Copyright Eurofighter. SECURITY & PROSPERITY Strengthening UK Defence & Security Exports

Transcription

1 Copyright Eurofighter SECURITY & PROSPERITY Strengthening UK Defence & Security Exports

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3 CONTENTS Executive Summary 4 Foreword 5 1. The Value of Defence and Security Exports Safeguarding UK national security Promoting security Delivering economic growth and prosperity 8 2. Increasing the benefit of exports The significance of government support to exports Embedding strategic political support Responding to increased international competition Boosting practical support Strengthening the UK export control system Preserving confidence in UK export control policy UK export controls are robust and transparent Making UK export controls more robust Conclusion 22 3

4 EXECUTIVE SUMMARY 01 The value of defence and security exports - The leading-edge technology, training and logistical support supplied by the UK defence and security sectors provide our armed forces and security and law enforcement agencies with the capabilities they require to address quickly emerging threats. - As UK domestic spending remains under pressure for the foreseeable future, increasing defence and security exports will be crucial if the UK is to sustain the industrial base that supplies the capabilities underpinning UK national security. 02 Increasing the benefit of exports - Given that export customers do not often distinguish between homeland security and defence, levels of support to defence exports should be applied to security exports too. - Support should be institutionalised to ensure that it endures over the long-term; with the aim of sustaining the industrial capacity that delivers leading-edge technology and support to the UK armed forces and security services. - The objective should be to take world-leading products and services that meet the needs of export customers and deliver them with a UK seal of approval through a simple and transparent export system. - A simple and flexible approach should be applied in three ways: flexible government engagement, intelligent market engagement to shape customer requirements, and broader government support applied to a wider range of opportunities. In parallel, boosting practical support provided by UK Trade & Investment Defence & Security Organisation (UKTI DSO) will help SMEs gain access to new overseas markets. 03 Strengthening the UK export control system - The UK has the most robust and transparent export control policy in the world, which underpins responsible trading and ensures that export activities support UK strategic interests. A robust policy gives UK companies and export customers confidence in the system. - Government and industry should consider how the process through which export control policy is implemented can be made more effective in order to ensure everyone continues to have confidence in the regime. 4

5 FOREWORD The UK s world-class defence and security sectors make a vital contribution to safeguarding UK national security. The leading-edge technology, training and support supplied by these sectors provide the UK armed forces and security and law enforcement agencies with the capabilities needed to tackle security threats. Over the past decade, UK defence and security companies have delivered sustained growth in exports in an increasingly competitive international marketplace. Continuing to increase defence and security exports will be vital if we are to sustain the industrial base that supplies the capabilities underpinning UK national security. Successive governments have recognised the importance of defence and security exports to UK national security. Under the previous government we witnessed unprecedented support to exports, underpinned by the personal commitment of the Prime Minister. In light of the government s commitment to the 2% NATO target for defence spending, the ongoing Strategic Defence and Security Review (SDSR) is an opportunity to consider how existing levels of support can be built upon to increase the benefits exports deliver to our national security and prosperity. As we seek to increase the benefits of defence and security exports, the UK should consider how its export control policy which is the most robust and transparent in the world can be made even more effective to ensure that everyone continues to have confidence in the system. Paul Everitt Chief Executive, ADS Group 5

6 01 THE VALUE OF DEFENCE AND SECURITY EXPORTS The UK s national security is safeguarded by its world-class defence and security industries. The leading-edge technology, training and logistical support supplied by these sectors provide the UK armed forces and security and law enforcement agencies with the capabilities required to combat security threats to the UK. Even as domestic budgets have been cut, UK defence and security companies have delivered growth in exports over the past decade. As discussed in the next chapter, consistent support to exports from successive UK governments has been a key factor in generating this impressive growth. Continuing to increase defence and security exports will be crucial if the UK is to sustain the industrial base that supplies the capabilities underpinning UK national security, promotes security and generates growth for the wider UK economy. Figure 1: Value of UK Defence and Security Exports, Security Exports Defence Exports Value ( bn) Source: UKTI Defence & Security Organisation (DSO) 1.1 Safeguarding UK national security As part of the ongoing review of the National Security Strategy (NSS) and the Strategic Defence and Security Review (SDSR), the government will conduct an assessment of the international security landscape and its impact on UK interests, framed within the bounds of what the nation can afford. 6

7 Three interrelated international security trends should inform choices in the forthcoming NSS and SDSR: - Fragmentation of states: beyond the rise of state aggression, state fragmentation is leading to the emergence of large terrorist and dissident groups posing increasingly asymmetric and less predictable threats. - Quicker technology cycle and proliferation of technology: technological change is making the world a more volatile place, as non-state actors adapt new technologies to exploit weaknesses in conventional military and security forces. - Risks are appearing faster: fragmenting states and quicker technology cycles mean that risks are appearing faster and resulting in a greater number of potential threats that government must identify, assess and manage. These trends mean that the UK must sustain an industrial capability that can deliver the technology and expertise required by the armed forces and security and law enforcement agencies to meet emerging threats to UK national security. When national security threats emerge quickly, an agile domestic industrial base is required to adapt rapidly and deliver the changing requirements of the armed forces and security services. The UK must address this complex security environment within a challenging financial context. As UK domestic spending remains under pressure for the foreseeable future, delivering growth in the defence and security sectors that underpin UK national security is increasingly dependent on securing new export business. The forthcoming SDSR should establish how defence and security exports can be increased in order to sustain the industrial capabilities critical to safeguarding UK national security. 1.2 Promoting security UK equipment and technology, especially when in-service in the UK, is sought after by customers around the globe. Exporting these capabilities can strengthen the UK s security relationships with allies and provide partners with the capabilities required to address common threats. UK defence and security companies deliver not only leading-edge equipment and technology, but doctrine and training expertise. Equipment in itself does not provide an effective and sustainable defence or security capability. The UK should leverage these strengths in the export market. An increasing number of UK companies specialise in the provision of high-quality training. Capability development through training delivers a vital capacity-building function by providing countries with the ability to tackle security risks themselves. Capacity-building projects often receive initial funding from the UK government. The UK should focus on coordinating capacitybuilding activity across government and industry to develop programmes of greater depth and longevity. 7

8 01 As part of the ongoing SDSR, the government should consider how a more strategic approach to promoting UK strengths in technology and training to other countries can further UK foreign and security policy goals. 1.3 Delivering economic growth and prosperity The UK generates significant economic benefit through defence and security exports, securing over 13bn in new overseas business in As domestic budgets around the world continue to be squeezed, the international market is becoming more crowded with foreign suppliers seeking growth through new export business. The UK faces tougher competition both from existing and new rivals. If the UK is to build upon its leading position in the global export market and continue generating the substantial economic benefits that exports deliver to the wider economy it must find new ways to enhance its competitive advantage. Underpinning any commercial export deal is the UK s bilateral relationship with the customer on a government-to-government level, including cooperation in defence, counter-terrorism, policing and international aid; diplomatic ties; and intelligence sharing. As global competition grows, government-to-government deals will be increasingly important if the UK is to enjoy a level playing field with key competitors and increase exports to target markets. This logic informs a broader point about the integral role government plays in linking defence and security exports to wider trade deals. The UK should use its bilateral relationships with export customers to adopt a more strategic, cross-sector approach to exports, in which a defence or security sale might be a single element of a wider commercial deal often founded upon a formal intergovernmental agreement. 8

9 Figure 2: UK defence and security companies deliver significant economic benefits to the UK. Value of Defence and Security to the UK 22.1bn UK Defence Industry Turnover 8.5bn UK Security Industry Turnover 9.8bn UK Defence Exports in bn UK Security Exports in ,400 71,000 Direct Employees Direct Employees 9

10 02 INCREASING THE BENEFIT OF EXPORTS Successive British governments have recognised the value of defence and security exports to UK national security and economic prosperity. As domestic spending remains under pressure, the UK should focus on increasing defence and security exports to sustain the industrial capability underpinning national security. 2.1 The significance of government support to exports Across all exporting sectors, the UK government can promote trade by leveraging its relationships in target markets. This principle is particularly relevant to defence and security because the customer is typically an overseas government. As such, political support is crucial when seeking to increase defence and security exports. Every level within the UK government, from the Prime Minister through to in-country embassy and High Commission staff, has a role in building positive relationships with customer governments. The right levels of support are, in many respects, already in place. The last government provided unprecedented support to exports, underpinned by the personal commitment of the Prime Minister. Particularly for defence exports, high-level ministerial support was augmented by traditional support to sales, including ship visits and industry days, customer engagement through requirement workshops, UKTI booths, exchange officers, senior visits by ministers and military officers, and MOD presentations at exhibitions. Given that export customers do not often distinguish between homeland security and defence, these levels of support should be applied to security exports too. The next step should be to institutionalise support to ensure that it endures over the long-term; with the aim of sustaining the industrial capacity that delivers leading-edge technology and support to the UK armed forces and security services in support of UK national security. 2.2 Embedding strategic political support Embedding support for defence and security exports will give both supplier and customer confidence by providing a clear and enduring framework for doing business with the UK. The starting point should be to enshrine a consistently understood principle of support to defence and security exports combined with a refreshed set of responsibilities at all levels of government. Support should then be focused on target markets and applied proactively in order to shape and deliver emerging customer requirements through campaigns developed jointly by government and industry. The objective should be to take world-leading products and services that meet the needs of export customers and deliver them with a UK seal of approval through a simple, robust and transparent export system. 10

11 A simple and flexible system will differentiate the UK from other nations. To take an example, the US Foreign Military Sales (FMS) programme is often described as the most successful brand in defence exports. FMS is attractive to export customers because it is founded on a simple principle of conducting business on a government-to-government basis. Yet the conditions on which FMS is based are unique to the US. It is a heavily regulated process that is a product of the character of US law. Its huge scale is facilitated by the size of the US industrial base. The UK s aim should not be to mimic its competitors, but to embed national strengths that appeal to the international customer: - Simplicity for the customer: doing business with the UK should be as simple as possible for the customer. - Flexibility in meeting customer need: with a focus on a total package approach to ensure product, training and support is tailored to requirements. - Customer confidence through the UK brand: the UK s world-class reputation and experience of UK equipment and training provide the customer with confidence in the acquired solution. These strengths should be applied in three ways: 1 Flexible government engagement Scalable engagement models will allow the UK to adapt quickly to meet customer requirements, from joint teams working directly with the customer and government acting as a procurement route through to light-touch memoranda of understanding and exchanges of letters to guarantee degrees of assurance. In adopting a more flexible approach to engagement, the UK should consider how government departments with significant international interests, beyond MOD, the FCO and the Home Office, can help to identify export opportunities and promote UK solutions. Every part of the UK government should have a formal role in the drive to increase exports. Commercial and sector knowledge across government could be enhanced through partnering between the FCO s Diplomatic Academy and trade associations such as ADS. 2 Intelligent market engagement The aim should not merely be to understand the needs of the customer, but actively to shape requirements and tailor a UK solution. Earlier and more intelligent customer engagement does not require reform of current practice; it requires better use of existing support to work more effectively with the customer government through activities such as government-to-government workshops, government advisers in customer countries establishing defence and security capability, inward missions to the UK, and joint government-industry white papers for potential customers. 11

12 02 Defence and security exports deliver military benefits to the UK by enhancing partners capability and increasing interoperability with allies. The outstanding reputation of our armed forces and security and law enforcement agencies can in turn be leveraged to identify and shape customer requirements through peer-to-peer activity including provision of training and doctrine sharing. Intelligent engagement should not be confined to products; it needs to be applied to training and support solutions in order to provide customers with effective capabilities. 3 Broadening government support High-level engagement inevitably focuses on big-ticket platform sales. Engagement should be broadened across a wider range of opportunities to increase the security and economic benefits that exports bring to the UK. Joint campaign planning is required to realise long-term export opportunities. This should be accompanied by a more coordinated approach to intelligence sharing through intermediaries such as trade associations. By working together, and sharing market priorities, the UK will enhance its chances of increasing exports. In adopting a more coordinated approach to market intelligence, the UK should develop a coherent strategy for defence and security exports reflecting the fact that customers do not often distinguish between homeland security and defence. Such an approach would recognise that large defence sales can often lead to subsequent security cooperation and security dooropeners can result in larger defence sales further down the line. A first step should be ensuring that the strengthened UKTI DSO s market intelligence capacity delivers a joined-up view of future defence and security opportunities. Ministry of Defence (MoD) Image Library 12

13 This would be particularly valuable for smaller companies, which can lack the resources to commission market research and establish in-market contacts. Support to smaller-scale export deals can enable SME access to overseas markets that otherwise would not have been possible without a degree of political involvement. Coordination would be further enhanced by maintaining a calendar of government and commercial activities including visits to target markets, which would enable coordinated activity and feedback about opportunities. For instance, companies can reinforce government-to-government discussions through focused trade missions that demonstrate capabilities relevant to the customer. Industry should also adopt a more considered approach to forming consortia and supply chains for appropriate opportunities so that the UK government is able to place its full support behind single bids or campaigns. Flexible and intelligent engagement applied on a broader basis will provide a more strategic, customer-focused approach that will increase exports, in turn sustaining the industrial base that delivers the capabilities required to safeguard UK national security. Case Study: Political support facilitates exports Political support is as valuable to smaller exporters as it is to larger companies. ADS member Optima Group is a global supplier of counter-ied (improvised explosive devices), EOD (explosive ordnance disposal) and search capabilities to overseas governments, development agencies and multinational corporations. C-IED is a UK capability area in demand from overseas governments. To combat the threat effectively, the UK needs to offer enduring relationships to overseas governments. Yet there are only sufficient resources to engage with priority countries. MOD has used Optima Group as a force multiplier to great effect, both in a military wrapper supporting an MOD lead, and standalone, depending on the customer s requirements. Endorsement of the Optima Group brand carries significant weight with overseas customers. Applying this wrapper of support on a more regular and strategic basis would facilitate market access for the chosen commercial partner and deliver benefits to UK international defence engagement activity. 2.3 Responding to increased international competition The UK s strategic support to defence and security exports is exemplified by a partnership approach to industrial strategy through the Defence Growth Partnership (DGP) and Security and Resilience Growth Partnership (SRGP). These partnerships will strengthen UK competitiveness by identifying customer requirements and tailoring equipment and services to deliver worldclass capabilities. As long-term partnerships, the new government should continue supporting the DGP and reform the SRGP to ensure that these initiatives continue turning their visions into reality. 13

14 02 Security and Resilience Growth Partnership What is the SRGP? The SRGP brings together government, industry and academia to identify barriers to capability development for UK and export customers. What has the SRGP delivered? The SRGP oversees the recently established Security Innovation and Demonstration Centre (SIDC). Hosted by the Centre for Applied Science and Technology (CAST), it facilitates capability development between industry, academia, policymakers and users. The projects undertaken by SIDC may attract interest from international partners. What next for the SRGP? SIDC s project pipeline includes communications data, body-worn video, digital money laundering, and IT standards for policing and the criminal justice system. Significant UK and international interest exists in these areas. The SRGP is due to be reviewed to ensure it has the correct focus to oversee initiatives that will contribute to improved capability delivery in the UK and abroad. Defence Growth Partnership What is the DGP? The DGP is strengthening UK competitiveness by facilitating collaboration to deliver products and services that meet export customer needs. What has the DGP delivered? The DGP implementation plan launched at Farnborough International Airshow 2014 delivers a 30million government-industry commitment that has: - Established the UK Defence Solutions Centre (UK DSC), a collaborative environment to identify solutions to customer needs. - Strengthened UKTI DSO by improving customer focus through market intelligence, country prioritisation and in-country coordination. - Launched growth opportunities in Air Capabilities and Intelligent Systems, including a new UK Centre for Maritime Intelligent Systems. - Invested in skills, technology and the value chain, including the launch of a new Defence Apprenticeship Trailblazer to address the skills gap in systems engineering. What next for the DGP? The DGP is a long-term initiative. The UK DSC will launch ambitious projects that will deliver world-class equipment and services tailored to export customers. 14

15 2.4 Boosting practical support UKTI DSO performs a vital function in helping companies pursue shorter-term opportunities through trade missions and visiting delegations. The DGP has strengthened DSO s longer-term focus through enhanced market intelligence, country prioritisation, and in-country coordination. This more strategic approach could be boosted in three areas, which would help SMEs in particular win more business overseas: Lowering cost and improving coordination of trade missions DSO and trade associations develop separate programmes of missions and exhibitions. The UK should adopt a more coordinated approach by providing a trade association with frameworks to run defence and security missions and exhibitions. Experience in the aerospace sector suggests that international activities operated under frameworks are better value for companies. Companies cannot always understand whether missions to certain countries are relevant to their business. Furthermore, missions are not always promoted with sufficient notice. Working with trade associations, DSO should provide companies with the underpinning market analysis when recommending missions, and earlier warning of forthcoming missions, so that resources can be allocated in support of visits during business planning cycles. Raising awareness of export support schemes UKTI provides a range of support schemes, principally for SMEs and first-time exporters. ADS has found that there is relatively low awareness and take-up of these schemes across the defence and security sectors. UKTI should review existing schemes with ADS to identify whether they meet the needs of defence and security companies, before assessing whether more tailored support schemes should be introduced for these sectors. Some straightforward steps would improve participation, including: introducing flexibility to shift funding from one scheme to another during the financial year to avoid oversubscription; consulting with industry through ADS when changes to existing schemes are proposed; and developing a programme of bespoke briefings about available schemes. Most funding support requires companies to demonstrate a likelihood of purchase by a customer. Companies would find it valuable for funding to be available to visit and understand markets: market assessment is a vital business function. UKTI has made steps in this direction in Europe, and should expand this approach to other regions. Earlier consideration of export control risks in promoting export opportunities A strong and transparent export licensing regime ensures responsible trading. The existing UK system is robust and its controls are robustly enforced. This strength can be enhanced by reinforcing links between DSO and the Export Control Organisation (ECO) to ensure that export control considerations are discussed before opportunities are promoted to businesses. This would minimise the risk of companies investing resources unnecessarily and provide more risk-averse exporters with confidence to pursue business in less established markets. It would also encourage companies that do not export to begin doing so, in support of the wider growth agenda. As the UK increases defence and security exports as a means of safeguarding the capabilities protecting UK national security, the UK s export licensing system should be made even more robust to ensure everybody has confidence in the regime. Strengthening links between DSO and the ECO is a logical first step in this process. 15

16 03 STRENGTHENING THE UK EXPORT CONTROL SYSTEM The inherent transparency and openness of the UK export licensing system enables open and constructive debate of how policy can be strengthened. 3.1 Preserving confidence in UK export control policy The UK has a strong and effective export control policy, which underpins responsible trading and ensures that export activities support UK strategic interests. A robust policy gives both UK companies and export customers confidence in the system. The UK should consider how the process through which export control policy is implemented can be made more effective in order to ensure everyone has confidence in the regime. 3.2 UK export controls are robust and transparent UK export control policy is the most robust and transparent in the world. Its rigorous checks and balances ensure that UK export activity contributes to the government s mutually reinforcing objectives of safeguarding national security and delivering economic prosperity. Every UK export licence application is scrupulously assessed on a case-by-case basis against a set of eight criteria consolidated from national and European legislation. This enables exporters to operate responsibly and with confidence. If the export of a controlled item risks conflicting with one or more of the criteria, a licence will not be granted. The case-by-case approach ensures that the precise circumstances of every application can be assessed against the high standards of the consolidated criteria. In scrutinising applications, significant focus is given to end-user and end-use of the item (i.e. who will use it and what it will be used for) to guarantee compliance with the criteria. 16

17 Consolidated EU and National Export Licensing Criteria An export licence will not be granted if there is a clear risk that the item to be exported could be used to contravene one or more of the eight criteria applied to all applications: 1. Respect for the UK s international obligations and commitments, including under the UN arms trade treaty and the nuclear non-proliferation treaty. 2. Respect for human rights and freedoms in the destination country. 3. Risk of provoking or prolonging armed conflict in the destination country. 4. Risk of the recipient using the items aggressively against another country. 5. Risk of undermining UK defence or security interests, or being used against UK forces. 6. The behaviour of the buyer country on the international stage, particularly with regard to support for terrorism and international organised crime. 7. Risk of the item being diverted within the destination country (for example, to a terrorist group) or re-exported to another country. 8. Risk that the export would undermine the economy or sustainable development of the recipient country. Each of these criteria is rigorously applied on a cross-government basis which enables individual departments to apply their perspective and expertise to every licence application. Cross-government scrutiny enshrines a system of robust checks and balances to minimise the risk of a licence that contravenes the strict criteria being granted. If consensus on a particular application cannot be reached across the departments, the system provides an in-built mechanism to escalate it to ministerial level to ensure complete accountability of decision-making. A cross-section of government departments and bodies can be involved in the application process: Department for Business, Innovation and Skills (BIS); Foreign and Commonwealth Office (FCO); Ministry of Defence (MOD); Department for International Development (DFID); Department of Energy and Climate Change (DECC); and Communications-Electronics Security Group (CESG). The cross-government approach is reinforced by the existence of a government body dedicated to processing and issuing export licences the Export Control Organisation (ECO). The ECO complements the departmental expertise applied to each application by engraining independence and objectivity into the decision-making process. The strength of UK export control policy is illustrated by the fact that our competitors are seeking to replicate aspects of it. France is taking steps to reproduce the UK IT system through which applications are submitted (SPIRE), whilst the US is planning to upgrade its IT infrastructure so that applications are processed through a single system. The robustness of UK export control policy is underpinned by a comprehensive commitment to transparency. The transparent nature of the licensing process, combined with the amount of licensing information released into the public domain, is unprecedented in comparison to other nations. 17

18 03 The ECO measures its performance in processing applications against delivery targets, which are published online. It also publishes quarterly and annual reports detailing the value, content and destination countries of all granted export licences. 3.3 Making UK export controls more robust A transparent approach underpins public confidence in the effectiveness of UK export controls. As the UK seeks to increase defence and security exports, measures can be taken to make the system even more robust and transparent so that public confidence can be strengthened. Historical data published by the ECO illustrates a clear correlation: as the total number of licence applications has increased each year, so too has the average processing time for an export licence. Figure 3: Total number of Standard Individual Export Licences processed compared to median number of days taken to process applications, Number of SIELs processed vs Median Days to Process Applications # SIELs Processed Median Days # SIELs Processed Median Days Source: Export Control Organisation (ECO) and ADS Since 2008, the number of standard individual export licences has increased by 37%. Over the same period, the median days required to process applications has risen by 16%. Crucially, this data does not take into account delays caused by requests for further information (RFIs) when an application is returned to a supplier with a request for minor clarification or technical information. Data collected from ADS members suggests that, when RFIs are taken into account, the median time taken to process applications in 2013 rose from 14 days to 20.4 days. 18 Growth in exports will logically mean an increase in the number of export licence requests submitted to government and, potentially, a corresponding increase in the time taken to process applications.

19 The ECO does not have the capacity to administer an ever-increasing quantity of applications. The challenge, therefore, is to identify how the export control process can be made more efficient in ways that improve the robustness and transparency of export control policy. There are three areas where the export licencing process can be strengthened: 1 Increasing scrutiny through open licensing The UK enables goods to be exported under a variety of types of export licence. The main types of UK export licence are: - Open General Export Licence (OGEL): under strict terms and conditions, these licences allow the export of specified, less sensitive goods by any qualifying company without the need for an individual licence. These licences are published online. Failure to comply with the terms and conditions can result in eligibility to use the licence being withdrawn. User companies are subject to regular compliance visits from the ECO. - Standard Individual Export Licence (SIEL): the most common type of licence, these allow shipments of specific items to a specified destination and up to an agreed quantity. - Open Individual Export Licence (OIEL): these are assigned to an individual exporter to cover multiple shipments of a particular item to a defined destination. OIELs are generally valid for a period of five years. In 2013, over 13,500 standard individual export licences were issued, whilst 148 applications were refused. The fact that almost all standard licence applications are accepted means there is significant scope to expand the use of open licensing. It is a popular myth that open licensing undermines transparency: in fact, users of open licences are subject to strict conditions and regular compliance audits by the ECO, whilst comprehensive details of all open licences are published. Far from weakening the strength of the licensing regime, responsible expansion of open licensing would make the system more robust by cutting the ECO s workload and increasing time to focus on more complex and contentious applications. Figure 4: Total number of Standard Individual Export Licences processed compared to % of applications processed in under 20 days, Number of SIELs processed vs % of Applications Processed Under 20 days 120 # SIELs Processed % of Applications Processed Under 20 days 2000 # SIELs Processed % Under Source: Export Control Organisation (ECO) and ADS 19

20 03 Over the period 1999 to 2013, the number of single individual export licences increased by 50%. Over the same period, the percentage of applications processed in under 20 days has decreased by 15% - from 92% in 1999 to 77% in Data collected by ADS suggests that the 2013 figure decreases to 63% when delays caused by RFIs are taken into account. As a first step, the ECO should identify the items for which standard licences are most commonly granted before assessing where open licensing could be appropriately applied. In turn, government and trade associations should ensure that companies have access to clear and current information spelling out in what circumstances open licences can be applied to ensure that businesses understand when open licences can be used, as well as the strict terms and conditions under which they are applied. 2 Enhancing export licensing advisory functions Since the suspension of the Control List Classification Service in June 2014, UK companies have not been able to obtain from government an official view on whether a specific item requires an export licence. Whilst online self-rating tools exist, these do not provide the same degree of assurance. Reinstatement of the service would improve the robustness of export control policy by helping companies to determine whether their goods are subject to export controls, thereby reducing the risk of non-compliance. It would be particularly helpful to exporters of dual-use goods such as cryptography controls for software-based systems, where it is not always clear to companies whether a licence is required. It will also reduce the number of superfluous applications for items that do not require export licences: the ECO estimates that it receives 1,800 such applications each year. Decreasing this number will free resource to scrutinise applications that do require a licence. Enhancing licensing advisory functions is inherently linked to the expansion of open licencing. An open licence places the onus on the exporter by obliging it to abide by specific terms and conditions. The Control List Classification Service would enable companies to understand when open licences should be used, thereby providing a degree of assurance that would encourage exporters to apply for them. Reintroducing the Control List Classification Service informs a broader point about how exporters can obtain an early indication from government as to whether an export licence is likely to be granted, before investing significant resources in pursuing a prospective business opportunity. 20

21 The current lack of an early guidance service presents two risks: companies risk loss of resource and potential reputational damage by pursuing export opportunities only for an export licence application to be refused; and more risk-averse exporters might forgo pursuing potential export business in the first place for fear that a licence application will be rejected. The ECO should continue to develop proposals for an export licence early guidance service in order to provide exporters with greater confidence to pursue potential export business. Such a service will support the growth agenda by incentivising companies to export and improve the strength of the export control regime by reducing the risk of inadvertent non-compliance. An effective early guidance service needs to be based upon some guiding principles, including: - The service should be owned and operated by government. Only government will have access to all the information and intelligence required to make a credible and informed assessment. - It should assess business plans against a subset of the consolidated criteria to provide the enquiring company with a certain degree of assurance. - An early guidance assessment would provide an indication of whether a licence is likely to be granted, rather than a guarantee of a licence, in recognition of the fact that circumstances in a given country can change rapidly. 3 Cutting requests for further information (RFIs) During the licence application process, ECO officials may return an application to a supplier with requests for additional technical information or minor clarifications. The latest government data states that 46% of licence applications are returned due to RFIs. The fact that almost half of all applications are returned has two negative consequences: it creates a backlog that the ECO must address whilst simultaneously processing new applications; and it slows down delivery to the export customer, undermining UK competitiveness and potentially causing reputational damage to the supplier. When completing a licence application form, it is incumbent upon the supplier to provide accurate and comprehensive information. However, given that almost half of applications are returned to the supplier, there must be substantial scope to reduce the number of RFIs. The ECO should institute an annual analysis of the most common causes of RFIs before determining a strategy to reduce the number of requests through better online guidance, improved training at making better licence applications, and targeted awareness-raising. This strategy should be coordinated with trade associations in order to inform their own training and guidance provided to member companies. Conducting the analysis on an annual basis will enable the ECO to monitor the impact of measures taken to cut the number of requests. The RFI analysis should also consider the 1,800 applications that do not require a licence and recommend ways in which this number could be reduced. 21

22 04 CONCLUSION The UK s national security is safeguarded by its world-class defence and security industries. The leading-edge technology, training and logistical support supplied by these sectors provide the UK armed forces and security and law enforcement agencies with the capabilities required to combat security threats to the UK. Continuing to increase defence and security exports will be crucial if the UK is to sustain the industrial base that supplies the capabilities underpinning UK national security. Embedding existing levels of strategic support to exports will give both supplier and customer confidence by providing a clear and enduring framework for doing business with the UK. In parallel, boosting practical support provided by UKTI DSO will help SMEs gain access to new overseas markets. As the UK seeks to increase defence and security exports, consideration of how the process through which export control policy is implemented can be made more effective will ensure everyone has confidence in the regime. The inherent transparency and openness of the UK export licensing system enables open and constructive debate of how this can be achieved. Ministry of Defence (MoD) Image Library 22

23 ABOUT ADS ADS Group is the UK trade organisation representing the Aerospace, Defence, Security and Space sectors. ADS is focused on representing the interests of these valuable wealth producing industries in the UK and overseas to key stakeholders, government, and the media. ADS plays an instrumental role in bringing industry and government together, working closely and collaboratively to maintain and grow the UK s world leading position in these industries. In doing so, these sectors will support and facilitate a sustainable UK economic recovery, securing future sector prosperity through a strong strategy and united approach. Farnborough International Limited is a wholly owned subsidiary of ADS Group. In 2014, the Farnborough International Airshow saw over $200bn worth of confirmed orders

24 Follow us on t: +44 (0) ADS Group Limited, Show Centre, ETPS Road, Farnborough Aerodrome, Farnborough, Hampshire, GU14 6FD ADS /15