39: Clause 11, page 7, line 36, at end insert—
“(aa) prescribe circumstances which are not to be regarded as gaining control of a qualifying asset which is the subject of an export control order under the Export Control Act 2002 and related provisions, and”Member’s explanatory statement
This amendment would enable the Secretary of State in regulations to set out where the control of assets under the Export Control Act should not to regarded as gaining control under this Act.
My Lords, this first group consists of two amendments, both in my name and both relating to the interaction of the export control regime with the investment screening regime. Amendment 39 would insert into Clause 11, which relates to the exceptions to the general definition of the control of assets, a power for the Secretary of State by regulation to prescribe where the control of a qualifying asset is not to be regarded as controlled under this regime. It would give the Secretary of State freedom to define circumstances where assets that are to be exported and are controlled by the export control regime would not be regarded as controlled for these purposes.
Amendment 87 is a bit more straightforward in that it would introduce a new clause requiring the Secretary of State when making final orders under the Act to take account of the effects of the Export Control Act and related provisions on that qualifying asset. Your Lordships will note in the Bill an interaction with the Competition and Markets Authority regime, but no similar provision is made for the interaction of the export control regime with this regime.
The Bill offers no substantive recognition of the interaction between the export control regime and assets under this regime. That is surprising, because paragraphs 3.85 and 3.86 of 2018 White Paper state—please forgive me, it is a fairly long quote:
“After the introduction of the reforms described in this White Paper, the export control regime will remain the key means of restricting trade in strategic goods where this might raise national security risks … The Government wishes to ensure that the new reforms are as proportionate as possible, and are not used instead of other, more targeted or proportionate policy levers. As such, 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.”
My Lords, I am grateful to the noble Lord for bringing forward these questions in such a characteristically forensic manner. The Committee will be aware that I have not participated in it so far, and I therefore intend to be brief and shall raise only a small number of questions seeking clarification from the Minister on the interaction with the Export Control Act 2002 and on an associated issue.
It has been fascinating listening to the contributions in Committee up to this point about some of the opacity in the interaction with the other legislation and, indeed, how the investment security unit will operate within the department that will cover export control licence applications, which will also make considerations on national security grounds and how they interact. It was interesting to note that in the House of Commons, on the Prime Minister’s Statement on the integrated review, Julian Lewis, the chair of the Intelligence and Security Committee, criticised the Prime Minister for not allowing there to be full scrutiny of how the investment security unit will operate. I know that my noble friend Lord Fox will raise this later and will lead on it.
How will that interaction be on the export licence regime? One area where there have been calls for the Government to have annual reports on the operation of this legislation was interesting, given the fact that under the Export Control Act 2002 there are annual reports, and there is clarity as to how many applications and the various different criteria for refusal or putting on hold applications. An interesting aspect of the Export Control Act 2002—and I reread the Explanatory Notes to the legislation after seeing the amendment from the noble Lord, Lord Lansley—is that, on one reading of the Act, which does not go into the same level of detail for defining companies as this legislation, it refers to people being part of the licence, for them and their knowledge and for their providing technical assistance. There certainly can be companies that operate almost exclusively on providing technical assistance, in the technical services industry in particular; they are covered by the Export Control Act for their work that they will then carry out, and the Government take a view as to whether that is something that should be considered as an export.
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The second set of questions that I wanted to ask regarded what would be considered a qualifying asset. I read the Explanatory Notes for this legislation on what qualifying entities and assets were, and wondered whether this was something that could be considered. Is an asset something that, for national security grounds, is a good or service that has already been reviewed for the export licences legislation under criterion 5 on national security grounds? It seems to me slightly odd that, under this legislation, if a company trading in a certain good that has had a review on national security grounds and has this asset is taken over by another company, that is not a triggering event, as far as I understand it. One would have thought that it should automatically be a triggering event, if a company is exporting goods which would be considered open to national security reviews.
That points to one aspect that my noble friend and others have raised, which also struck me—the concept of proportionality and balance. Paragraph 6 of the Explanatory Notes for the Export Control Act says that there is a principle of proportionality in that Act, which many noble Lords have called for in this legislation. The Act contains provisions that prevent the Secretary of State from prohibiting or regulating certain activities
“unless the interference by the order in the freedom to carry on the activity in question is necessary (and no more than is necessary).”
I wondered where the principle of proportionality that was in our current review of national security grounds has somehow been lost on the way, with regard to how this legislation operates.
Thirdly and finally, when we debated export licences under the Export Control (Amendment) (EU Exit) Regulations 2020 in December, the Government brought forward these provisions. The UK now operates two sets of legal duties, from the UK and the EU. Any company trading in or through Northern Ireland continues to be covered by EU regulations, and the UK now has to operate under the export control regulations for the European Union as well as the United Kingdom. What interaction will there be with the investment security unit in operating under European law with regard to any trade that goes through Northern Ireland? Under this legislation, I could not see that interaction with Northern Ireland, and there could be one very large loophole if any operation wished to trade through Northern Ireland when operating in the EU. Can the Minister clarify those points?
Amendments 39 and 87, tabled by the noble Lord, Lord Lansley, probe the Minister around the question of the interaction of the NSI regime with the export control regime. The Committee must be assured that this new regime is not buried within the Business Department but works effectively across government, not least in relation to export controls. The Government’s response to the sector consultation in the report already mentioned states
“how the NSI regime sits alongside export controls to provide a comprehensive regime protecting our national security capability”.
It is not merely a question of sitting alongside, however that may be interpreted, but of interacting and co-ordinating with the Department for International Trade. The Government seem to recognise this in the comment:
“We must ensure that the export control criteria cannot be circumvented by allowing the acquisition of companies that produce such goods, rather than buying the goods themselves, without effective screening.”
More clarity and information in the procedures to this eminently sensible statement would be very welcome from the Minister.
The Government responded to the consultation that they intend to capture all materials that are considered likely to give rise to national security concerns and which are contained in the relevant legislation set out in the UK’s strategic export control list. I would be grateful if the Minister could provide better information on their intentions, and how and when this will become clear and transparent. Will he provide a guarantee that this will happen—the assurances that the noble Lord, Lord Lansley, has required during the passage of the Bill?
First, I thank my noble friend Lord Lansley for these two amendments, which seek to ensure seamless integration between the new regime provided for by the Bill and the existing export control regime. I shall take his amendments sequentially.
Amendment 39 seeks to ensure that the Secretary of State can, through regulations, exempt from the regime certain acquisitions of control over qualifying assets that are subject to export control orders. Clause 11 provides for exceptions relating to control of assets. Subsection (1) sets out that acquisitions made by individuals for purposes wholly or mainly outside the individual’s trade, business or craft are not to be regarded as gaining control of a qualifying asset and are therefore excluded from the scope of the call-in power. This does not apply in relation to an asset that is either land or subject to certain export controls set out in subsection (2)(b).
Subsection (3) also provides a power for the Secretary of State to amend the list of assets that are outside the scope of this exemption or to prescribe other circumstances in which a person is not to be regarded as gaining control over a qualifying asset. That includes being able to prescribe circumstances in which the acquisition of an asset subject to export control legislation is not to be regarded as gaining control over a qualifying asset. Any use of this power in subsection (3) would, of course, be guided by the operation of the regime in practice and any patterns of activity that are observed. As such, I can therefore assure my noble friend that the Bill already provides for what his amendment intends to achieve.
Amendment 87 would require the Secretary of State to ensure that any interim orders or final orders made in relation to acquisitions of control over assets take into account controls imposed under the Export Control Act 2002 and related provisions. I thank my noble friend for his proposal and commend the intent behind it. It is, of course, very important that the Secretary of State’s use of the powers provided for by the Bill is in keeping with the Government’s measures under other legislation. The Secretary of State must take into account all relevant factors when making decisions about the use of interim orders and final orders.
My Lords, I am grateful for each of the contributions to the short debate. They were helpful and, indeed, added to the questions. The noble Lord, Lord Purvis of Tweed, referred appropriately to the Export Control Act provisions. I remember that I was on quadrilateral committee in the other place, about 15 or 16 years ago, so I remember how these issues were considered at that time. Indeed, there was a level of parliamentary oversight of the export control regime, which may be something we refer to at a later stage. He raised some good points: I thought the point about the EU export control regime was a very good one. The noble Lord, Lord Grantchester, made an interesting point about the interaction with the Department for International Trade in this context.
If I understand my noble friend correctly, he is more or less saying that the power under Clause 11(3)(b) would enable the Secretary of State to prescribe, by regulation, such circumstances as necessary, so in that sense my Amendment 39 is not necessary. I agree; it is not necessary but certainly the explanation of the interaction between the two regimes is desirable. However, Amendment 87, proposing a new clause, perhaps drafted differently to make it clearer about the interaction between the two regimes—both at the point where a call-in notice has to be considered, as well as the point at which interim and final orders are made—would be very useful. What I have heard from my noble friend suggests that, by administrative means, using the powers in the Bill and under public law requirements, the Secretary of State will have regard to the export control regime when using his powers under this regime. That is undeniably true. I think we all knew that, but there is much more that we put into legislation, particularly with a new system, that helps people who are to be affected by it to look at it and understand how it works.
What I found deeply surprising was that such an important part of the Government’s policy intentions—that the export of goods should still be primarily controlled by an export control regime—was not even referred to in the Bill or in the Government’s response to the consultation. It is as if it did not exist, but it does exist and it is important, as the Minister’s reply suggested. I shall reflect on what he said, but it may well be that there continues to be a “desirable interaction” clause in the Bill that makes it very clear to all those affected that the export control regime plays a significant part in the control of qualifying assets where they are to be exported. However, based on what my noble friend said, I beg leave to withdraw the amendment at this stage.
Amendment 39 withdrawn.
Clause 11, as amended, agreed.
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The purpose of these amendments is to ask whether that is still the Government’s policy. If it is, why is it not reflected in the structure of the powers? Should it not be included in the Bill to make that clear?
The Minister may say that since the export control regime is under the control of Ministers, they have all the administrative means at their disposal to bring the two regimes together, whereas there is a separate statutory and independent agency in the Competition and Markets Authority. But that would not be transparent to those affected. I know from talking to people who would be affected that there is a long-standing relationship with the export control unit of the department and an understanding of how its powers are used. To the extent that that transparency and predictability are maintained explicitly, I think it would greatly assist those who are to be affected by these powers.
It is surely the case that Ministers, when making a final order, will take account of where qualifying assets are the subject of an export control order. That being so, I am looking not only for an assurance from the Minister that it is the Government’s intention to use the export control regime as the principal means by which the export of qualifying assets is controlled but for a recognition of this in some form in the legislation, to enable all those affected to be aware of the relationship between these two regimes and for it to be transparent. I therefore urge my noble friend to consider the merits of Amendment 87, which would introduce a new clause that simply did that without placing any constraint on Ministers. I beg to move.
Secondly, there are companies that operate within hybrid technologies, as the Export Control Act indicated, for technologies and technical assistance, and controls can be imposed for the transfer of technology from the UK and by UK persons, anywhere and by any means. It is interesting that Section 4 of the 2002 Act says that,
“‘trade controls’ …means the prohibition or regulation of … their acquisition or disposal … their movement”,
and associated activities of any goods. The Minister may say that that means specific items, goods or technologies of a company but not the company itself—therefore, this legislation covers the company. It would be helpful if the Minister could indicate something about the interaction.
It struck me that, if any Government indicated that a certain technology or good required prohibition from being exported or their trade in that to be regulated, that would be considered under criterion 5 for national security grounds. What if the interaction of that company is then the subject of a review under this legislation, or indeed that parent company is taken over, or there are shares that meet the trigger requirement? What is the status of the export licences that that company has—because the Government have already indicated that they have sought and maybe made a decision on national security grounds? It is worth pointing out that we know from the annual report that last year there were 80 refusals on national security grounds under criterion 5 in the UK—it indicates for the national security grounds of the UK, the EU and other friendly countries. In the last set of discussions, it was interesting to hear about the interactions with decisions that other friendly countries make. The Export Control Act makes determinations for that.
The legal tests in the Bill require the Secretary of State, before making an order, to reasonably consider that the provisions of the order are necessary and proportionate for the purpose. In the case of final orders, that purpose is to address a risk to national security, and in the case of interim orders, it is to prevent or reverse an action that might undermine the national security assessment process. Whether controls have been imposed under export control legislation will be relevant to whether the envisaged provisions of an order are necessary and proportionate. For example, 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.
Addressing the questions of the noble Lord, Lord Purvis of Tweed, about why we need the Bill when we already have the export control regime, I say that the export control regime is a licencing regime for certain controlled goods. It is an important part of the safe- guarding of our national security and it sits well alongside the proposed national security and investment regime. The two regimes are distinct though, and do not perform the same role. For example, the export control regime does not provide the Government with the ability to scrutinise acquisitions of UK companies or direct the use of sensitive assets used in the UK, whereas of course the NSI regime would.
On the noble Lord’s points about standard individual export licences if they have been granted for an export, I tell him that a standard individual export licence is granted to one person to export specified items to a named recipient. If the parties involved precisely follow the terms of a standard individual export licence that has already been granted following an assessment of national security risks, it is unlikely that the Secretary of State would reasonably suspect that the export might give rise to national security risks. In this situation, it is unlikely that he would be able to call that export in under the NSI regime. However, it is important to say that any decisions would need to be made on a case-by-case basis. It is important that the Secretary of State retains the ability to call in and scrutinise trigger events involving the export of assets in the event that national security risks are present.
The noble Lord asked about Northern Ireland. Qualifying entities as assets in Northern Ireland sit within the scope of the Bill, and that ensures that there are no loopholes. A trigger event under the Bill is not based on the application of EU law. For completeness, I should also say that the Secretary of State will, in any event, be subject to public law duties requiring him to consider all relevant factors when deciding whether to make an order under the Bill. Therefore, where export controls are relevant, the Secretary of State will need to take them into account when making that order.
I hope that that has explained, for the benefit of the House, the interaction between the two pieces of legislation. With the explanations that I have provided, I hope that my noble friend will feel sufficiently reassured that his concerns have been taken into account, and that he will not press his amendments.