`(1) The Secretary of State shall by order require that, for any activities in relation to which controls are capable of being imposed by an order under section 1, 2, 4 or 5, provision shall be made for follow-up monitoring of the use made of the goods exported, the technology transferred, the technical assistance provided or the goods traded.

(2) In this section ``follow-up monitoring'' means the undertaking of activities designed to verify that the use to which the goods, technology or technical assistance are put, and the identity of the end-users of the goods, technology or technical assistance, are consistent with the obligations stipulated in the relevant licence or end-use documentation.

(3) The ``activities'' referred to in subsection (2) may include but not be limited to physical inspection of the designated goods or technology within the territory of the state or the jurisdiction of the end-user stipulated in the relevant licence or end-use documentation.'.—[Dr. Cable.]

Brought up, and read the First time.

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

The two new clauses deal with issues of some substance and importance, which are partly overlapping but remain distinct. One issue is that of the end use of arms and the other is that of overseas production, which I shall deal with later. We all understand the problem of end use—arms can be exported in an entirely proper and appropriate way and in good faith, but the purposes to which they are put are completely unexpected and very damaging. There should be a process to ensure that that is controlled. It is fair to say that the Government's approach shows that they understand the problem. There are mechanisms in place for dealing with end use—I am not suggesting that we are dealing with an entirely blank sheet of paper. There is a mechanism, but the question is whether that mechanism is adequate.

As I understand it, the procedures envisaged by the Government will involve checking with companies that apply for licences that they have received guarantees from importing countries that they will not improperly use equipment and that there is a pre-licensing checking process in place. I would ask whether that is sufficient. The purpose of the new clause is to suggest that a post-licence system for checking that the agreements and guarantees are being honoured and observed is required.

I should like to return to some examples of what has happened in the UK in the past to suggest that this is not an academic issue; there are real, practical problems. At our previous sitting, we discussed the problems that arose as a result of the export of Hawk aircraft to Indonesia. Assurances and guarantees were given by the Indonesian military that the weapons would not be used in East Timor, but it subsequently emerged, and was demonstrated, that they were. A similar problem arose in relation to the contracts with Zimbabwe. It was intended that the aircraft should be used for Zimbabwe's self-defence, but in fact they were used in the Congo.

There is another, more topical example, which shows the elusive nature of the problem of end use. British companies have been involved in the export to Israel, not of final products but of components for attack helicopters and air-to-surface missiles. There is no reason why British companies should not be involved in the supply of equipment to Israel for its self-defence. People have different views on the Arab-Israeli dispute, but that seems to be a reasonable starting point. However, entirely unknown to the Government who authorised the transactions, some of those weapons have been used as the weapons of first choice in the intifada. Buildings have been strafed by the attack helicopters, for example, which was not the original intention of the supply. I use those examples to show how armaments are used for entirely unpredictable purposes. It is not adequate to have assurances at the time that they are being properly used; checks need to be made after the event.

The Government might introduce a somewhat stricter regime. We are not arguing for blanket prohibitions, but for a somewhat stricter regime than is currently proposed. Precedents exist of other countries that operate such a system, which seems to be administratively efficient and effective.

I can cite examples of contrasting cases from two different types of country. Belgium is a marginal supplier of armaments but is involved in a lot of transshipment and brokerage. The Belgians have a system of end-use certificates that require a written guarantee by the importing agency that it will not re-export arms. Three months after the goods have been exported, the Belgian Government monitor the process and require proof of delivery and details of transit and travel plans. That is an ex-post checking system.

Some may regard the process employed in the United States as more credible than that of the Belgians. No one would accuse the United States of being sentimental on arms export matters, but they have every reason to be diligent in ensuring that arms are not misused and do not fall into the wrong hands. They have developed a system similar to that of the Belgians, which appears to be effective. Exporters must submit a non-transfer end-use certificate in the first instance. They are required to comply with United States law and to ensure that their exports are confined to purposes specified in defence agreements and treaties between the United States and recipient countries. They must provide full details about the articles or data being exported and the end use, which extends to states that receive retransferred United States weapons.

The American machinery for implementing this system is called the blue lantern programme. Controversies have arisen in the United States about how diligently and effectively that is implemented. However, it has introduced some 4,000 checks, roughly 10 per cent. of which show unfavourable results—in other words, the United States Government are not satisfied that end-use requirements have been met. Those contracts are then terminated. The United States has a system, then, which at the very least exercises deterrents to ensure that exporters act in compliance with the spirit of the law.

I ask the Government to give careful thought to whether our system could be brought up to the standards of best practice, which those of us who have followed developments in this field would regard as exemplified by the United States.

The issues raised by the hon. Gentleman occupy a great deal of time and concern among a wide range of people in our constituencies. I am sure that all hon. Members present have received correspondence on the matter from individual constituents and groups—pressure groups, non-governmental organisations and others.

I quote two examples of such representations, one of which was forwarded to me by my hon. Friend the Member for North Wiltshire (Mr. Gray) from the St. Mary's justice and peace group in Chippenham. Mr. Edmund Johnstone writes that there

``is no mention of overseas development in the Schedule. A Clause is required which takes into account negative effects on overseas development. Such a clause did appear in the draft Bill published earlier this year.''

I should be very grateful for a brief explanation as to why that clause disappeared from the draft Bill and whether Mr Johnstone is correct. Like the St. Mary's justice and peace group, many people are encouraged by much of the Bill. However, they are concerned about the manufacture of products overseas, which is the subject of new clause 2, and about the general lack of controls.

I have read an interesting letter from Hilary Fenten on behalf of the Settle Northern Friends peace group, which the Quakers in Settle founded to support the work of the Northern Friends Peace Board. It refers to the need to control production under licence overseas, and to unilateral arms embargoes. In its helpful answer to a parliamentary question by the hon. Member for Elmet (Colin Burgon), which has been circulated to members of the Committee, the Department states:

``The Government will press for international embargoes to be imposed on countries in conflict'' as a result of the consultations that they have undertaken. That is important.

On the substance of new clause 1, we are surely all in favour of monitoring. That is exactly what Foreign and Commonwealth Office staff do at diplomatic missions overseas; they are aware of what is going on. Journalists, pressure groups, NGOs, tourists and remote sensing from space all help the Government to monitor end use up to a point. The intention is there.

Occasionally, mandatory monitoring is imposed by the United Nations. The inspection regimes for weapons and production facilities in Iraq are an ideal—perhaps I should put that word in quotation marks—answer to the problem posed by the hon. Member for Twickenham. We try hard to monitor end use; it is in everyone's interest that we should.

As to the United States' policy on extraterritoriality, there were fierce arguments in the House a few years ago about extraterritoriality and its unintentional impact on third parties. The United States' insistence on imposing extraterritoriality was not popular and impacted on our constituents and their jobs for the strangest reasons. There were incidents involving Cuba, with which the United States has always had a delicate relationship. There were bad consequences for British companies and their work forces, so I am not happy with the concept of extraterritoriality.

The hon. Gentleman came up with the old canard about Hawks in East Timor, but he does not have to take my word on the issue. Whenever the then Secretary of State for Defence, Lord Robertson was challenged from the Labour Back Benches, he reminded the House that Hawks were not operational in East Timor. Indeed, the manufacturers said that they did not have the range to get there from their base.

One of my major problems with new clause 1 is that it would be impractical without building in contractual obligations on the part of the exporting company to insist that the end user provided for inspection by a British company. I am not sure how that would work in practice; indeed, I do not think that it could be done. The new clause would also place another expenditure burden on the Government, and I would prefer that those resources were made available for other commitments, including international aid.

Although new clause 1 encapsulates the worries of many people, it is impractical, and we shall have to hear what the Minister says. If he cannot convince us, we shall have to consider what to do.

I invite the Minister to consider the practicality of introducing a clear system for end-use certification and monitoring of exports in the Bill. Some of the huge concerns on the subject have been made clear and have reached the most far-flung regions of our debate.

I welcome the fact that the Government have made it clear that they are further considering the possibilities of arms being diverted to undesirable users when licensing applications are assessed, and that the Government have put in place additional procedures to avert that problem. However, the Government will not be convincingly sure whether end-user undertakings have been broken without post-export checks and if they continue to rely on guarantees of self-evidently variable quality. An explicit reference to end-use monitoring in the Bill would not only enormously strengthen its purpose, but send a clear signal that the problems associated with end use were taken seriously.

I suspect that the Government might say that end use is monitored through some informal and ad hoc mechanisms, including reports from NGOs and the media. Perhaps those mechanisms obviate the need for more than is currently available, but I suggest that an effective end-use control system must be based primarily on monitoring by the Government, with NGOs fulfilling a complementary role.

I do not want to get hopelessly bogged down on the subject of Hawk jets and Indonesia, but it is an important, germane and accurate example of a situation in which much information was readily available, not to the present Government, but to the previous Conservative Government. Either they were unaware, I say charitably, of the information about the use of Hawk jets in East Timor, or they rejected or ignored it. The information came from diverse sources.

I feel that I should briefly rehearse what was said in July 1996 when the information, which had been in the public domain for some time, began to take the form of evidence in court proceedings at a trial held on the topic in the north of England. Jose Ramos Horta, now a Nobel laureate and then the Foreign Secretary in exile of East Timor, testified that many documents were available from the Roman Catholic Church in East Timor, with which he was in frequent contact, stating that British-built Hawks supplied under British Aerospace's first contract with Indonesia had often been involved in air attacks against the East Timorese.

The journalist John Pilger gave evidence that he had clandestinely entered East Timor in 1993 and had not only seen Hawk jets on many instances, but grown to appreciate the local population's familiarity with the sound that they made as they attacked. Professor Paul Rogers from the department of peace studies at the university of Bradford testified on a point similar to that made a moment ago about range. He made it clear that the first batch of four aeroplanes sent by British Aerospace under its second contract with the Indonesian Government went to the Bandung squadron, which was well in range of and spearheaded the airborne attacks against what was described as counter insurgence in East Timor.

Why does the hon. Lady think that Lord Robertson misled the House of Commons when he was Secretary of State for Defence?

That is not what I am suggesting at all. I am putting forward hugely valuable evidence, and I invite the Minister to think that it will help make the point that I shall come to in a moment. The evidence was given in court and merits that respect. Indeed, it was given a great deal of respect by the fact finders on that occasion. In that situation, if the evidence is true, end-use guarantees were being wholly disregarded. That information came through the Church, the NGOs and the experts whom I have quoted, and it was disregarded.

Order. I am rather tardy in pointing this out, but there was a reference to Lord Robertson's having misled the House. I must ask the hon. Member for Salisbury to withdraw it. Lord Robertson has the same protection as hon. Members and it would be appropriate for the phrase to be withdrawn.

Of course, Mr. Benton, I shall follow your ruling and withdraw it. However, I was not alleging that Lord Robertson had misled the House; I was inquiring why the hon. Member for Redcar (Vera Baird) thinks that he told the House what he told the House, with which she disagrees. I do not think that Lord Robertson would ever have misled the House of Commons. That was my point.

I applaud the hon. Gentleman's dexterity. It seemed plain to me that he was alleging the misleading; I certainly was not. May I conclude my real argument, which is important? The multiplicity of information that came concretely into evidential form on the occasion that I mentioned was from diverse sources, upon which the Government would, no doubt, now rely. In July 1999, the chief of the Indonesian defence staff admitted that Hawks had been used, although he declared that they had merely been used to fly over Dili in an intimidatory way. We had end-use guarantees and we had information that they were not being kept; nothing was done about it and in the end a confession was made that that information was correct and that the exercise of having end-use guarantees had been worthless for the large number of people killed in East Timor.

How different the situation would have been, had the then Government been obliged to collect the information themselves and to monitor all the allegations as they were made.

I pray in aid the practical example that was given earlier of the United States' very powerful, very careful scrutiny of end-use monitoring in suggesting that—despite the best endeavours of the Bill and despite the Government's efforts to tighten up licensing with an eye on end use—the extensively quoted example could occur again today if there is not a really substantial and practical system of end-use monitoring. I invite the Minister to reflect on that.

I want to make it clear to the Committee how seriously the Government—and I, as the Minister responsible for export control—take, and must take, allegations about diversion and the end use of such products. In my work as a Minister, I weekly, if not daily, consider export licences in which the category about the risk of diversion is a very firm one. I want to be sure that no one in the Committee thinks that it is a casual add-on or an afterthought; it is an integral part of the decision-making process that I am required to take, and to advise the Secretary of State on, where any possible arms export licence is concerned. I am, as any Minister is, obliged to look at the evidence provided by any group about diversion in the past. That includes the excellent work done by our missions overseas, which report back to me, and reports from the Ministry of Defence or defence companies, which may be competitors, of weapons or goods that have previously been diverted. We have intelligence on the subject from non-governmental organisations and international organisations—and from Members of Parliament who also give us feedback. It is all taken very seriously.

I was not aware that Belgium was a shining example of the best arms-control procedures, but I have a briefing note produced in August by the Campaign Against Arms Trade, on the United States. I know that several other hon. Members received a copy of it. Under the heading ``US `diversion' examples'', it cites eight examples from a study of 18 co-production agreements, in which five cases of unauthorised transfers had been found. The briefing paper says of one case:

``Brazil transferred US technology to Iraq, where it was used to improve the targeting capability of Scud missiles.''

Of another case, it stated:

``Israel has repeatedly transferred US-licensed missile and radar technology to China in the 1980s and 1990s.''

Those are two of eight examples of flaws found in the US system, so although people strongly—and genuinely, like my hon. Friend the Member for Redcar—recommend the US system, I believe that they should also listen to the critics of what happens in the US. As I said on Tuesday, there is a danger that we may introduce a system that, even with the best of intentions, turns out not to do the job that we thought it would.

Let me share with the Committee the practicalities of how Ministers treat requests for export licences. As well as looking at the end use and previous history, we consider the risk of diversion. A thorough exercise is undertaken, using all available information, to assess the risk. Hon. Members will know that previous annual reports, issued when I was not the Minister, contain clear examples of the risk of diversion being the reason for refusal of export licences.

However, I am citing examples given to me of what has happened in America and others are raising examples perhaps of diversion from Britain. The fact that there are such examples shows a failure in the first place not to grant the licence. I am particularly concerned with the new Clause because, in principle, it is shutting the stable door after the horse has bolted. For example, some countries talk tough but do not take effective action. Secondly, the new clause is intended to provide follow-up monitoring of all exports of technology, transfers, technical assistance and goods traded that are controlled under the powers in the Bill.

I am sure that no one, not even John Pilger or NGOs, has accused companies of diverting items in the past, nor have they been accused of causing a risk of diversion, but we would have to monitor them as well. If the United States has similar powers, that may be why we have heard of those eight examples of loopholes being exploited or of the US monitoring system being flouted.

I have stressed throughout the passage of the Bill that our commitment to achieve the most effective arms control regime is paramount. I believe that to make it effective we must focus our attention—as we are doing—on the criteria under which Ministers are allowed to operate, and under which officials help the police when dealing with the export of arms or associated technology, and other items in relation to which Ministers are given powers under the Bill.

I resist the new clause for two reasons. First, it could send people off on wild goose chases and divert our officers from monitoring properly what is happening. I am obliged to go through that process in any case; we have refused licences because we have had feedback about diversion. Secondly, the regime that we are establishing, policing and subjecting to parliamentary scrutiny will all greatly narrow the potential for abuse. We all want to eliminate that abuse, but we are dealing with a world in which unscrupulous and illegal arms traders and brokers will seek to evade any rules or Laws, as we have seen in the United States and elsewhere. We should resist the new clause, given that powers relating to the risk of end user diversion are embodied in the Bill and that Ministers are already following such practices.

Could I ask the Minister for an assurance that the monitoring that we are discussing will be covered in the annual report referred to in Clause 9? He may already have given such an assurance—I apologise if I missed it.

The annual report will provide details of end users of equipment. We responded to the Quadripartite report, which made a recommendation about end user monitoring. Our response states:

``The Government will continue to provide details of end users for equipment covered by specific licences in confidence to the Committees'' at their request. To be helpful to my hon. Friend and the Committee, I will confirm that and return to the matter.

May I briefly reply to some of the points that have been made? I start with the remarks of the hon. Member for Salisbury, whose general point, which had some force, was that extra-territorial application of Laws caused problems for international commerce. He is right in saying that in international trade, the Helms-Burton Act and the D'Amato amendments in Congress have created problems for everyone. He will remember, as a member of the previous Conservative Government, that one of Mrs. Thatcher's finest hours came when she stood up to President Reagan on the extra-territorial application of embargoes that aimed to prevent the construction of a pipeline to Russia. As a result of her stand, we have cheap, clean gas in western Europe, which otherwise we would not have had. Extra-territoriality is not an unmitigated good, for the reasons that the hon. Gentleman gave.

The problem with the logic of the hon. Gentleman's argument, however, is that if we live in a world in which the United States applies its regulations extra-territorially while we forsake that option, United States regulations will be applied everywhere. By trying to ensure proper end-use control, we aim to express our concerns in our legislation. There may be some incompatibility between our legislation and that of the United States that would have to be resolved, but I do not think that the hon. Gentleman's objection is a fundamental one.

The hon. Member for Redcar has dealt very well with the points on Indonesia, and I do not want to pursue that canard, as it has been described, unnecessarily. I know nothing about Hawk aircraft or their technical specifications, but the chief of staff of the Indonesian army publicly acknowledged that they had been used in the East Timor conflict. How they got there, I have no idea.

I found the other point made by the hon. Member for Salisbury a little odd. Perhaps when he has been a spokesman on trade and industry for a bit longer, he will rethink his position. He seemed to be saying that it was all right to have a system of monitoring that involves an extensive process of self-regulation by the private sector but that we must not inflict any burdens on the poor old Government. That is the exact opposite of the line that the Conservatives normally take on regulatory matters, which is that we must spare the private sector regulatory obstacles and that the Government must carry the cost. We are not talking about a major piece of regulation, but a small corner of the problem.

I have two reactions to the Minister's Intervention. First, I would like to discuss the logic of his arguments about the United States. There are failures in its system, but I am unsure about what conclusions he was drawing from that. If a system is porous and has gaps in it, should it be abandoned? That is rather like the argument that because plenty of drugs get through the American control system, there should be an open market in narcotics—of course there should not be. There should be more monitoring to ensure that those anomalies do not occur. I am not sure of the logic of the Minister's argument.

The other point was more substantial and I sympathise with the Minister on it. The tone of his reply was helpful and I do not think that we are very far apart. We need prevention rather than cure, and there should be a proper system of risk assessment. Applications should be examined before the event to ensure that diversions do not occur. That is absolutely right and I have no quarrel with it. If the British can develop a system that is effective in picking out problems before they happen, we will have made a considerable advance.

My inclination is not to press the Amendment, but before I move on I would like to ask the Minister why he feels that it would be unhelpful to have additional powers to check retrospectively? We do not want a vast apparatus for checking that the regulations have been enforced: we just want to have the powers to check. Why might that present problems? Why would it be onerous to have such powers? If he would be kind enough to respond to those points, I will then withdraw the amendment.

I hope that I can be helpful to the hon. Member for Twickenham and to my hon. Friend the Member for Redcar. We explained in our annual reports that checks have been conducted on the use, on location, of equipment after it has been exported. That is in the annual reports and the Bill will put those reports on a statutory footing. I have tried to persuade the hon. Member for Twickenham that the Government have already shown that they are able to monitor the end use of defence exports in circumstances where such monitoring makes a contribution to our efforts to prevent diversion or misuse. We do not need the extra powers: we can do it when we believe that it is appropriate, such as when there is any risk of diversion, or when there have been reports of diversion in the past.

The hon. Member for Twickenham asks me to justify the criticisms of the US regime that I quoted. There are further quotations from that briefing in respect of licensed production. It states:

``The US has one of the strongest export control regimes in the world, with legislation making the `diversion of technologies to unauthorised uses and prohibited third parties' illegal.''

I gave examples from the document earlier. It states:

``Unfortunately, `inadequate enforcement' means that there are frequent abuses.''

There was inadequate enforcement of prohibition in America. One could argue that there was no way to enforce it adequately. The fact that the Americans, with all their resources, have not been able adequately to enforce a law might suggest that it is impractical. However, we have the powers and it is important to use them, where appropriate. By requiring monitoring of all exports or transfers of technology, technical assistance or goods—anything that is controlled under the Bill—the new Clause would create the risk of frequent abuses and inadequate enforcement cited by CAAT with respect to the United States.

However, I want to reassure the Committee that the end-use risk of diversion is at the forefront of our minds as one of the main elements for consideration under the Bill for any Minister when deciding whether to approve a licence.

I beg to ask leave to withdraw the motion.

Motion and Clause, by leave, withdrawn.