I beg to move, That the Clause be read a Second time.

I think that this is to be the last item of business on the Bill in Committee, and I hope that hon. Members will, unless the Minister's reply is exceptionally convoluted, be able to attend Question Time.

The issue of overseas production is a bigger and more complex problem than that of end use. It requires serious consideration, because many of the problems associated with arms exports are wrapped up in that concept. It is a bigger problem because if production overseas is licensed by an exporting company, the ramifications go far beyond the question of simply diverting supplies. If production occurs overseas, the potency of weapons can be considerably advanced in the production process and in unexpected ways. There is also the possibility of multiplication, with mass production units provided by the supply of British machine tools or underlying technology. Potential proliferation, as well as diversion, is at issue.

Another reason for treating this matter as one of great importance—we heard an eloquent statement about that from the hon. Member for Salisbury yesterday—is the nature of the modern armaments industry, which no longer involves national companies exporting finished products overseas. It is a more complex business, involving subcontracting and alliance arrangements between companies. Increasingly sophisticated developing countries expect, as a matter of course, that provision for local production will be written into the contract. Certainly countries such as China and India take that attitude, but even countries a bit lower down the technological pecking order would normally insist, as part of any agreement, on the capacity to produce locally. If we are to prevent an abuse of that system, adequate provision to cover overseas production will be needed.

Overseas production can present two possible abuses of the regulations. First, if a transformation took place in production—such as enhancing the power of a weapon—we could supply weapons to another country that we would not have supplied had we known what the final product would be. The other is that production units overseas can be used to divert supplies to other countries that we would not want to supply.

To make my discussion a little less abstract, I shall give a couple of examples in which the NGOs that have been monitoring the problem think that serious difficulties have arisen. I am sure that the Minister is familiar with both; they both relate to Turkey, which may be regarded as one of the less problematic countries with which we have to deal as a member of NATO. None the less, Turkey has been at the centre of several controversies in connection with overseas production, one of which was the large-scale production of Land Rovers by a Turkish company called Otokar. Land Rovers are off-the-road vehicles, and are not controversial in themselves, but with a little enhancement they can become potent pieces of cavalry. With the addition of machine guns, night radar and other equipment, they have become effective weapons and have been used in theatres of conflict by countries such as Pakistan. The factions that operate in Afghanistan have used fast-moving Land Rovers as their key weapon. The supply of enhanced Land Rovers from Turkey has resulted in the widespread dissemination of effective weapons to countries that we would not otherwise have wanted to supply—Algeria, for example, and possibly Pakistan, until the recent conflict.

Another issue relating to Turkey is that of a company called Heckler and Koch, which is a subsidiary of Royal Ordnance, which is now a subsidiary of BAE. The Heckler and Koch factory in Turkey was engaged in the mass production of assault rifles and submachine guns. It is widely acknowledged that substantial volumes of armaments from those production installations have gone elsewhere, including Indonesia. We have been through the Indonesia story, but I believe that that is reasonably well documented and not especially controversial.

The Government seem to accept that there is a problem—it is implicit in many of their statements. We must ask ourselves how it should be dealt with and whether the Bill before us is adequate. The Government consulted industry, but we need to establish whether the mechanisms that they propose are sufficient, given that they rely heavily on industry's self-regulation. The policy essentially rests on companies involved in overseas production obtaining guarantees from their counterparts in the other countries. The Government accept the need for direct controls when there are UN embargoes, but there are countries to which we may not want to supply arms that are not subject to such embargoes. As the Government believe that it is necessary to rely on direct controls with direct arms exports, why do they feel that a looser, more self-regulating system is appropriate for overseas production, which is equally serious, and potentially more so?

The new clause would introduce a system similar to that in the United States, which has a more comprehensive system for monitoring and control, as we heard during the discussion on end use. We would like the United Kingdom system to involve the licensing of production for overseas contracts, and to build into its surveillance a condition that would prevent such contracts from being permitted when an application for a direct weapons transfer would have been refused. That would be one condition. Contracts would also not be allowed if the recipient state could not demonstrate sufficient accountability, or if a country were subject to a UN embargo and had a record of breaking embargoes. Those conditions are not covered at present. Our provisions would also take account of any concern that a recipient Government might license the export of equipment to a country to which the United Kingdom would not give a licence. In other words, we propose a framework in which additional conditions would be built into the licensing process from the outset.

My colleagues and I are not simply improvising a tougher regime. It is important that Committee members understand that the spirit of the Amendment reflects that of early reviews in the House.

It is important that Committee members understand that the spirit of the amendment reflects that of early reviews in the House. The Quadripartite Committee felt strongly about the need for firm controls over overseas production—rather firmer controls than those currently built into the legislation. I should like to quote two key passages of the Quadripartite report, which cover the point admirably. It argued that:

``What is required is a system which ensures that the Government knows when a licensed production facility is being set up, and which ensures that the goods produced are not exported to countries or end-users where the UK would not licence them.''

That is precisely what the amendment is designed to achieve. The Committee also believed that

``some statutory powers may be necessary to control licensed production overseas, and recommend that the Bill provide for such powers to be taken in the future under secondary legislation . . .''

That is what we are proposing, and we need a full explanation of the fact that, although the Government recognise that there is a problem, they appear to have settled for a weaker regime than that which has been recommended.