Briefing for Parliamentarians
Debate on
‘Defence in the World’
House of Commons, 21 October 2004
Introduction
In a year dominated by the continuing violence in Iraq, Darfur and the Democratic Republic of
Congo, and growing concerns about the nuclear aspirations of North Korea and Iran, the threats
posed by weapons proliferation continue to undermine global security and stability.
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This brief looks at three issues in relation to UK defence and security policy:
1. WMD counter-proliferation policy
2. Arms exports policy
3. EU Code of Conduct on arms exports
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1. WMD Counter-Proliferation Policy
The failure to discover weapons of mass destruction (WMD) in Iraq has severely undermined
global efforts to counter the proliferation of such weapons. The US and UK Governments
argued that Iraq’s WMD posed a “current and serious” threat even though they knew that this
capability represented no more than a latent and non-strategic threat. In the event it turned out
only to be a latent threat. There were no weapons and no programmes – only a possible future
intent to resurrect capability. By over-selling the threat from Iraqi WMD it will almost
certainly prove that much harder to convince others of genuine threats to international security
posed by WMD possession in future.
In the meantime:

In April 2003 North Korea confirmed suspicions by announcing that it does actually
possess nuclear weapons.

In early 2004, Pakistani nuclear scientist Dr. A. Q. Khan revealed that he had sold gascentrifuge technology – necessary for the production of nuclear weapons - to North
Korea, Libya and Iran.

Despite the diplomatic efforts of the UK, Germany and France to persuade Iran to
demonstrate that its nuclear intentions were benign, the International Atomic Energy
Agency (IAEA) recently issued a strongly worded resolution criticising Tehran for
failing to do so. There has also been growing speculation about possible military action
from either Israel or the United States against Iranian nuclear facilities.
Both North Korea and Iran appear to have drawn two lessons from the Iraq conflict:

That unless they have nuclear weapons they will be unable to deter the US from
imposing forcible regime change (these are the other two states in President Bush’s
‘Axis of Evil’).

With the US mired inside Iraq, it is in no shape to take on anyone else militarily in the
near-term. Hence, there is a window of opportunity for them to develop an effective
nuclear deterrent capability.
Next May - probably during the UK General Election campaign - the five-yearly review of the
Nuclear Non-Proliferation Treaty (NPT) will take place in New York. The Treaty is under
strain for many reasons:

Iran is refusing to comply fully with the demands of the Treaty and North Korea has
withdrawn from it.

Israel, India and Pakistan have refused to join the Treaty and have all developed nuclear
weapons.

A number of states point to the fact that the nuclear weapons states show no intention
of disarming, indeed, quite the reverse. The US is pursuing new roles for its nuclear
weapons and doing so in parallel to its adoption of a doctrine of pre-emption.
The Government has announced that during the next Parliament it will have to decide whether
to replace Trident. This will prove a defining point in UK policy. A number of initial questions
arise:

Is HMG genuinely and actively seeking to achieve a nuclear-weapons-free world or is it
simply a rhetorical commitment?

Alternatively, is HMG preparing to enforce a division in the world in which some states
are allowed to retain nuclear weapons ad infinitum and others are forcibly prevented
from doing so?

If weapons of mass destruction are deemed vital for the UK’s security, which other
countries are entitled to take a similar view?
2. Arms Export Policy – the cost of subsidies
A recent report published by Saferworld, BASIC and the Oxford Research Group, shows that
the UK Government’s subsidisation of arms exports relies on economic justifications that do
not stand up to scrutiny.1 The report estimates that Government subsidies to arms exports cost
the taxpayer at least £450m, and possibly up to £930m a year. The report highlights that:
1. Employment dependent on arms exports, constitutes only 0.25 percent of the national
labour force and far from providing jobs, it diverts skilled workers and investment
away from more effective job-creating activity in the civil economy.
2. In terms of benefits to the balance of payments and the wider economy, defence
exports’ share of total UK exports in 2002 amounted to only 1.5 percent (£4,120m).
3. Far from driving down the costs of production and equipment thereby reducing the
costs of domestic procurement, linking export orders with domestic procurement can
lead to less suitable and more expensive equipment for our armed forces. For example,
the BAE-India Hawk jet deal in 2003 highlighted a rift between Government
departments over the deal’s economic benefit and revealed that, rather than reducing
the cost to the UK, it actually added a £1bn price tag to UK taxpayers.2
4. The UK Government provides direct financial (as well as political) support to defence
manufacturers totalling £31m per year through organisations such as the Defence
Export Services Organisation (DESO).
5. Subsidies through the ECGD, which provides export credit insurance to exporters and
purchasers of UK equipment at premium rates that are well below those of the market,
total £222m per year.
6. The MoD’s procurement policy is often distorted by buying UK-made equipment in
order to encourage future export orders. This sometimes leads the MoD to purchase kit
that is inferior or more expensive than that available from non-UK sources. This
amounts to an estimated annual subsidy of £200m to arms exports.
7. Assuming that 40 percent of R&D spending relates directly to exports (the same
percentage of total UK defence production that is exported), this would give an upper
estimate of an R&D subsidy of up to £483 million.
Recommendations
1

The Ministry of Defence (MoD) should end public funding for DESO and defence
trade fairs.

Government Ministers should cease their involvement in military export
promotion.

The Chancellor should review the position of Export Credit Guarantee Department
(ECGD), and ensure it charges a full market price for its premium rates.

The MoD should separate defence procurement from export decisions in order to
ensure that procurement decisions are taken on the basis of defence needs and
value for money.
Escaping the Subsidy Trap: why arms exports are bad for Britain, 2004, BASIC, ORG and Saferworld. Can be
found at: http://www.saferworld.org.uk/publications/Subsidy%20Report.pdf
2
Mary Fagan, `How the Hawk fought off an Italian predator`, Daily Telegraph, 19 July 2004.
3. Strengthening the EU Code of Conduct
Although the EU Code of Conduct on arms exports was introduced six years ago to encourage
responsible arms controls, loopholes in the criteria are failing to stop arms reaching unstable
states and embargoed countries thus exacerbating violent conflicts across the world.
Governments are currently reviewing the question of the Code, and this presents a vital
opportunity to strengthen it and close its loopholes.
Between 1994 and 2001 the EU exported nearly $10 billion of arms to developing countries:
approximately one third of all the arms deliveries made to these countries. EU arms controls
are not strong enough and are being bypassed. Much more needs to be done to tighten global
control agreements and to combat trafficking.
Examples
1. The German government's export control system has not prevented Deutz AG diesel
engines from being incorporated into Armoured Personnel Carriers in countries which
are themselves subject to an EU arms embargo (China) or which have subsequently
exported the vehicles to an embargoed destination (Ukraine to Myanmar/Burma).
2. India manufactures attack helicopters in close cooperation with the French company
Eurocopter. India has subsequently exported helicopters to Nepal, despite the misuse of
helicopters against civilians and insurgents by Nepalese security forces. Components or
subsystems from other EU countries have also been supplied for these helicopters.
3. Austrian gun maker Steyr-Mannlincher has signed an agreement with the Malaysian
government to manufacture its military weapons. Malaysia has aggressive export plans
for these arms, which would not be subject to the EU Code.
Recommendations:





Tightening the Code criteria: The present ambiguous wording of the Code
criteria allows for widely differing interpretation by Member States. Tighter
language would help prevent member states from making irresponsible export
licensing decisions.
Ensuring all EU members publish annual reports on arms exports: All
member states should produce public annual reports in order to reduce the
likelihood of member states exporting irresponsibly.
Regulating licensed production overseas (LPO): All LPO agreements
involving EU companies should be subjected, in their entirety, to export
licensing procedures.
Applying the Code to weapons components: The Code must be rigorously
applied to the export of components and subsystems as well as complete
weapons.
Strengthening arms embargoes: EU arms and components must be prevented
from finding their way to embargoed destinations, either directly or through
third countries.
For further information contact:
Steve Pullinger or Alice Hutchinson at Saferworld on: 020 7324 4646