Britain - Addicted to the arms trade

THE ECONOMIST, September 18-24, 1999

BRITAIN

Addicted to the arms trade

Britain's success in selling weapons abroad will continue to cause diplomatic and political embarrassment

SURREY was invaded this week. Around 26,000 arms-dealers descended on this genteel county, south of London, attracted by Britain's largest arms-trade fair. Some 900 exhibitors from around the world showed off the capabilities of all sorts of gizmos, ranging from Scorpion armoured vehicles to Challenger tanks.

The arms fair came at a particularly embarrassing time for the Labour government. One of Britain's biggest customers for weaponry, the Indonesian military, is disgracing itself in East Timor. The Indonesians did not take up their invitation to attend the arms fair. But they still caused squirming in Whitehall this week when they confirmed that they have been using British-made Hawk aircraft over East Timor-something the British government has long insisted would not happen.

Robin Cook, the foreign secretary, is in a particularly awkward position. He has promised a more "ethical" foreign policy and a new approach to arms exports. Under the guidelines introduced by Mr Cook, Britain is not meant to permit the sale of arms to regimes which might use them for internal repression, external aggression, or abuse of human rights.

In theory, this represents a clear tightening of the stated policies of Conservative governments. Reality is more complicated. Until September 11th, when it announced support for a European Union embargo on new arms contracts with Indonesia, the government was still licensing defence exports to that country. Between May 1997 when Labour was elected and June of this year, the government approved 111 licences, covering everything from spare parts for machine guns to military helmets; in the same period, it turned down eight licence requests. Since the Tories refused to release statistics of this sort, no comparable figures exist for the period before 1997.

Under Labour's policy, what counts is not so much the importing country's record on human rights, but whether an individual export might be used for internal repression. But given Indonesia's abysmal history of human-rights abuses, in East Timor and elsewhere, it was always likely that British weapons would be misused.

In its defence, Tony Blair's government says that many of the most significant export licences were approved before it came to power. But by May 1997, no significant deliveries had been made on two large defence orders from Indonesia, licensed in 1996 by the Conservative government. The larger order, worth �350m ($560m), was for 16 Hawk fighters, manufactured by Britain's largest defence company, British Aerospace. There had been widespread (if unproven) allegations that previous consignments of British Hawks had been used over East Timor; and clear evidence that British-supplied armoured vehicles had been used in suppressing demonstrations in Sulawesi in 1996. But after considering the implications of revoking existing licences, the incoming government washed its hands of any responsibility for decisions made by the Conservatives. In July 1997 Mr Cook told the House of Commons that it would not be "realistic or practical" to revoke licences in force at the time his party came to power. The Foreign Office is keen to stress that the government took legal advice in arriving at this decision.

But despite the impression given by ministers, the government has wide discretionary powers to revoke export licences. According to legal advice obtained by the World Development Movement, a pressure group, the government can do so without having to pay damages or compensation to the licensee.

Undoubtedly, the commercial interests of Britain's defence industry weighed heavily in the government's decision. Mr Cook is said to have had these interests forcefully underlined for him by Mr Blair's office.

The defence industry has always been an effective lobbyist in Whitehall. The department with responsibility for maximising Britain's arms exports is the Ministry of Defence's Defence Export Sales Organisation (DESO), which has a representative in Jakarta. Evidence given to the Scott inquiry-conducted between 1993 and 1996-into British arms sales to Iraq showed how aggressive DESO is in promoting defence exports and how influential it is within government. When Margaret Thatcher was "batting for Britain", her government recruited big hitters from defence companies to head DESO, a practice still in force today.

A British speciality

Will the government's belated suspension of all arms sales to Indonesia-including the Hawks-mark a turning point? It is unlikely. For while the government is eager to be ethical it also knows that the defence industry is a valuable source of high-tech jobs and revenue. As one former British ambassador to Indonesia puts it, with a touch of hyperbole: "I'm afraid making weapons is one of the few things we're really good at."

So just how important are arms exports and the defence industry to Britain's economy? The first part of the question is difficult to answer. No reliable statistics are available for the value of such exports prior to 1997. The Stockholm International Peace Research Institute calculates that between 1993 and 1997 Britain ranked as the world's third-largest exporter of major conventional weapons. This year, for the first time, a British government has published accurate statistics on the value of arms exports. The figures released are for 1997, when British arms exports totalled about �3.4 billion, or 3.3% by value of Britain's total exports of finished manufactured goods. (By comparison, exports of cars accounted for 8.7% of such exports.) Indonesia ranked as Britain's seventh-largest arms export market, with sales of �112m (see chart).

The Ministry of Defence is not given to selling itself short when bragging about Britain's arms exports. This week an embarrassed ministry spokesman admitted to The Economist that its figures for Britain's arms exports in 1997-�6.7 billion-are wrong (ie, they are nearly double the correct figure published by the government as a whole).

But the ministry is sticking to its estimate that around 9,000 firms in Britain are involved in the defence sector. It claims that, directly and indirectly, the defence industry now accounts for 355,000 jobs-about one in ten jobs in manufacturing in Britain-and that jobs generated by defence exports account for just over a third of this total. Hawks are still a popular export. British Aerospace has just announced that it is to sell 12 more to South Africa, as part of a complex arms deal (see article).

Britain's defence industry receives generous support from the Export Credits Guarantee Department (ECGD), a government agency which in effect guarantees to pay exporters in the event of default by their clients overseas. ECGD has skewed its business in favour of defence exports. In the five years to 1998 more than a quarter of its guarantees were for defence exports. ECGD has more exposure to Indonesia than any other country apart from China; its exposure in January 1999 totalled �1.6 billion, about half of which related to defence exports. Last year, Indonesia rescheduled �260m of its ECGD-guaranteed debt, including over �100m owing on an earlier purchase of Hawk aircraft. If Indonesia (which is in a parlous financial state) actually defaults on any of its debts, it will be the British taxpayer who ends up paying for Indonesia's weaponry.

There is one slender straw of comfort for the government. To date, its embarrassment over arms sales to Indonesia bears no comparison with the record of recent Conservative governments. Large defence deals clinched by Lady Thatcher's governments led to large political scandals. For instance, Lady Thatcher's son, Mark, was alleged to have received a multi-million pound commission on the �20 billion Al Yamamah arms contract, which his mother signed, as prime minister, with Saudi Arabia in 1985. A �1.3 billion defence deal with Malaysia in 1988 was expensively and illegally linked to British aid. And arms sales to Iraq led to the long-running Scott inquiry and serious criticism of government ministers. Among the most trenchant critics was one Robin Cook. He will be hoping that his own government's record on arms sales does not come back to haunt it.

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