Amendment 1

National Security and Investment Bill - Report – in the House of Lords at 1:31 pm on 15th April 2021.

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Lord Lansley:

Moved by Lord Lansley

1: Clause 3, page 3, line 9, at end insert—“( ) details of the circumstances in which the application to an asset of any export control, transfer control, technical assistance control or trade control imposed under the Export Control Act 2002 and related provisions may affect the Secretary of State’s exercise of the power to give a call-in notice, and”

Photo of Lord Lansley Lord Lansley Conservative

My Lords, it is a privilege to open proceedings on Report. I want to say generally that Members across the House, on all sides, are supportive of the principles of the Bill. It has been clear that all the amendments tabled have the intention of trying to make it as clear, effective and workable as possible, and—as we will discuss later—to make sure that there is proper accountability and transparency in the proceedings. Several of my noble friends have tabled amendments in that spirit. I know that Ministers in charge of the Bill have responded in kind with a willingness, even in the past few days, to supply additional material on how the workings of the national security and investment regime will be made more transparent and clear to those it affects, who are substantial in number.

I come to one of the issues in the two amendments in this group, both in my name, which relate to the interaction between the national security and investment regime and the export control licensing regime. Amendment 1 relates to the exercise of the call-in power by Ministers. Amendment 37 relates to the making of interim and final orders by Ministers. I start with the first amendment.

I quoted the 2018 White Paper at more length in Committee but it stated, on behalf of the Government, that

“where national security concerns relate solely or primarily to the export of goods, the Government expects that the export control regime would remain the primary means of protecting national security”.

In Committee, I asked the Minister responding to reiterate that expectation. He failed to do so, nor did he offer any specific assurance about how the two regimes would interact. I am grateful to Ministers because, since then, they have committed to the publication of guidance, which will include the interaction of the national security and investment regime with the Competition and Markets Authority, the Takeover Panel and the export control regime. We have not, of course, yet seen the text of that guidance. Nor is a reference to the export control regime being included in the draft statement, which has to be made under Clause 3, that will explain where and in what circumstances the Secretary of State will exercise his call-in power.

The importance of that is illustrated not least by the references from time to time in the consultation on the sectors in scope of the mandatory regime, in which a number of respondents made it clear that they thought there was a widespread interaction and overlap. For example, paragraph 3.76 said that one respondent suggested that the pre-existing export control licensing regime was appropriate, for which a number of businesses had robust and sophisticated compliance programmes, noting a significant overlap between the lists and a number of the other proposed mandatory sectors.

The noble Lord, Lord Grantchester, on the Front Bench opposite, in Committee instanced other references to that in the consultation response. Indeed, he may have looked at the strategic export control list, which is 309 pages long, and the sectors in scope of the mandatory regime for the national security and investment regime. The overlap is very large indeed. It is important to those affected that these two regimes interact positively and sensibly.

Amendment 1 seeks to require that there be such a reference in the Clause 3 statement and a commitment to explaining to people how the two regimes will interact. Why does that matter? First, given the nature of the assets in the strategic export control list, a change of control of the entities that own them will often be a notifiable acquisition and therefore be subject to a mandatory notification. But will the acquisition be called in? That question will be in the minds of those affected and will depend upon the level of risk. If the acquisition is by a hostile actor, it is a fair argument that the national security and investment regime adds an extra safeguard beyond the export licensing process. However, it will be important for those who own sensitive assets to know when that issue—the nature of the acquirer—is the prompt for a call-in, not simply the sensitivity and nature of the assets themselves, since they can be safeguarded for national security purposes through the export control licensing regime. Therefore, those asset owners need to be able to reasonably predict when a call-in will be made.

Secondly, the Clause 3 statement should offer clarity about the distinction between the use of an asset and its control. The national security and investment regime is about ownership and, hence, control of assets. Export controls are directed to their use, specifically outside the United Kingdom by way of export. However, we should consider what will happen if we follow the American lead. Following the enacting three years ago of the latest US legislation, there are circumstances in which the American export control regime, because it anticipates that a given ownership could lead to a transfer of technology within an entity, deems such assets to be exports. We already see an increasing overlap between the question of control and the question of use. The statement needs to be clear about that distinction, too.

What I am really looking for from my noble friend on the Front Bench is, first, an assurance that these issues will be fully dealt with in the guidance to be published, and that there will be a specific reference in the statement to matters dealt with under Clause 3, even if that is supplemented in detail by the technical guidance.

Amendment 37 raises an important further interaction. When Ministers make interim or final orders, given the extent of overlap between assets in the scope of this regime and those in the strategic export control list, it is likely that the entities that control such assets may, if they pass into new ownership, be subject to such orders. Those orders are about not just the situation today but what should happen in future. There will be a temptation on the part of Ministers to make orders that, like contracts in law, provide for every set of circumstances in future.

My point is simple: when making orders, Ministers should always rely on the export control licensing regime to do its job effectively. They should not try to substitute for the export control regime in future by restricting, through orders, what entities are or are not able to do. Even though they have the power to do that, they should not do it. They should live up to the expectation of the 2018 White Paper that the export control regime is the means by which Ministers exercise control of the export of sensitive assets.

There are two units involved. The Export Control Joint Unit is made up of officials from the Ministry of Defence, the Department for International Trade and the Foreign, Commonwealth and Development Office, and there is the unit for the national security and investment regime. The interaction between the two units needs to be excellent. In the shape of my noble friend the Minister on the Front Bench, we have the embodiment of the relationship between the Department for International Trade and the Department for Business, Energy and Industrial Strategy. I hope that he makes sure that these two work together well.

We should not see orders under the NSI regime supplanting what should be licensing procedures under the export control licensing regime, not least because—I pre-empt an issue that we will come on to later—export control licensing is the subject of greater and specific parliamentary scrutiny by the Committees on Arms Export Controls in the other place. There is no such direct scrutiny of the orders being made under this NSI regime. I hope that I do not need to say that Ministers should not fall prey to the temptation to incorporate measures into orders under this regime because it entails less parliamentary scrutiny than would be the case for export licensing under the other regime.

When we get to Amendment 37, I hope that I will be able to rely on Ministers’ further assurances that they will not simply take account of the export control regime and will rely less on administrative law issues. It was slightly ironic that our debate in Committee was followed the following week by a debate on administrative law that suggested that statute should be as clear as possible about the requirements that people have to live up to and not rely on a general public law duty—but that is exactly what Ministers profess to rely on here. I would prefer Amendment 37 to be adopted by the Government and it to be very clear that Ministers will take full account of the export control licensing regime. Even if they are not happy to amend the legislation, I hope that what my noble friend says in response to this debate will make it clear that that will be the case. I beg to move Amendment 1.

Photo of Lord Grantchester Lord Grantchester Opposition Whip (Lords), Shadow Spokesperson (Energy and Climate Change), Shadow Minister (Environment, Food and Rural Affairs), Shadow Spokesperson (Business, Energy and Industrial Strategy)

I thank the noble Lord, Lord Lansley, for returning to the issue of the interaction of the NSI and export control regimes. He is correct to probe further with the explicit inclusion of Amendment 1, so that the new NSI regime is not buried within BEIS but works effectively across government, specifically across both regimes.

Amendment 37 underlines the need to recognise proper co-ordination in this regime. The Government had recognised only that the two regimes are distinct and would sit alongside each other, as the expression goes, yet they were concerned by activities that could circumvent the export control criteria. With the extent of the overlap to which the noble Lord, Lord Lansley, refers, this would be surprising.

Since Committee, further consideration has been given to the issue. We agree with the noble Lord in calling for greater clarity about the interaction needed with export controls, especially when a call-in notice has to be considered and when interim and final orders are being made. We are supportive of the intention behind these amendments regarding concerns about how this regime will interact with functions under the export control regime. Why does the Bill remain silent on the export control regime in its drafting?

In Committee, the Minister stated that,

“where export controls in relation to an asset are already in place, it may not be necessary or proportionate to make an order under this Bill prohibiting the transfer of the asset overseas, but this will depend on the facts of each case.”—[Official Report, 16/3/21; col. 199.]

This is not particularly helpful and could result, as the noble Lord, Lord Lansley, says, in an asset or situation being drawn into both regimes, without more explicit explanations on the interplay. What are the functions of any facts that would result in being subject to this regime, as well as having been referred to the Export Control Joint Unit? Where would it be proportionate for this to happen?

I am grateful that the Government have now recognised the validity of these concerns and committed to publishing guidance after enactment of the Bill. I am also grateful to the Minister and his departmental team for outlining an indicative list of nine points of regime guidance. Guidance 8, on how the regime will work alongside other regimes, including export control, takeovers and the CMA, will address this. However, there are still some important outstanding questions for the Minister to answer to add clarity on how duplication across both regimes will be avoided while meaningful co-ordination operates effectively. It would be most helpful if he could provide that clarity at this important stage in the passage of the Bill.

Photo of Lord Grimstone of Boscobel Lord Grimstone of Boscobel The Minister of State, Department for International Trade, The Minister of State, Department for Business, Energy and Industrial Strategy 1:45 pm, 15th April 2021

My Lords, I thank my noble friend Lord Lansley for his Amendments 1 and 37, which explore the interaction between the export control regime and the regime created through this Bill. As we start this session, I thank your Lordships for the constructive way in which they have approached this Bill and the constructive debates that we have had.

Amendment 1 would provide that the statement about the exercise of the call-in power may set out how the Secretary of State will factor in controls placed under the export control regime when deciding whether to call in asset acquisitions. Amendment 37 would ensure that the Secretary of State takes into account controls placed under the export control regime when imposing interim or final orders on asset acquisitions. These amendments follow discussions in Grand Committee on the links between export controls and NSI; I thank noble Lords for the insights that they have shared.

I am happy to confirm to my noble friend that the Secretary of State will need to take into account the impact of any controls placed under the export control regime, as well as other relevant regimes so far as they relate to national security considerations. This is required by both the legal tests in the Bill and public law duties. This is the case when he decides whether to call in an acquisition of control; whether to impose interim orders or final orders in relation to such acquisitions; and what form those orders should take.

In particular, if existing controls under the export control regime already address any national security concerns arising from the acquisition of an asset, I am happy to confirm for my noble friend that it is unlikely that the Secretary of State would be able to call in that acquisition. As has been referenced by noble Lords, I commit that we will provide guidance on the interaction of the NSI regime with other relevant regimes, including export control, which will ensure that affected parties are clear on this point.

My noble friend also asked specifically about the Statement. I am happy to confirm that the Government will consider specific reference to export controls in it if we judge this to be appropriate following the consultation on the Statement. I thank my noble friend Lord Lansley for this suggestion.

I appreciate the intent behind these amendments, and I hope that I have finally given my noble friend sufficient reassurance on these matters not to press them.

Photo of Baroness Fookes Baroness Fookes Deputy Chairman of Committees, Deputy Speaker (Lords)

I have received one request to speak after the Minister. I call the noble Lord, Lord Fox.

Photo of Lord Fox Lord Fox Liberal Democrat Lords Spokesperson (Business, Energy and Industrial Strategy)

My Lords, I think I heard the Minister say that the export control regime and the regime established by this Bill will be equal, rather than one being precedent to the other. The noble Lord, Lord Lansley, quoted a White Paper which very clearly set the export control regime as having precedent over this regime. That is not what I heard the Minister say —so, in order of precedence, how does the Minister expect these two regimes, which I hope will be complementary and not conflicting, to work together?

Photo of Lord Grimstone of Boscobel Lord Grimstone of Boscobel The Minister of State, Department for International Trade, The Minister of State, Department for Business, Energy and Industrial Strategy

I thank the noble Lord for that point. It is hard to give a black-and-white answer, because it would depend of course on the circumstances. Let us remind ourselves what the difference is. The export control regime, which is the licensing regime for certain controlled goods, is one important part of the safeguarding of our national security, and, of course, it sits well alongside the national security and investment regime. The two regimes are distinct and do not perform the same role. To give an example to clarify that, the export control regime does not provide the Government with the ability to scrutinise acquisitions of UK companies or the ability to direct the use of sensitive assets used in the UK, whereas the NSI regime would. In a nutshell, the precedence between these two regimes must and will depend on the circumstances that are being covered.

Photo of Lord Lansley Lord Lansley Conservative

I thank your Lordships for this very short but useful debate—useful not least in assisting those who will be affected by the regime. I am grateful to the noble Lords, Lord Grantchester and Lord Fox, for their contributions.

The point about the White Paper and the commitment to use the export control regime primarily to deal with national security risks relating to the export of these assets, and specifically the qualifying assets, is that the export control regime sets specific limitations on the export of specific items to specific persons and places. It is very targeted in that sense. As the Minister says, it does not bear upon the question of control of entities or the overall ownership of assets, so there is a compelling need now for this new regime; it just does not need to reproduce or trespass upon those things that are being achieved through the export control regime. That is what I understood the White Paper to say, and I understood the noble Lord, Lord Fox, to be asking for that to continue to be the expectation.

I hope that Ministers will make it very clear to those affected that, where they have a compliance regime in place for export control, that will continue to be sufficient for the purposes of the management of qualifying assets, because Ministers have made it clear that rarely would they expect to invoke the national security investment regime in relation to specific assets. It is really targeted on the ownership and control of entities and, by that route, the ownership and control of large-scale assets. I am sorry to have had to explain that again, but I do hope that Ministers will take it on board.

I am most grateful to my noble friend for going further than we were able to go in Committee, and, in particular, returning to Amendment 1, what he was able to say about the Statement under Clause 3 and the additional guidance has moved us on quite a long way from where we began. I am most grateful for that, and I beg leave to withdraw Amendment 1.

Amendment 1 withdrawn.

Photo of Baroness Fookes Baroness Fookes Deputy Chairman of Committees, Deputy Speaker (Lords)

We now come to the group beginning with Amendment 2. Anyone wishing to press this or anything else in this group to a Division must make that clear in debate.

Clause 6: Notifiable acquisitions