a strategic export order being made which takes into account sustainable development.

I will not speculate on the pressures which caused the Government to drop this criterion. Tanzania's purchase of the BAe system, as the noble Lord, Lord Razzall, said, exemplifies exactly the kind of issue which is at stake. But dropping the criterion goes plain against one of the most successful policies of this administration—the furtherance of sustainable—development as defined in the International Development Bill, a concept right at the heart of the central purpose of the control of strategic arms exports itself. That is why the EU was able to agree on its incorporation in the code. Very many voices, including Oxfam, International Alert, Amnesty International, and Saferworld find the omission of this criterion—the only one in the list of appropriate criteria which is not now included in the Schedule—unacceptable. Resistance will be widespread, as debates in another place have shown. Following my noble friend's assurances, I hope that the Government's discussions will succeed in removing this blot on a very good Bill.

5.41 p.m.

Lord Lang of Monkton

My Lords, after six years, it is a rather piquant pleasure to take part in a debate on this subject in which the noble and learned Lord, Lord Scott of Foscote, is also participating. Indeed, it is surprising that it is in fact almost six years since the issue surfaced with crystal clarity in the report of the then Sir Richard Scott.

Perhaps your Lordships will forgive a passing autobiographical reference, because I had the interesting task of receiving and presenting to Parliament that report—all 2,000 pages and five volumes of it—without the benefit of executive summary. It was an interesting report. Noble Lords will remember that the government were exculpated on the wilder and more extreme allegations of conspiring to arm Iraq and to cover up that fact. On some issues and conclusions of the report the government frankly disagreed with the noble and learned Lord, Lord Scott, while on others there was a certain delphic quality, a certain balance of conclusion, and it was difficult to form a view. However, we agreed strongly on some of the report's conclusion. I certainly considered that the need for reform of export control legislation was one of those issues. In February 1996 I immediately promised a Green Paper on reform, as recommended by the Scott report. Had we still been in power, we should certainly have legislated long before now.

However, against the comments of "urgency" and "outrage" of the then Labour Opposition, I find it puzzling that it has taken as long as six years for this legislation to come before us. Of course, I sympathise with the Minister at the DTI on the difficulty of getting a legislative slot—other departments always seem to find a way of gaining preference. In our day, it was the ever-hungry Home Office that always came forward with ill-considered, but immediately important, emergency Bills. But six years is an unconscionable time, the more so because this is essentially an enabling Bill and much of the detail will be found in secondary legislation. That, in itself, is an unhealthy trend in parliamentary accountability, notwithstanding the perfectly plausible explanation proffered today by the Minister in his very comprehensive summary of the Bill's provisions.

I turn to the issue of scrutiny. I regret that scrutiny of the export of goods (control) orders will be by negative resolution. I am sure that this would be better done by affirmative resolution, thereby giving Parliament a clearer and automatic right to exert a check on the executive. I hope that the Government will think again on that issue. Much the same thing happened in 1990 when the 1939 emergency Act was patched up with the co-operation of the then Opposition. The Government of the time preferred to propose an affirmative resolution, but agreed to Opposition requests for a negative resolution procedure. I do not believe that to have been a healthy development.

I strongly agreed with the noble and learned Lord, Lord Scott of Foscote, when, in his 1966 report, he said that the 1939 emergency Act was entirely inappropriate in a modern age given the age of the legislation and its temporary, emergency wartime nature. But I am surprised to find that chunks of it still remain in the present Bill, in particular in the parts covering the control of the import of goods where the Government have retained what the Quadripartite Committee described as, draconian powers … for no stated purpose and without parliamentary control". Indeed, I sense that the Bill centralises more power than may he desirable within the hands of the executive. It is hard to measure that at this stage, but I believe that it is a matter that should be further probed and something that we should be guarding against. I wonder whether the industry organisations that have welcomed it realise just how much of a burden this legislation may impose upon them. Inescapable though the need is for clear and effective controls, I wonder whether it may go further in this respect than is really necessary.

Concerns have also been expressed by the British American International Committee, which believes that the Bill has a loophole—one which, incidentally, breaches a Labour manifesto commitment—to stop British arms dealers arming terrorist groups and regimes that violate human rights. At this time, if true, that could be a very serious omission and one that certainly needs further scrutiny. However, I do welcome the register on trafficking and brokering.

Having said that, I welcome a long overdue measure that should have reached Parliament three or four years ago. Although in need of amendment, it is more comprehensive; it is more transparent; and it is more up to date than the legislation that it replaces. I welcome the measures to address the transfer of goods through intangible means, using modern technology, especially potential dual-use goods. But I believe that more work is needed as regards the impact on business of such measures and on how they would work in practice, as we gain further experience in the area.

I welcome the controls on the transfer of technical assistance outside the United Kingdom, which will enable the implementation of the EU Joint Action of June 2000 to control assistance to certain military end-users. I welcome the requirement for annual reports to Parliament on the use of strategic export controls, especially on the export of objects of cultural interest. Above all, belatedly, this Bill removes the uncertainty that has dogged exporters in recent years. It creates anxieties. It needs amendment, but I hope that we can speed it, belatedly, to the statute hook.

5.47 p.m.

Lord Joffe

My Lords, I warmly welcome this Bill, even though I believe that there is one glaring omission and several areas where the legislation could be improved. It is a privilege for me, although a somewhat intimidating one, to speak after the noble and learned Lord, Lord Scott. I declare an interest as a former chair of Oxfam and also a trustee of International Alert, both of which organisations are key members of the UK national working group on arms, which has been deeply involved with the Bill.

The Bill lays down the ground rules for one of the most important parts of British foreign policy; namely, to whom we should not sell arms. It is vital that this legislation—the first since the current laws were devised some 60 years ago for the very different world of 1939—is responsibly and consistently framed. Arms export decisions must move in step with our foreign policy priorities to protect people both here and around the world from unnecessary violence, to promote peaceful co-existence rather than war and to protect the frail green shoots of development in many parts of the world from being trampled on by excessive spending on expensive and inappropriate military systems. The current Bill reflects most of those priorities. If we look at the schedule to the Bill, we find that the framers have indeed borne in mind the need to avoid unwanted consequences from arms exports, such as breaches of human rights or facilitation of terrorism.

However, there is a glaring and inexplicable omission to include on the face of the Bill the protection of sustainable development as one of the purposes for which controls can be imposed—something to which we have committed ourselves at a European level. It is encouraging to learn from the Minister that the issue of sustainable development is being reassessed and that ways are being sought to make it clearer that the Government are able to use this as a basis for refusing export licences.

I should like to outline why I and many others, especially in the NGO sector, are so concerned about the issue. Events in December have shown what can happen unless the fullest backing is given in legislation. I refer to the sale of the air traffic control system to Tanzania, which the noble Lord, Lord Razzall, and the noble Baroness, Lady Whitaker, have already mentioned. At issue is not the desirability of air traffic control, but the suitability of the particular system being offered. The Government have given BAe Systems a licence for a £28 million air traffic control system that, I understand, is primarily designed for military use. The World Bank has said that a system satisfying civilian air traffic control requirements can be bought for a quarter of the price and the International Monetary Fund has also refused to fund the deal.

Much as I am sure that your Lordships would like the interests of British industry to be promoted abroad, I do not believe that anyone would wish it to be at the price of the prospects of the poorest people on earth. One child in four in Tanzania dies before reaching the age of five. That £28 million could pay for education and health provision for a great number of children.

That is a particularly conspicuous case in which, decisions made for short-term gain have ridden roughshod over the longer-term interests of Tanzania and, indirectly, of our country. The full impact of the deal is yet to be felt, but it will be seen in increased debt repayments and less provision for education and health services, thanks to the cost of maintaining an expensive radar system. The whole deal is sad news for poor people in Africa and highlights the urgent need for sustainable development to be ingrained in the schedule to the Bill.

While I am encouraged by what the Minister has said and by his assurance that sustainable development can be covered by the Bill, I am perplexed by its exclusion from the schedule. Why put it in and then take it out? I have carefully studied the reasons for the exclusion given by the Minister in the other place, but I remain perplexed. The Minister has today given us an assurance that everything is all right and told us not to worry because the Government are looking at it. There is a clear difference between the legal advice given by Matrix Chambers and that given by the Minister's legal advisers. The obvious solution would he to reinstate sustainable development in the schedule, yet the Government refuse to do so. If they fail to amend the Bill, they will simply invite litigation, which they are anxious to avoid, particularly against the background of their insistence that, by setting out in the schedule the purpose for which export controls may be imposed, they have made clear to all concerned the exact statutory parameters for imposing controls. Despite that insistence, they exclude sustainable development, to which they are clearly committed, from the schedule.

The solution is so clear that I do not understand why the Government need to look so deeply into the issue. I get the sense from what the Minister has said—perhaps it is the wrong sense—that there is a plan to introduce sustainable development into the Bill by implication rather than explicitly. What harm could be done by taking the obvious solution and putting it back in the schedule? It could only do good, and would save a lot of unnecessary future litigation.

The Government's seemingly irrational refusal is inexplicable, unless there is a reason that the Government are reluctant to disclose. It would be most helpful if the Minister would explain why sustainable development was first put into the Bill and then taken out and why the Government are so determined not to reinstate it. If the Government do not amend the Bill to insert a specific reference to sustainable development in the schedule, I urge the House to ensure that the issue is not allowed to fall victim to inadvertently poor legal draftsmanship or deliberate omission from the Bill.

I referred earlier to a number of other areas in which I believed that the Bill could be improved. They include the limitation on the control of extra-territorial arms brokering to deals where part of the deal takes place in the UK, prior parliamentary scrutiny and licensed production overseas. As those issue have been or—I understand—will be raised in some detail by others in the debate, I shall not speak to them.

5.55 p.m.

Baroness Ludford

My Lords, I shall talk about some of the Bill's deficiencies in the context of a general welcome for its purposes and against a background of welcome for an improved regime of EU controls in the past few years, which, as an MEP, is very much in my focus. I shall not discuss the inadequate structure of this enabling Bill, with its emphasis on secondary legislation, because others are doing so.

The Government deserve considerable credit for helping to instigate the 1998 EU code on arms exports, which was a major step forward in ensuring consistency and coherence of EU member states' policies. There are clear signs that considerable progress has been made, including the decision to publish two annual reports. In June 2000, agreement was reached on a common list of military equipment. As the noble and learned Lord, Lord Scott, fairly pointed out, the EU has a regime based on the criteria and descriptions of the goods.

Considerable progress has been made, but there is still room for improvement in making commercial policy consistent with foreign policy. The EU's development declaration of May 2000 promised coherence between EU policy on arms exports and EU development objectives, but we must improve that coherence in getting consistency in EU external action, such as on goals of conflict prevention, combating poverty and the promotion of human rights.

Agreement was reached last April on guidelines for EU policy towards third countries regarding torture, with the aim that combating and preventing torture and ill treatment will be considered a priority for the EU. There is also an agreed common list of non-military security and police equipment, but there is an absence of controls on the export of such equipment, such as electro-shock weapons and stun belts. The EU said in its April 2001 guidelines that it would urge third countries to prevent the use, production and trade of equipment designed to inflict torture or other cruel, inhuman or degrading treatment and to prevent the abuse of any other equipment to those ends. That is laudable, but it is curiously ahead of the EU's actions. A common list has been agreed, but there are no controls on the export of those items, which are envisaged as separate from the operative provisions of the code of conduct.

In response to a question from me, EU Commissioner Chris Patten said that the Commission intended to submit a proposal for an export prohibition for certain equipment that can be clearly linked to torture "very soon". I hope that that is done without delay. The unpleasant irony of the situation is that electro-shock equipment can carry the "CE" mark of conformity with EU standards of electrical safety. I am sure that that is a great reassurance to any torture victim.

The other area that clearly cries out for coherence is sustainable development, as other colleagues have said. There is a need to include the impact of arms exports on sustainable development as a criterion in the Bill so that it cannot be removed by the Government at any time. As the context is defined in the International Development Bill, it is clearly not impossible.

If the EU code had legal force, as it ought to, the Government's arguments against an explicit inclusion of sustainable development on the grounds that it is already in the EU code would have more force. Criterion 8 of the EU code says that member states will take into account whether the proposed export would seriously hamper the sustainable development of the recipient country, taking into account its relative levels of military and social expenditure.

The Prime Minister recently stressed his commitment to development in Africa. In October, in his party conference speech, he said: The state of Africa is a scar on the conscience of the world. But if the world as a community focused on it, we could heal it. And if we don't, it will become deeper and angrier". So why are we giving assistance to the export of an air traffic control system with military capabilities to Tanzania when 51 per cent of its citizens live below the poverty line and almost half have no access to clean water? Why are we not insisting that its £1.4 billion debt-relief package—for which I give some credit to the Government—be spent on schools, health care and basic infrastructure? Is this deal not a form of tied aid—which I thought that the Government were pledged to abolish? In a recent briefing that I had with the noble Baroness, Lady Amos, on the International Development Bill, she pointed out that Clause 1 of that Bill will ensure that aid cannot be used for improper commercial or political ends. Surely an export licence and export credit for an unnecessary military facility, to save 250 British jobs, amounts to aid for improper commercial ends.

As for this Bill, I reiterate the disappointment expressed by other noble Lords including my noble friend Lord Razzall on the lack of specific provision for controls on licensed production abroad and on end-use monitoring. I shall not repeat his comments. However, although I welcome the inclusion of controls on UK-based brokerage, I find the purported justification of exclusion of foreign deals as unconvincing. After all, the Labour Party's manifesto commitment was to license brokers and traffickers wherever they are located. There are also plenty of examples of extra-territorial legislation. The most recent example of such provisions are those in the Anti-terrorism, Crime and Security Act 2001 criminalising bribery anywhere by UK persons or companies. The long overdue introduction of those provisions into UK law is perhaps that legislation's most welcome feature.

As for transparency, the Government's refusal to agree to prior parliamentary scrutiny is disappointing. Such scrutiny is not unworkable; it works well in Sweden, and indeed in the United States where arguments against it on grounds of commercial confidentiality and delay would surely have been well aired and well supported by the defence industry. Perhaps it is a mark of the greater powers and independence of the United States legislature that it has managed to gain prior parliamentary scrutiny. It is a pity that the UK will not be leading in this sphere of openness, and especially so because it does have a good record on its annual reports. Saferworld—which I, like my noble colleague Lord Razzall, thank—has described the UK's third annual report, of July 2000, as the most transparent report published by an EU country, offering a potential template for best practice. That is high praise and well-deserved praise; it is a pity that it cannot be followed through.

With more transparency, surely the case would be bolstered for ending export credit for arms exports, as recommended by senior officials of the International Monetary Fund and with a substantial saving to the British taxpayer. In 1999, more than half of ECGD cover supported arms sales; as the Government are budgeting £2 billion to subsidise export credit in the next three years, that amounts to a very great sum, perhaps even more than my noble friend Lord Razzall mentioned.

We must not allow the fight against terrorism to he used as a pretext to relax arms export controls. I fear that there is evidence that that has been happening since 11th September. We must be vigilant and not allow concerns about terrorism to become pretexts for relaxing controls. We must focus on the impact that arms exports could have on exacerbating internal conflict or fuelling internal repression.

The Bill is welcome, although we shall have to see the detail in the secondary legislation. I hope that the Government use the legislation as a springboard to strengthen not only the provisions of the Bill itself, but the aspects of the EU code of conduct that I and other noble Lords have mentioned.

6.5 p.m.

Lord Ahmed

My Lords, I congratulate the Government on introducing this comprehensive legislation on export controls; it is the first of its kind in more than 60 years. I am delighted that they are taking the matter seriously. I should like, however, to address several issues.

The events of 11th September highlight the importance of introducing effective controls in arms export policy. As other noble Lords have said, in the aftermath of the tragedy, it is imperative that human rights and sustainable development are not sidelined in the fight against terrorism and remain an integral part of arms export control policy.

UK export control policy needs to reflect an understanding that arms transfers should be governed by the consistent application of certain principles—for example, that arms exports should not be permitted when there is a risk that they may be used to abuse human rights; to undermine sustainable development, as described both in your Lordships' House and in the other place; to exacerbate international instability; or to facilitate acts of terrorism. Now, more than ever, it is vital that the UK applies strict arms export controls, especially for arms transfers to unstable or undemocratic states. As one of the EU's main arms supplying states, the UK should take a lead in encouraging other EU states to implement responsible arms export policies. The Bill is an opportunity for the UK to do just that.

I shall focus on three issues: the long-term concerns of arming unstable or undemocratic regimes; arms exports to Afghanistan; and the Bill itself. The short-term approach of providing military equipment or assistance to strategically important states ignores the long-term implications of arming countries in a region that is susceptible to change. There have been repercussions when we have armed states with undemocratic or unstable regimes that are fighting for a common cause. In the 1960s and 1970s, for example, the United States supported one South Vietnamese dictatorship after another in the hope of holding North Vietnam at bay. When South Vietnam fell, the victorious communists gained strength by inheriting an enormous amount of abandoned US military hardware.

Furthermore, throughout the 1980s Britain and its allies played a part in substantially increasing Iraq's military capability in its conflict with Iran, only for those same exports to be turned against allied forces in the Gulf war. In Afghanistan, the Taliban were armed with US-manufactured Stingers in anticipation of the arrival of US fighter jets. Substantial risks and dangers attach to policies enhancing a country's military capacity. The lifting of sanctions on countries in a region may satisfy an immediate, short-term goal, but the longer-term impact on international security must not be ignored.

It is essential that the potential consequences and implications of any policy to reward countries for their support in combating the threat of terrorism are fully taken into account. For example, India, in dispute over Kashmir, has been responsible for the death of more than 75,000 people. It should therefore not be rewarded but be made accountable. Charges should be brought against certain politicians for crimes against humanity.

In relation to arms exports to Afghanistan, in a worrying move on 31st October, the European Union decided to lift an arms embargo on the Northern Alliance. At the time, lifting the embargo clearly contradicted the spirit of an EU agreement (the Joint Action on Small Arms 1998) to encourage all countries only to supply small arms to governments. Furthermore, at the UN small arms conference in July 2001, the EU was one of the strongest advocates of an international ban on supplies to non-state actors. There was no legitimate or recognised state authority in Afghanistan on 31st October.

A UN-sponsored agreement for a new administration has been put in place. However, that should not give the green light for widespread supplies of arms to Afghanistan. The extended history of gross abuses of human rights by the various warring Afghani groups over the past two decades, including those which make up the Northern Alliance, would counsel caution on loosening restrictions on arms sales to any Afghani faction. There is a risk that arms exports to Afghanistan could be used in contravention of international humanitarian law, to abuse human rights and exacerbate conflict. There is a concern that any exports to Afghanistan could contravene the criteria in the EU code of conduct that stipulate that exports will not be licensed, which would provoke or prolong armed conflicts or existing tensions or conflicts", and, if there is a clear risk that the proposed equipment might be used for internal repression". Ideally, a policy of presumption of denial for arms exports should be instituted wherever there are signs of abuses of human rights and where concerns have been expressed within the UN. That would mean that export licence applications would be refused unless there was demonstrable proof that the arms were necessary for self-defence.

The Export Control Bill is a welcome step in strengthening and developing UK strategic export controls since the publication of the Scott report in 1996 which called for new legislation to govern UK arms exports. Undoubtedly, the Bill is a significant step forward in trying to prevent the transfer of arms by UK companies and citizens into conflict or human rights crisis zones. However, there are some grave weaknesses in the Bill that, if not addressed, could undermine the effectiveness of the legislation. It is crucial that the new export controls, the first since 1939, are comprehensive.

It is welcome that under the Export Control Bill, for the first time, all persons in the UK who broker the transfer of arms from one overseas destination to another, will require a licence for their activities. In the past, UK brokers have been free to arrange the delivery of weapons from countries outside the EU to conflict zones with impunity. Often brokers have taken advantage of the large numbers of cheap surplus weapons available in central and eastern Europe and brokered them to other destinations. There is evidence to show that some British dealers and freight companies have participated in the transfer of significant quantities of arms from third countries into war zones.

However, while the controls in the Bill are welcome, there is a serious loophole. Under the draft secondary legislation proposal, full extra-territorial controls only extend to embargoed destinations and to certain equipment—long-range missiles and torture equipment. If the new legislation covers arms brokers only where at least part of their activities take place within the UK, UK passport holders could simply travel abroad to conduct their business. Clearly that is inconsistent with the principle that all UK nationals should adhere to UK policy on arms transfers.

It is important, in the current climate, that arms transfers are not diverted to terrorist groups or governments that abuse human rights. There have been numerous instances where arms of UK origin have been diverted for purposes or to destinations contrary to the Government's intentions. The Bill does not address any specific measures for monitoring controlled goods after export. This means that no mechanism is in place to verify whether British-made weapons are being used for internal repression or to exacerbate conflict in recipient countries or whether they have been diverted to other countries.

The export criteria state that export licences will not be issued, if there is a clear risk that the intended recipient would use the proposed export aggressively against another country or to assert by force a territorial claim". Yet the Government's annual report on Strategic Export Controls for 2000 highlights that the UK is exporting equipment with a potentially offensive use to India and Pakistan (in dispute over Kashmir). Those cases are of particular concern given the current environment. For example, in the case of India, 699 standard individual export licences have been granted, including components and technology for combat aircraft and helicopters and components and technology for surface-to-air missiles. In the case of Pakistan, 88 standard individual export licences have been granted, including components for combat helicopters, 171 shotguns and military communications equipment.

I sincerely welcome the role that Clare Short personally and the Department for International Development as a whole played in developing concrete action on conflict prevention, controlling arms exports and the spread of small arms. However, development issues are still not being given full weight in the inter-departmental export licensing process. No export licence has yet been refused on the grounds that it might hamper sustainable development.

The Export Control Bill makes no reference to sustainable development. I do not want to go into that because much has already been said in that regard. So while I welcome the Bill, I have a number of concerns, some of which were expressed also by other noble Lords.

Lord Trefgarne

My Lords, before the noble Lord sits down, perhaps I can ask him one question in relation to his remarks. He referred to the supply of arms to Iraq during the 1980s, which he went on to say kept the conflict going between Iran and Iraq. I was one of the junior Ministers responsible for that policy for part of that time. Can he say to what arms he is referring?

Lord Ahmed

My Lords, I do not have the list of those arms. But it was reported in the press over many months, especially during the Gulf crisis, that most of the arms and machinery given to Iraq were supplied from European countries. Perhaps in the speech of the noble Lord he will give us some details about that.

Lord Trefgarne

My Lords, perhaps I may pursue that because this is an important point. In fact there were no arms supplied from the United Kingdom during that time. The noble Lord might like to do his research a little more carefully.

Lord Ahmed

My Lords, was machinery supplied to Iraq during that time?

Lord Hylton

My Lords, if my recollection is correct, I think that Hawk fighter training aircraft, which are capable of being converted for offensive purposes, were the point in question.

Lord Trefgarne

My Lords, they were not supplied. The application was refused.

6.19 p.m.

Lord Freeman

My Lords, having listened to the noble Lord, Lord Ahmed, I am sure that he, like me, in re-studying the Scott report, will improve his speed reading capabilities. I am sure that the answers to some of his questions and those on which my noble friend Lord Trefgarne sought to intervene might be revealed and answered comprehensively from that report.

I declare an interest as chairman of the United Kingdom's second largest defence manufacturer and exporter—Thales plc, for the benefit of the stenographer and perhaps also for the benefit of some of our customers!

The defence industry—I speak on behalf of the Defence Manufacturers Association—and certainly my company, support the Bill. It is a timely, well constructed Bill. I understand that my own company—there are 40 subsidiaries within the group—makes each year about 3,000 export licence applications to the DTI. Typically, they take between five weeks and six months to be processed. Therefore, we have a direct interest in the practical outcome of this legislation.

As my noble friend Lord Lang indicated, it is important also, even at Second Reading, briefly—I intend to be brief—to look at the practical implications of the Bill for industry. My noble friend Lady Miller drew attention to that from the Front Bench. She was absolutely right to do so.

Before I discuss the practical implications of Clause 2, I should say that I very much agree with what the noble and learned Lord, Lord Scott, said about prior parliamentary scrutiny of applications, not orders. I refer also to what I consider a knock-out argument, for constitutional reasons, in introducing that procedure, against which the Government have rightly set their face. I place on record that from the defence industry's standpoint additional delays would only compound the problem we already have and with which the Government are trying to help by making sure that the export control procedure is as fast and efficient as possible.

Further, I register a concern about the competitive position of UK applicants. I believe that the prior parliamentary scrutiny of applications would in some cases prejudice the competitive position of UK applicants. As I said, I shall discuss briefly Clause 2. I remind your Lordships that one of the key changes that will be introduced if the Bill is enacted—as I hope it will be—concerns the electronic transfer, typically by e-mail, of technology relating to military use. The dual-use provisions are already covered by European regulation implemented and obeyed in this country. That is one of the key new changes which significantly affects global companies such as Thales, BAe Systems and Rolls Royce. We estimate that unless the procedure is ameliorated we shall have to make 1,000 extra licence applications per annum as a result of the provisions of Clause 2.

I give noble Lords a simple example. An engineer sitting in our Basingstoke office working on a missile guidance system wants to consult his colleague in our Paris office or our Amsterdam office. At present he would send an e-mail seeking advice, guidance and opinions upon the software or the wiring diagram system for the missile. Under this legislation, unless a simplified solution is introduced, an export licence would be required. I suspect that that will be too big a burden for the Department of Trade and Industry.

I pay tribute to the staff of the DTI export control organisation as they work hard but they are meeting only two-thirds of their target for responding within 20 working days to standard export applications that have to be referred to the MoD, the DTI and DfID. I believe that it is unworkable to add this extra dimension with possibly only two extra staff unless we follow a simple solution which I put to the Minister. The Minister may not be able to respond to it in this debate as there will be consultation on the orders and the procedures to be followed which I very much welcome. Perhaps we can discuss the matter at that stage. I believe that the solution is to pursue what is called in the jargon, "open general licences"; that is to say, that companies, subject to regular audit by the DTI, are allowed to export certain technology to certain countries without having to make an individual application for a licence. I believe that that could comprise a solution.

We must consider the competitive position of British industry. My noble friend Lady Miller was right to draw attention to that. We are talking about moral principles—that is why I welcome the Bill—but we must also consider the practical implications. I thank the Minister, and through him the DTI staff, for all their help over the past 12 months. On behalf of the defence industry I say that we look forward very much indeed to the consultation. We shall be constructive.

6.25 p.m.

The Earl of Sandwich

My Lords, I, too, welcome the progress the Government are making in export control and the improvements made in another place since the draft Bill was published. I declare an interest as a trustee of Christian Aid which has long been connected with specialised charities such as Saferworld and Campaign Against Arms Trade. That is also an issue on which the Churches feel particularly strongly.

The case of Tanzania's air traffic control system has highlighted public concern about this Government's priorities. NGOs, including many in Tanzania, are indignant about the matter and one can see why given that substantial sums of debt relief have gone to that country. It took a long time to convince mainly Conservative governments that taxpayers do not want money set aside for education and health to disappear into hydro schemes or defence and thus into the balance sheets of large British companies. In this case we are talking about export licences, but the principle is the same when governments are faced with stark choices between military spending and development funded in part by debt relief.

Today, things should be different as we have a government who have declared themselves for the poorest. Yet British jobs and profits are at stake and compromises always have to be made. Pergau was a watershed, Narmada was another, and most recently the Ilisu dam in Turkey showed how corporations are still trying to push the boat out, and who can blame them? In the case of Ilisu, Balfour Beatty pulled out mainly for its own reasons, but one is that the ECGD has had to rethink its whole raison d'être and mission statement.

I was delighted to receive a Written Answer from the Government on 20th December confirming that from 1st January all but two of the 26 OECD export credit agencies have agreed to raise their environmental standards for capital goods exports. That agreement for the first time obliges agencies to screen applications and review any projects which could have an adverse environmental effect, as happened at Ilisu. That was a UK initiative and a significant achievement in itself and one in which the US did not form part of the coalition. It is only an informal agreement and it will be a year or two before we know how well it is working. This is not the time to discuss ECGD but if the Government are to continue to promote transparent coherent policies among OECD members, we can look forward—I believe that this meets some of the points made by the noble Baroness, Lady Miller—to further harmonisation between the ECAs on export controls and issues such as outstanding non-concessional debt in countries such as Tanzania.

It is surprising that the Prime Minister chose to make the Tanzania decision against the advice of the World Bank which had advocated the civil system for a quarter or the price, as my noble friend said, and contrary to two senior members of the Cabinet who should know a thing or two about development. I understand that there is still a possibility that a modified civilian version will be preferred which would secure some of the BAe jobs in the Isle of Wight. We all want to support British industry at a time of job losses and we should also respect decisions made by sovereign governments. It is never a clear-cut decision because there are genuine technical and military requirements in all these countries. But if the victories of Pergau and Ilisu are to mean anything, we must insist, as my noble friend Lord Joffe said, that our exports to indebted poor countries still trying to meet their basic needs should be appropriate to those needs.

Turning to the new Bill, and remembering its origins in the Scott report, I applaud the determination of the Government to pursue those who deal in arms sales and exports to developing countries and exploit the vulnerability of societies which cannot always afford to control them themselves. The sale of Hawks and spares to Indonesia and Zimbabwe, whether or not they were inherited by this Government, are reminders of the contribution this Government continue to make to repression and human rights abuse abroad, as mentioned by the noble Baroness, Lady Ludford, and the noble Lord, Lord Ahmed.

My wife and I, on a recent visit to Israel, witnessed on a small scale the way in which we are still condoning the demolition of Palestinian homes with British-made equipment. The cynical growth of our trade in goods to Israel, which is in breach of agreements, regardless of their effect on the occupied territories, makes me wonder whether the Government are serious in their desire to resolve that dispute.

On Israel, I understand from Saferworld that the consolidated national and EU export criteria state that export licences will not be issued, if there is a clear risk that the intended recipient would use the proposed export aggressively against another country or to assert by force a territorial claim". However, the Government's annual report on strategic export controls for 2000 includes the following equipment as being licensed for export although, in the case of Israel, it can be put to potentially offensive use: Demolition charges, general purpose machine guns, rifles, small arms ammunition and components for small calibre artillery ammunition, components for air-to-surface missiles, armoured fighting vehicles, armoured personnel carriers, combat aircraft, combat helicopters and tanks". Open individual licences are available for an even wider range of equipment. They also allow for multiple contracts. Given the Government's policies on the Middle East, is it right or consistent that such arms and equipment should be made available to Israel? And why are Ministers still denying that British-made arms and equipment are being used in the occupied territories?

Returning to the Bill, the inclusion of sustainable development has been mentioned. It would be a small concession if the Government accepted that sustainable development, which featured in the draft Bill, is just as important a consequence as a breach of human rights or national security. The argument that the matter is covered by guidance falls away, I am advised, because, contrary to what the Minister said, that provision could be altered without recourse to Parliament. The EU criteria would remain in force but would not be binding.

The provisions on arms brokering by persons in the UK—that was discussed by the noble Lord, Lord Ahmed—has been widely welcomed because illegal traffic in small arms is a pernicious external cause of conflict in, for example, Africa. However, there is the lacuna that the noble Lord mentioned. The provisions will catch only deals that take place at least partly in the UK. That is contrary to the Government's manifesto commitment, to control the activities of arms brokers and traffickers wherever … located". As the Bill stands, British arms brokers who are based in this country could continue to sell arms without an export licence to groups carrying out terrorism or abusing human rights simply by signing deals outside the UK. That would surely defeat one of the important purposes of the legislation. There is also a lack of clarity about the degree of extra-territorial control of particular weapons under the Bill, and about the extent of future monitoring.

Finally, parliamentary scrutiny by the Quadripartite Committee has been widely welcomed—my noble and learned friend Lord Scott did not welcome it—although its work is only retrospective. I agree that there are obvious difficulties in examining complex rules by a joined-up committee in a way that does not delay the ordinary process of export licensing or infringe commercial confidentiality. I sympathise with some of the comments made by noble Lords on the Conservative Benches. Does the Minister agree with the committee and many parliamentarians that because such scrutiny currently takes place only after licences have already been granted, there is a case for prior examination of some—I emphasise that word—of the more sensitive applications? That would give Ministers the benefit of the advice of a highly regarded Select Committee on some of the most complex issues and would surely be more in line with the doctrine of greater openness and transparency in export control. I look forward to the Minister's comments.

6.34 p.m.

Lord Beaumont of Whitley

My Lords, I do not usually speak in your Lordships' House on the topic that is covered by the Bill. I do so today because in my small but growing and perfectly formed party, there has been a real move to write to me urging me to make a speech and to support amendments that have been discussed fairly widely in another place and in this House tonight.

I, too, am very disappointed that the criterion relating to developmental concerns, which was included in the draft Bill, has been dropped. I still do not understand why. There is currently no explicit reference to the impact of arms exports upon a recipient country's sustainable development. That significant omission from the Bill is of particular concern because all other criteria, which are contained in the consolidated European code of conduct on arms transfers, and the national criteria, are set out in the schedule to the Bill. The significance of that omission was recently made apparent by the rift in the Government over the sale of a military air traffic control system to Tanzania, which several noble Lords have already mentioned. The decision to allow that transfer also demonstrates the need for powers of revocation, if necessary.

The Bill as it stands is able to give the Secretary of State powers to issue guidance for consideration during the licence application process. However, that provision is inadequate because Parliament does not need to be consulted on changes relating to it. Therefore, the schedule must include explicit reference to the adverse effects on countries of cumulative arms exports. The cumulative effect is important because applications are currently assessed on a case-by-case basis. That does not take into account the cumulative impact of transfers on a country which may be considerably less apparent.

Another significant omission from the Bill is the absence of powers to control licensed production. The lack of controls on licensed production is a major loophole in current UK legislation. It enables a UK company to sell a foreign company the right to manufacture its weapons or equipment, thus bypassing our export controls. That is a huge disappointment and in this ever-increasingly globalised world, arms manufacturers can set up shop in any country that has weak arms controls and continue to export deadly weapons to repressive regimes or human rights abusers.

The risk of diversion highlights the need for stringent end-use monitoring. There are currently no provisions in the Bill to introduce stricter end-use controls. Without any such provisions, new powers to control brokering and/or licensed production would be hampered by the lack of controls to ensure that an export was being used by the intended recipient for its intended purpose and was not being transferred to a third party. We believe that end-use undertakings should be explicitly conferred through a legally binding agreement between the end-user and the exporter.

On the whole, this is a good Bill and we support it. However, some amendments are very necessary—they have been discussed by several noble Lords and I outlined some of them very briefly for the House's benefit. We welcome the Bill but we hope that the Government will listen to reason in Committee, as they often do.

6.39 p.m.

Lord Phillips of Sudbury

My Lords, I, like many noble Lords—indeed, like all of those who have spoken—commend the Government on the broad purport of the measure. Those of us who are lawyers recognise the difficulty of framing such legislation. What I shall say will be said not in the spirit of hostility but with the wish to suggest that there may yet be ways to improve the measure.

My first point—I shall not spend long on it because it has already been referred to—is to question whether the degree of delegation in the Bill involves the best arrangement. In particular, orders under Clauses 1 to 4 can currently be enacted by secondary legislation on negative procedures. However, given the importance of the orders, I believe that they should be made by affirmative procedure.

Secondly, reference was made by, I believe, the noble Lord, Lord Freeman, to the rather lame duck at the end of the schedule concerning cultural objects. That subject is something of a fish out of water in the Bill as the remainder relates to arms. But here the issue of cultural objects crops up in an isolated way, with no relevant considerations governing the type of order that can be promulgated in pursuit of preventing exportation. It seems to me that that item in particular requires an affirmative procedure if an order under the schedule is to be brought forward. I suspect that we shall receive a large number of representations from bodies outside this House with regard to that matter.

Thirdly, I am dubious as to whether the extent of criminal offences that can be created by Clause 6(1)(g) are not so serious as not to need an affirmative procedure to bring them in. Indeed, I wonder whether an indictable offence with up to 10 years' imprisonment is the type of new criminal offence that should be created by secondary legislation at all. However, I should be interested to hear the remarks of the Government.

Fourthly, I turn to orders in respect of Clauses 1 to 4 under Clause 6(2)(b). I shall read out that paragraph because the allowance which it sets out seems to me to be extraordinarily uncontained. The paragraph states that an order may, amend, repeal or revoke, or apply (with or without modifications) provisions of any Act or subordinate legislation". Therefore, as is stated here, by an order under this Bill any legislation may be amended by secondary means. Can that be right?

Fifthly, I draw the attention of the House to the deliberations of the Select Committee on Delegated Powers and Regulatory Reform. It had two bites at this cherry. The first, in April, was at the draft Bill stage. With regard to the power under Clause 11 to amend the purposes set out in the schedule, the committee said that it questioned whether granting such a power was appropriate. I believe that we need to hear more from the Government as to why they believe that it is appropriate. It seems to me that the power goes too far. The purposes set out in the Bill are at the very heart and essence of the matter. To allow them to be changed by secondary legislation is, I believe, open to severe question.

I now turn to the question of Israel. I simply want to endorse strongly the remarks already made by the noble Earl, Lord Sandwich. Perhaps the Government will respond to that.

With regard to the subject of the control of brokering, as I believe it is called, the suggestion has been made that we should take powers in the particular circumstances of this Bill to allow for extra-territorial prosecution in relation to offences committed abroad. I understand that the Home Office has six criteria against which the appropriateness of extraterritoriality is judged and that five of them are met in the case of this Bill. Given the relative ease with which the provisions of this measure could be circumvented by those intent on so doing by taking certain decisions out of the jurisdiction, I believe that the Government should review the matter. Again, I shall be interested to know what the Government have to say.

Perhaps I may now turn to my final point concerning an issue referred to by many noble Lords. I shall not name them all because virtually everyone has mentioned the matter. It is: why is sustainable development not one of the relevant considerations in the schedule? In his opening remarks, the Minister reassured the House that it is not necessary—I believe that that is a fair summary of what he said—for it to be set out in the schedule because it can be taken account of in the guidance to which regard must be had by the licensing authority. I hope that that is a fair summary. However, I believe that one is apt to reply, "If it is already there by the back door, why not put it in by the front door?".

I also believe that a clear and specific answer is needed from the Government in response to the issue raised by the opinion given by counsel in Matrix Chambers. They said that there is a difference between putting the matter in the schedule and putting it in guidance. I shall use their words. They say that, although in one sense the legal effect of including a matter in the table to the schedule is the same as the effect of including it in guidance because both are matters to which regard must be had in the exercise of a licensing function, the crucial difference is that the table and the other parts of the schedule set out the only purposes for which an order under Clauses 1 to 4 can he made. However much other matters must be taken into account, they cannot justify making an order for a purpose which is not listed in the schedule.

I believe that the reassurance that we on these Benches want to hear from the Government is that they cannot envisage a case or a circumstance in which the difference between placement in the schedule and placement in the guidance would be of practical effect. If that is so, none the less I urge the Government to take a leaf out of the book of the recently enacted anti-terrorism Bill. There, as I am sure, given the recent battle, noble Lords will recollect, under Sections 102 and 103 concerning the right of the Secretary of State to direct communications providers to retain communications data, the whole process has one main and significant control upon it; that is, the duty of the Secretary of State to consult before issuing the code of practice or, in this case, the code of guidance.

The consultation concerns the draft code—or, in this case, guidance—and requires the Secretary of State to consider any representations made in relation to the draft and, indeed, to consult specifically named bodies. Again, I should be interested to know from the Government why that would not be an entirely suitable procedure to incorporate into this Bill, in particular as in his opening comments the Minister made considerable play of the fact that consultation will take place in the spring. Again, I believe that it would go some way to reassure the aid bodies which are considering this matter from the field, so to speak, that this Bill will take due account of sustainable development. I should have said at the beginning, but shall do so now, that I declare an interest in that my firm of solicitors acts for a number of the aid agencies that form the UK working group on arms which has been of such help to so many of us.

6.48 p.m.

Lord Rea

My Lords, I apologise for not being present during my noble friend's opening speech and those from the other Front Benches owing to being caught up in a rigid traffic jam due to the closure of Islington High Street.

This necessary and welcome Bill has been in gestation since 1998. Getting the drafting right has obviously been a complex matter. It has also involved the need to consider the position of those with a number of legitimate—some might say "vested"—interests in arms exports. Here, the Bill has some similarities to the Tobacco Advertising and Promotion Bill, which also aims to reduce the distribution of a potentially lethal product and is facing rearguard opposition from the tobacco industry as it progresses through your Lordships' House.

To name a few of the interests which some fear may be adversely affected by the Export Control Bill, first and foremost is the defence industry, with some 97,500 of its employees directly or indirectly dependent on arms exports. It is felt by some that the diminution in orders resulting from the operation of the Bill may have a serious effect on national employment statistics, as well as affecting the viability of an industry of importance for national security. There is also concern about the possible effect of the Bill on the balance of payments through reducing exports of manufactured goods, in which of course the arms trade features substantially.

A recent report from the Centre for Defence Economics at York University, entitled The Economic Costs and Benefits of Defence Exports, commissioned by the Defence Select Committee, contains a detailed study of the effect of a sudden hypothetical 50 per cent reduction in arms exports—a worse case scenario—with a greater and more rapid reduction than is likely to follow if the Bill becomes law. Some of its conclusions are that the initial loss of nearly 49,000 jobs would be offset by the creation over a five-year period of 67,000 new jobs in non-defence employment.

The cumulative "one off" net adjustment costs over a five-year period would be between £0.9 billion and £1.4 billion, with an additional £1 billion to include the effects on the terms of trade. That would cease at the end of the period. However, there would be an ongoing cost to the Government of some £40 million to £100 million per annum, which is about 0.2 to 0.4 per cent of the defence budget. Some of that could be offset by a reduction in government expenditure in promoting arms exports.

It must not be forgotten that at the other end of any arms export deal there is the effect on the economics of recipient countries, many of whose budgets are already overstretched and failing to provide the basic infrastructure that they need to develop economically.

All these concerns arise even before considering the potentially, and too often actually, devastating effect of the weapons themselves. Noble Lords know only too well that the 50 or so conflicts since World War II have mainly been in the developing world, more often than not using weapons sold to developing countries by the industrial north, on both sides of what used to be the Iron Curtain.

With all these conflicting factors to consider, it is gratifying to see a Bill which allows for parliamentary scrutiny of a trade which too often has been associated with under-the-counter deals and secrecy. The recommendations of the inquiry of the noble and learned Lord, Lord Scott of Foscote, into the arms to Iraq episode provided the initial stimulus for the Bill; some of its features give effect to EU legislation on, for example, dual use items and will assist implementation of the EU code on arms exports which, as the noble Baroness, Lady Ludford, mentioned, is to the credit of the Government for getting it off the ground. I understand that the Bill is similar to legislation which has been adopted or is being prepared by several other European countries.

To emphasise the need for a Bill of this nature, it is worth pointing out that in the year 2000, of the 36.4 billion dollars total of arms transfer agreements worldwide, 29.4 billion dollars, or 69 per cent—more than two-thirds—were made with developing countries. Of actual arms deliveries, amounting to 29.4 billion dollars, 19.4 billion dollars, or 66 per cent—exactly two-thirds—were to the developing world. These figures are from the CRS Report to the US Congress on Conventional Arms Transfers to Developing Nations, published in August 2001, which was pointed out to me by Saferworld. To put these figures into context, the total overseas development aid disbursed from OECD countries in 2000 was 56.4 billion dollars. The value of arms transfers to developing countries was 19.4 billion dollars, representing 34 per cent of the aid given to those countries. The figures speak for themselves.

Other noble Lords have drawn attention to the recent case of the military air traffic control system for Tanzania, which has conveniently highlighted the need for some kind of reference to development issues when issuing arms export licences. That is why many voices, including, I am sure, the Secretary of State for International Development were she able to speak freely—of course, she usually does—want to see sustainable development, as many noble Lords have suggested, clearly re-inserted into the schedule of purposes in the Bill. The Bill as it stands allows the Secretary of State to include sustainable development as a criterion, as it is in the guidance, if he or she wishes, but it would surely be better to have this on the face of the Bill in the schedule. Secretaries of State and governments change every few years but the need for this provision will continue.

I hope that my noble friend will be able to say in his winding up speech that it is the Government's intention to bring forward an amendment to ensure that sustainable development is included in the schedule of purposes. If not, he can be sure that several noble Lords, including me, will be happy to bring forward such an amendment. There are several other areas, all mentioned by other noble Lords, where the Bill could be usefully strengthened to make it more effective. I shall not go into detail about them at this stage. There will be time in Committee to do that. The areas are as follows: allowing prior parliamentary scrutiny of export licences. At present only retrospective parliamentary scrutiny is possible, after licences have been granted. Prior scrutiny measures exist in some other countries, for example Sweden and the USA, without risk to commercial confidentiality, which is one of the main objections put forward. Provision for this could and should be included in the Bill.

There is the question of extraterritorial controls on the activities of brokers who are British nationals but who operate overseas. There are various ways in which this could be done effectively, and amendments to include them will doubtless be debated in Committee. It would of course be excellent if the Government could introduce them, if only because the drafting would be more acceptable.

There is also the question of controlling the sales of arms manufactured under licence from UK companies in overseas countries. It should be possible to insist that firms which grant such licences must stipulate that the arms produced do not contribute to destabilising accumulations of arms or breaches of international law.

Those are probably the most important issues which will he raised at subsequent stages of the Bill. Of course my noble friend could pre-empt amendments were he to come up with his own set. It is my hope that he will attempt to do just that. In the meantime, I strongly support the Bill, which, even as it stands, is a significant step forward.

6.58 p.m.

Lord Hylton

My Lords, like virtually all previous speakers, I welcome the Bill as a definite expression of the Government's will to strengthen control over arms exports and trading.

On the ground that the Foreign and Commonwealth Office has to deal with ill-advised exports and diverted end uses, it might have been preferable for the Bill to have come from that department. I hope, however, that it will be improved in Committee and that co-operation between the Department of Trade and Industry and the Foreign and Commonwealth Office, which has already increased, will become even more thorough and effective.

I outline two serious weaknesses in the Bill as presented. The first lies in the scope that it gives for British arms dealers to supply weapons to governments who abuse human rights or even to some terrorists groups. I say that because if our dealers broker arms transfers from within the United Kingdom they will be caught by the terms of the Bill. On the other hand, as the noble Lord, Lord Ahmed, pointed out, if they move to Dublin, Ostend or elsewhere—outside the jurisdiction of our courts—they will be free. Those of your Lordships who enjoy the novels of Trollope may remember what happened when duelling was banned in this country but was legal in Belgium. The sands of Blankenburge used to echo with shots in the early morning!

The Government appear not to intend to control the activities of our citizens or residents if they operate from overseas. As the noble Baroness, Lady Ludford, and my noble friend Lord Sandwich pointed out, that is clearly contrary to the Government's manifesto commitment, which is to control, brokers and traffickers wherever they are located". I have a little experience of extra-territorial legislation in connection with paedophile offences. The deterrent effect of such legislation lies not in the number of cases brought but, rather, in the knowledge that where the evidence is available there will be prosecutions.

I understand—here I agree with the noble Lord, Lord Phillips of Sudbury—that the Home Office has six criteria to judge whether extra-territorial jurisdiction is necessary. On the five out of six criteria basis, I trust that the Government will produce or accept an amendment providing for extended jurisdiction—preferably on the face of the Bill.

The second weakness concerns the actual use to which exported arms are put. It is vital to ensure that arms are not diverted to brutal and possibly criminal governments, let alone to terrorist groups. Unfortunately, the Bill does not provide specific measures to control goods once they have been exported—a point made by the noble Lord, Lord Beaumont of Whitley. Good verification of end uses is most important given the instability of large sections of Africa—and, indeed, of some other continents. Will the Government consider how best that can be remedied and, in particular, what form of parliamentary scrutiny of end use would be most appropriate?

7.2 p.m.

Lord Redesdale

My Lords, like many noble Lords, I start by welcoming the Bill. However, we have been given an opportunity to set out a list of criteria that we want included. Considering all the points raised by noble Lords, I expect many amendments to be tabled, the most important of which must concern sustainable development, which has been mentioned by almost every noble Lord who has spoken.

I had prepared paragraphs to read on that issue, but as the Minister has already said that the Government are considering bringing forward their own amendment, which will obviously meet our requirements, I shall not go into the detail behind sustainable development. However, along with the noble Lords, Lord Joffe and Lord Rea, I want such a provision included in the Bill. If the amendments tabled by the Minister do not meet our requirements, we may well table amendments on which we may even test the opinion of the House.

Sustainable development is important because it goes to the heart of what the Bill was originally intended to do. Indeed, it would perhaps be the major test for the idea of an ethical foreign policy, which the Government proposed a few years ago. I do not say that by not including such a provision in the Bill the Government are in any way deviating front the high standards proposed by the Department for International Development. However, the fact that the provision is not in the Bill and that guidance alone will control the implications for sustainable development is unacceptable.

There are many pressures on the Government. Those difficulties are made clear by the air traffic control system for Tanzania. Many noble Lords say that the Government have already issued an export licence for the system. I do not believe that to be the case. I hope that the Minister will be able to tell us whether a licence has already been issued. If it has not, the concern shown by such august bodies as the International Monetary Fund and the World Bank, which do not believe the system to be a legitimate use of scarce resources in a developing nation, should not be ignored. A new system should be considered.

I have a couple of questions on the issue that I hope that the Minister will answer. The first is whether a licence has been granted. The second concerns jobs. It is said that selling the system will preserve jobs on the Isle of Wight. I fully understand the importance of the economy and jobs on the Isle of Wight, but there have been conflicting reports. People say that the system has already been built. If so, how can the sale preserve jobs?

We shall return to that matter in greater detail, but it is as well to remember the conflicting pressures on government. Perhaps that is the paradox referred to by the noble and learned Lord, Lord Scott of Foscote, of introducing export controls on the executive. The laudable aims of the DfID are somewhat different from the equally laudable aims of the DTI.

We should also like to consider prior parliamentary scrutiny. The noble Lord, Lord Freeman, said that he was glad that the Government had left such provision out of the Bill. I do not agree. The Quadripartite Committee has argued that there is a role for a parliamentary committee to scrutinise export licensing decisions before they are granted and provide advice to Ministers in difficult cases. A difficult case that I would cite is the refurbishment of artillery pieces in the territory of Western Sahara occupied by Morocco. If prior parliamentary scrutiny had been undertaken, I do not believe that that work would have been carried out. As the noble Baroness, Lady Ludford, pointed out, such prior scrutiny is already successfully carried out in the United States and Sweden.

I am especially concerned about controls on brokering, as were the noble Earl, Lord Sandwich, the noble Lord, Lord Hylton, and the noble Lord, Lord Ahmed, who is not in his place—again. For the first time, all persons in the United Kingdom who broker the transfer of arms from one overseas destination to another will require a licence for their activities. That is obviously a major step forward to be welcomed. However, it is perhaps time—maybe not in the Bill, although we will table a couple of probing amendments to discover whether it is possible—to consider whether it is legitimate for the Government to expect UK passport holders, whether working from these shores or from abroad, to apply for export licences under the criteria. Those with UK passports may broker overseas. Such a provision may be problematic, but the overseas activities of UK passport holders are already controlled in areas such as the sex trade. Our nationals may be tried in UK courts for such activities.

Another area, mentioned in particular by the noble Lord, Lord Beaumont of Whitley, is the control of end-use certificates and revocation of licences. This is a particular concern because there have been a number of cases of diversion of exported material to destinations other than those set out on the licence agreement. There is perhaps need for a more detailed look at the accumulative effect of exports to certain countries and regimes.

While we on these Benches support the arms industry when it is being responsible in its activities, I cannot help but bring to the attention of the Minister one small point which I find extremely interesting. I perhaps wear the hat of the spokesman for international development rather than that of the spokesman for defence. This debate has been conducted mainly by noble Lords whose interests lie in the international development field. I would like to mention a very interesting paper published by the University of York in November 2001. Two of the four authors are the chief economists in the Ministry of Defence. I can show the report to the noble Lord later. The executive summary states, The study examines the economic costs and benefits arising from a 50% reduction (over two years) in defence exports to UK resident workers, shareholders and the UK Government. It concludes that the economic costs of reducing defence exports are relatively small and largely one off. It therefore suggests that the balance of argument about defence exports should depend mainly on non-economic considerations". I am not suggesting for one moment that there should be a reduction in exports. But it is interesting, considering the tone of today's debate, that this report should focus mainly on non-economic considerations but also examine the export of weapons and such material.

An area of the Bill that has not been studied in great detail is cultural goods, although it was mentioned by the noble Baroness, Lady Miller. I understand that reform of the export licensing system for cultural goods, which was not the main reason for this Bill, contains very general enabling provisions. The Explanatory Notes merely tell us that, It is envisaged that the DCMS will establish controls over the export of any goods … manufactured or produced more than 50 years before the date of exportation". Although I understand the intention is essentially to maintain the status quo, there is currently a very well developed regime for the export licensing of cultural goods. It would be helpful to have more information as to what are the Government's intentions. In particular I ask about the recommendations in the report of their own advisory panel on illicit trade set up by the previous Minister for the Arts at DCMS in May 2000 under the distinguished chairmanship of Professor Norman Palmer. That panel included experts from all interest areas—including the noble Lord, Lord Renfrew, who I am sure would have wished to take part in this debate had he been able to do so—as well as representatives from the art trade.

While all objects found in the soil or the territorial waters of the United Kingdom more than 50 years old require a licence regardless of their value, many are being openly offered for sale on Internet auction sites such as the e-Bay site, often priced in dollars, making it clear that they are likely to be sold abroad. I believe that the department needs to be much more pro-active in warning potential exporters of such objects of their legal obligation to obtain a licence. It can do no good to see the law so openly flouted.

Professor Palmer's panel considered these issues in its report published in December 2000. It recommended that there should be a significant tightening up of the export licensing system as regards cultural objects. I hope that that will be one of the purposes of the Bill. In particular, the report recommends that checks should be carried out on cultural goods imported into the UK within the past 50 years and that the export licensing unit of the DCMS should be strengthened with up to four additional staff in order to fill these additional responsibilities and that two of the staff should be experts in cultural objects.

The passage of this Bill will surely provide the occasion for implementing these recommendations. I would like to hear from the Minister what are his intentions. I realise that in asking the Minister those questions I am asking him to reply, as regards my previous remarks, on behalf of the Df1D, and in this context for the DCMS.

7.16 p.m.

Lord Rotherwick

My Lords, as we have heard from many noble Lords, the Export Control Bill is the Government's attempt to implement the 1996 Scott report. We should note how, in Opposition, this Government consistently urged the last Conservative administration to bring legislation to the two Houses to tighten our export controls. Despite daily comment by the former Foreign Secretary as regards the Scott report, once in power this Government have allowed the matter to drift disgracefully. The Scott report was published in February 1996 and only now, nearly six years later, as my noble friend Lord Lang of Monkton, pointed out, are we having a Second Reading of this Bill in this House. Clearly, the Government's management of this proposed legislation has, regrettably, not been as efficient as one might have hoped.

This side of the House welcomes the Bill, but that welcome is qualified. As is the fashion today, this is essentially an enabling Bill, as my noble friend Lady Miller mentioned. The Government have decided that most of the detail will come through secondary legislation. That is certainly a bad principle for any government to follow as the executive gains ever more power at the expense of the legislature.

I would like to declare an interest as a fellow of the Industry arid Parliamentary Trust which fellowship I have fortunately spent with BAe Systems. On a point of principle, the supply of defence equipment to our allies and friends around the world enhances Britain's influence overseas and reinforces stability for Britain's interests in the world's trouble spots. This importantly ensures other powers, who may be opposed to British interests, are denied such influence.

On an economic note, our own Armed Forces' defence requirements can be insufficient to support weapons development programmes without the manufacturers relying on additional overseas sales, unlike America's armed forces which create a massive internal market. We must not allow this Bill to diminish our defence industry and end up reliant on others. During Desert Storm our Armed Forces were dismayed to find that they could not rely on our European ally, Belgium, to supply our arms requirements. We must nurture our defence industry and not create a Bill to hamper it.

The Defence Manufacturing Association made the following comment: One of our Member companies has in the past openly called the Export Control Organisation at the DTI to be re-named 'Her Majesty's Government Department for the Obstruction of Trade—.' This feeling: of exasperation is especially so of certain sectors such as riot control and could result in those sectors in the UK indigenous industrial capability, which cannot stay in business simply by relying on the UK market, ceasing to exist altogether and the UK becoming totally dependent on overseas sources of supply to meet its own needs. That might not alarm some, but it could result in interesting scenarios developing in the future in which British police quell riots on British streets equipped, for instance, with riot shields from Indonesia, riot helmets from China, and so forth. We must consider the practical implications of the Bill, as my noble friend Lord Freeman said.

Last week, the Prime Minister stated his intention that the United Kingdom should continue to be at the forefront of world affairs. In this House, we should encourage our defence industry, as a force for good in uncertain times, to secure international peace in our time. In the Department of Trade and Industry's December publication, The Forward Look 2001, Dr Lewis Moonie points out the importance of the pivotal role that technology now plays in achieving this aim. The Bill will have an impact on key sectors of British industry.

The United Kingdom has the fourth largest economy in the world, and we remain a major international manufacturing and trading nation. Our defence industry is second only to that of the United States of America. Given that the manufacturing sector has been in recession since the beginning of last year, it is essential that the Government do not add to the burden of regulation and bureaucracy any more than is necessary. The Government have certainly failed in that area over the past four and a half years, and we must ensure that the Bill does not further hamper competitiveness in such an important industry.

Parliamentary scrutiny was a key focus of the Scott report, which emphasised the need for greater accountability in strategic export control. The Bill will oblige Parliament to scrutinise secondary legislation and the Government to provide annual reports on licensing decisions. There is an important point at stake: we must insist that Parliament should retain more control than will be allowed by the Bill. It is not an ideological or political issue; the issue is control of the executive and the exercise of parliamentary prerogatives.

Noble Lords will be glad to hear that I shall not touch on the issue of sustainable development; we have more than covered that aspect.

The Government have said that they feel that the Bill is not the correct legislation through which to control mercenary activity. However, the Green Paper on mercenary activities, which was to have been published in November 2000, has still not seen the light of day. We need regulation that will draw a line between mercenaries who are despicable and those who are not. In Committee in another place, the Gurkhas were cited as an example, as some felt that that outstanding fighting unit had started out as mercenaries. Now, the Gurkhas fight under the colours of the British Army and are seen as anything but despicable. A line must be drawn that would leave genuine mercenaries free to protect democracy. Despicable mercenaries, such as those fighting for A1'Qaeda in Afghanistan, who have no noble reason to be in a war zone offering their service or expertise, would be prevented from getting involved or would, at least, be held accountable after the event.

At this time of fluidity in the international situation, when barriers are breaking down and there is greater freedom of movement, we need legislation, as soon as possible, to ensure that mercenaries who originate in this country are dealt with by this country. Other European Union nations complain that the United Kingdom is lax on that matter. The Bill gives us an opportunity to improve the reputation of the United Kingdom and, most importantly, to improve security for all of us.

The subject of the transfer of technology by intangible means has been touched on. Clause 2 provides general powers to impose controls on transfer of technology. The intangible transfer of all military list technology will be covered, based on the controls recently introduced in relation to dual use goods.

We support the Bill, although that support is qualified by a number of concerns. We are critical of the scope of the controls governing transfer by intangible means. It is conceivable that controls will be imposed on transfers between subsidiaries of companies and on the transfer of the control of technology by intangible means, including telephone and e-mail. That could mean that an employee using an e-mail or a telephone to communicate with another employee of another subsidiary could be transferring technology and committing an offence under the Bill. That would be a sweeping power and would be too all-encompassing. Like my noble friend Lady Miller, I shall be interested to hear how legislation will deal with the monitoring of telephone, e-mail and other communications.

We do not want the Government to overburden United Kingdom industry with regulation and red tape, as they have been so willing to do in the past. If new controls must be introduced, that should be done in such a way as not to impinge on the legitimate, free exchange of information. Nor should such controls give foreign competitors an unfair advantage over our industries by giving overseas buyers the impression that trading with the United Kingdom is too difficult and time-consuming. We must support all British industry, and we should be careful that any change to the export laws is sensible and necessary and not to the detriment of British firms.

I am sad to see that the noble Lord, Lord Ahmed, is still not in his place.

Noble Lords

He is!

Lord Rotherwick

My Lords, I beg your pardon. The noble Lord was sitting further down earlier. I had wanted to address some of the comments that he made, but my noble friend Lord Trefgarne has, I am glad to say, already done so.

7.27 p.m.

The Parliamentary Under-Secretary of State, Ministry of Defence (Lord Bach)

My Lords, I am grateful to all who have spoken. It has been a stimulating debate with an unexpectedly literary flavour. I do not know when your Lordships last heard a debate in which Le Carré, Horace and Bernard Shaw were mentioned. It was remarkably interesting, especially in a debate on export control.

I am grateful for the opportunity to wind up the debate. The fact that I am doing so underlines the interest of my department in the proposed controls on defence equipment. Such controls form a key part of this country's defence interests and of our wider international commitments. Our commitment to preventing arms proliferation, especially in regions where there is instability, remains at the heart of our defence policy, and the Bill will contribute directly to that aim.

Many points were made in the debate; I shall limit myself to 20 minutes. I dare say that noble Lords will be delighted—or perhaps not—that there will not be any more than 20 minutes. If I do not deal with every point that has been raised—which I will not—I hope that noble Lords will understand. I am certain that many interesting points will be raised in Committee.

The Bill is central to the United Kingdom's foreign and international development policies and our policies for maintaining controls on objects of cultural interest. Such various interests emphasise the extent of cross-government interest in and backing for the Bill. One of the most encouraging features of today's debate has been the universal support for the Bill, albeit with qualifications of varying severity. The Government are grateful for that.

As my noble friend Lord Sainsbury of Turville said in opening the debate, the Bill is primarily intended to modernise the export control regime, against a background of recent improvements, which include the banning of the import, export, transfer and manufacture of all forms of anti-personnel landmines and the banning of the export and trans-shipment through the United Kingdom of torture equipment. In addition, the Government have made the export licensing process more transparent and accountable through the publication of comprehensive annual reports. We believe that our country now makes publicly available more information about its export licensing decisions than most if not all of our trading partners. As my noble friend said, the Bill will place the annual reports on a statutory basis.

The publication of national criteria on which export licence applications are judged, now consolidated with the EU code of conduct on arms exports, is also part of the creation of a more open and accountable regime. Here again, the Bill will underpin this by making reference to the consolidated criteria.

The way in which the Bill modernises the export control regime—by introducing new powers about which we have heard—have already been explained in detail. We fully appreciate that modernisation brings with it concerns on the part of industry, which will be required to comply with the new controls.

It is in recognition of those concerns, as well as the wider interests in the legislation on the part of NGOs and others, and the need to be well prepared for eventual implementation, that the Government have already published dummy orders, giving examples of how the controls might work in practice, and have decided to carry out a public consultation on the proposed orders to be made under the Bill. We attach great importance to this process because it helps to inform industry and others about how the new controls are expected to operate in practice, enables them to become familiar with those controls and paves the way for effective implementation.

However, I want to emphasise that we recognise that there is a mutual interest in the Government and industry working in partnership to ensure that the new controls are implemented effectively and with minimum red tape. Our approach to the control of strategic exports, as outlined in the Bill, ensures that we will continue to be a responsible exporter, consistent with our defence and foreign policy objectives and a strong UK defence industry.

It has been argued that the economic benefits to the UK from defence exports are somehow illusory and even that, on the contrary, such exports are effective only because they are heavily subsidised and therefore actually represent an economic drain. The Government therefore welcomed the publication on 11th December of the findings of an independent study by two leading academic experts into the issue.

That study concluded that, rather than being subsidised. defence exports represented a significant net benefit to the UK economy. Defence export sales averaged about £6 billion in 1998 and 1999 and supported almost 100,000 jobs, many of them high-quality jobs in cutting edge industries. The report further estimated that the ending of defence exports from the UK would involve a one-off adjustment cost of between £4 billion and £5 billion, equivalent to about 0.5 per cent of one year's GDP. In addition, there would be a continuing net cost to government of between £90 million and £200 million a year. The costs of government assistance to defence exports are more than outweighed by savings, including reducing the cost of equipment procured for our own Armed Forces.

The Government welcome the findings of that study, as I am sure will all parties in this House. I know that they all support the defence export policy but if they do not they should say so. I understand that all have said that they do. The study shows that those who argue that the United Kingdom would be economically better off without defence exports are wrong. I want to point out that the report also supports a point all too often overlooked in the argument: namely, that the UK defence industry is so effective in the export market precisely because it is competitive and efficient and not through any lack of application of export controls.

However, I want to make it clear that the Government's policy of supporting the legitimate efforts made by UK industry to win export orders are primarily based on their contribution to our wider defence and international security interests. Defence exports help support a strong UK defence industry and contribute to the security of our friends and allies overseas.

All countries have a right to self defence, as set out in the United Nations Charter. However, that would be an empty provision if nations were then prevented from obtaining the means to defend themselves. Few countries, including the UK, have the defence infrastructure to meet all their defence requirements and rely on being able to buy overseas. Many of our friends and partners look to the UK to assist in this and our exports in that sense are their defence procurement. Such exports can promote international stability by deterring potential aggressors. It is time that that argument was put.

However, while the Government remain fully committed to supporting legitimate defence exports from the UK, we fully accept—as does the defence industry and all people of good will—the need for the proper regulation of such exports. We believe that our system of controlling exports is among the most comprehensive and rigorous in the world. However, there is no room for complacency and we need to modernise our procedures in order to cope with changing technology and to extend our controls where necessary. I hope that what I have just said carries broad support across the House.

I now turn to some of the issues raised in the debate. First, I compliment the noble and learned Lord, Lord Scott of Foscote, on his contribution today. Although there were many distinguished speakers, as regards this debate he was the most distinguished. Although he probably will not want to be called the author of the Bill—frankly, having heard him I am sure that he would not—the book can be legitimately dedicated to him. His incredible work gave rise to the change, which should have taken place many years ago. We greatly welcome the support which he gave to the Bill in general terms.

The noble and learned Lord, Lord Scott, expressed concerns about whether the schedule to the Bill fully achieves what he correctly understands to be the intention; namely, to provide the basis for the introduction of controls on military dual-use and paramilitary goods and technologies, as well as goods of cultural interest. We are already aware of the noble and learned Lord's views on that matter. That is one of the reasons why my noble friend mentioned in his opening address that the Government are looking at whether we can further clarify the role of the schedule.

That brings me to sustainable development. Many noble Lords spoke on the topic and my noble friend in opening mentioned concerns. I assure the House that it is neither the intention nor the effect of the Bill to downgrade in any way the Government's commitment to sustainable development; a commitment we have made clear since we first published criteria for arms exports decisions shortly after the 1997 election. However, perhaps I may reassure the House that the Government are listening to the concerns which have been expressed in another place and again here today about sustainable development and that we are considering what we might do.

I want to turn to the effects on United Kingdom industry, referred to in particular by the noble Lord, Lord Freeman, who has great experience in the area. We appreciate the concerns which have been expressed about the new controls on industry, but industry's views on the Bill have been largely positive. The Defence Manufacturers Association has been quoted. It stated that it fully supported the Government's efforts to replace the existing legislation and the CBI also welcomed the Bill. I am pleased to say that we have excellent contacts with industry and have included it in all the consultations about the Bill so far. Of course we shall continue to do so.

I now turn to an area mentioned by many noble Lords; namely, trafficking and brokering and extra-territorial controls, which are dealt with in Clause 4. The Bill as drafted gives the DTI the power to apply trade controls extra territorially through Clause 4(8). The dummy orders demonstrate how the Government intend to use this power. We will introduce extra-territorial controls on trafficking and brokering to embargo destinations in equipment whose export is banned because of its use in torture and missiles with a range of over 300 kilometres and their component parts. We believe that extra-territorial jurisdiction is justified for those activities because a United Kingdom citizen abroad could reasonably be expected to be aware that activity of such a serious nature would constitute an offence.

However, we do not believe that it would be appropriate to apply that extra-territorial jurisdiction to all equipment on the military list. We believe that extra-territorial jurisdiction is justified only in the case of serious offences which are subject to universal international condemnation. This does not apply to the licensing regime for military equipment, which will encompass a vast amount of legitimate trade. To apply the controls extra-territorially would be to risk criminalising UK citizens' involvement in legitimate defence exports from an overseas country of residence. The inevitable enforcement difficulties arising from extra-territorial jurisdiction would also distract valuable resources from tackling the most serious cases as well as reducing confidence in our export control regime as a whole.

That is why we believe that international co-operation is the way to ensure effective action against those who fuel conflicts through the supply of arms. To that end, the Government have supported the recently adopted EU Statement of Principles on controlling arms brokering. We shall also continue to press for international embargoes to be imposed on countries and regions of conflict.

The noble Lord, Lord Phillips of Sudbury, among others, asked how we could take that line, bearing in mind the Home Office criteria. The Home Office criteria suggested that extra-territorial jurisdiction can be considered in cases of serious offences subject to general international condemnation, for which the offender could reasonably be expected to be aware that he had committed an offence. Hence, extra-territorial jurisdiction will apply to trafficking and brokering to embargoed destinations, as I have outlined, of torture equipment and long-range missiles.

However, the new controls on trafficking and brokering of military equipment do not come into that category. The vast majority of transactions here will consist of legitimate trade by United Kingdom defence companies carried out according to the laws of the appropriate country. Nevertheless, under the new controls we will be able to prosecute offences which take place largely outside the United Kingdom. Where any part of a particular trafficking and brokering transaction is carried out inside the United Kingdom, be it by phone call, sending a fax or e-mail, we will have the power to prosecute that offence.

Perhaps I may turn briefly to Tanzania and the issue which has been mentioned in passing by many noble Lords during the course of our debate. I shall not be able to satisfy noble Lords, least of all the noble Lord, Lord Redesdale, who asked questions about that licensing application. Following the policy set out by previous governments, the Government do not comment on individual applications for reasons of commercial confidentiality. Details of export licensing decisions will continue to be published in the Government's annual report on strategic export controls and will be scrutinised retrospectively by the much-praised all-party quadripartite committee.

However, in any licensing decision, the Government take into account criterion eight of the consolidated EU and national arms export licensing criteria, which states that the Government will take into account whether any proposed export of licensable items would seriously undermine the economy or seriously hamper the sustainable development of the recipient country. We continue to take this into account.

Many other issues have been raised in the debate. So far as concerns the cultural aspects of the Bill, I am not in a position to respond to a question put by the noble Lord, Lord Redesdale. However, the noble Baroness, Lady Miller, touched on this aspect of the Bill. The legislation provides the basis for both strategic export controls, which in the main we have been discussing, and cultural exports controls, as demonstrated by the dummy orders. Both regimes currently operate under the 1939 Act, whose export control powers this Bill will replace in full. That is why the DCMS aspect of the Bill is in place.

I hope that my remarks have addressed some of the main points raised in what has been a fascinating debate. I look forward with some apprehension to the Committee and Report stages of the Bill, during which no doubt we shall discuss further some of the interesting subjects that have been raised today. I conclude by commending the Bill to the House.

On Question, Bill read a second time, and committed to a Committee of the Whole House.