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BRIEFING PAPER

Number CBP 8310, 18 May 2018

UK Defence Industry Exports

By Noel Dempsey

Contents: 1. DIT Defence & Security

Organisation 2. DIT Export Control

Organisation 3. SIPRI Arms Transfer Database 4. Arms exports to Saudi Arabia

2 UK Defence Industry Exports

Contents Summary 3

1. DIT Defence & Security Organisation 4

2. DIT Export Control Organisation 5

3. SIPRI Arms Transfer Database 8

4. Arms exports to Saudi Arabia 10

Cover page image copyright: Heavy Weapons attributed to Ben Shread (Defence Images) – licensed under Open Government Licence (image number 45160180.jpg)

UK Defence Industry Exports: summary

The total value of UK defence exports in 2016 was £5.9 billion.

Around 49% of all UK defence exports in 2016 went to the Middle East. Exports to North America accounted for around 23%.

Between 2007 and 2016 the UK was the world's second largest defence exporter.

The total value of SIEL licences granted in 2017 was £8.3 billion: 68% of the value was due to military graded licences.

Overall around 11,000 SIEL licences were granted - just over 50% of licences were military graded.

Around £1.1 billion of licences were granted for export to Saudi Arabia

There is no internationally agreed definition of what constitutes as a defence or arms export, or how they should be measured. There are several sources for data on the arms industry, with each focusing on a slightly different element:

The annual Department for International Trade: Defence & Security Organisation (DIT DSO) UK defence and security exports publication is a based on a survey of UK defence companies and covers orders for defence services, support and equipment.

The quarterly Department for International Trade: Export Control Organisation (DIT ECO) Strategic export controls licensing data publication measures the number and value of licences issued for the export of strategic goods.

The Stockholm International Peace Research Institute (SIPRI) Arms Transfers Databasemaintains global data on the volume of international transfers of major conventional weapons.

MiddleEast

North America

Europe

Asia PacificOther

Military Non-military

0% 25% 50% 75% 100%

Value

0% 25% 50% 75% 100%

Count

4 UK Defence Industry Exports

1. DIT Defence & Security Organisation

The DIT DSO collect data on UK defence exports via a survey of UK defence companies based on the number of orders won. DIT DSO estimates that it captures around 90% of defence exports by value through the survey.

For comparative purposes the DIT DSO publishes global data about defence exports by relying on international open sources of contracts which have been signed. Full methodological information is available from DIT DSO.

In 2016 the value of UK defence exports (based on orders) was £5.9 billion. Over the last ten years the average value of exports was £7.3 billion per year. Since 2013 the value of UK defence exports has decreased every year.

Source: DIT DSO, UK defence and security export figures 2016, chart 1.

Between 2007 and 2016 the UK was the world’s second largest defence exporter; behind the USA, but ahead of Russia. The value of the USA’s exports in this period was more than the UK and Russia combined.

Compared to last year ‘the most significant change to note in the global rankings…is Italy moving up from 8th to 5th place, displacing Germany from a top five position’.1

1 DIT DSO, UK defence and security export statistics 2016, 25 July 2017, p. 7.

The value of UK defence exports has decreased since 2013Value of UK defence exports based on orders, £ billion

0

2

4

6

8

10

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

5 Commons Library Briefing, 18 May 2018

Source: DIT DSO, UK defence and security export figures 2016, chart 3.

In 2016 the Middle East accounted for around 49% of UK defence exports, followed by North America (23%), Europe (14%), Asia Pacific (13%) and Africa (1%). Exports to Latin America were less than 0.5%.2

Between 2007 and 2016 around 85% of the UK’s defence exports were within the aerospace sector, 8% land, and 7% sea.3

2. DIT Export Control Organisation

The DIT ECO publish data on the number and value of licences issued for the export of strategic goods: military goods, for example assault rifles and combat aircraft; civilian/non-military goods, for example imaging cameras and information security equipment; and ‘dual use’ goods (civilian goods for a military purpose). Whether a licence needs to be issued for the export of strategic goods is determined by four factors4:

• Nature of the goods to be exported • Destination concerned

• Ultimate end use of the goods

• Licensability of trade activities of the goods due to be exported

2 DIT DSO, UK defence and security export figures 2016, chart 7. 3 Ibid, chart 8. 4 DIT ECO, Strategic export controls: country pivot report, January 2018, p. 3.

The UK is the world's second largest defence exporterTop defence exporters estimated on order/contracts signed, 2007-2016, $ billion

0 50 100 150 200 250 300

USA

UK

Russia

France

Italy

Germany

Canada

Spain

Israel

Sweden

The value of the USA's exports is more than the UK's and Russia's combined

6 UK Defence Industry Exports

The DIT ECO explains that5:

Broadly there are two types of licence, individual and general. Licences can be standard or open.

Each licence names the goods that can be exported and specifies the destinations to which they can be exported, along with other details and restrictions. General licences are pre-published and can be used by all eligible exporters whereas individual licences are issued following a successful application and allow only those named on the application to export certain goods. Those exporting under general licences must adhere to the terms and conditions of the licence under which they wish to export. Exporters must register with the ECO to use a general licence and are subject to regular audits to ensure the licence terms and conditions are being adhered to. Those requiring an individual licence must submit an application to the ECO where they wish to make exports not covered by the terms and conditions of a general licence.

Generally, open licences can be used with fewer restrictions than standard licences. Standard licences tend to name a specific quantity of specific goods that can be exported to a specific destination whereas open licences may include a wider range of goods or destinations and generally do not limit the quantity of goods that can be exported.

The DIT ECO report only on the value of Standard Individual Export Licences (SIEL) issued during a year, rather than on the traded value of the goods. We do not know from official sources whether the goods covered by a licence have actually been delivered to the end-user. Licences issued in previous years may be re-issued during subsequent years. For example, in 2009 approximately £1.5bn of goods licensed to Saudi Arabia were for combat aircraft. As the order had not been completed in 2013 new licences were again issued for the same value of the same goods, and again in 2015 for the same reason.6

There are five sub-types of SIEL7:

• Permanent: items that are for permanent export to a destination. They are generally valid for two years from date of issue.

• Temporary: where the export is temporary, for example for the purposes of demonstration, trial or evaluation. Goods must be returned before the licence expires. Temporary licences can cover more than one destination; in such circumstances they are counted once against each destination.

• Incorporation: goods due to be incorporated into another system or product.

• Transhipment: needed for the transhipment of certain goods through the UK en-route from one country to another, providing certain conditions are met.

• Goods covered by Council Regulation 1236/2005: concern trade in certain equipment and products which could be used for capital punishment, torture or other cruel, inhuman or degrading treatment or punishment. These are classed as non-military goods but appear separately to the statistics on licences for non-military goods. SIELs for

5 DIT ECO, Strategic export controls: country pivot report, January 2018, p. 3. 6 DIT ECO, Strategic export controls: commentary 1 January to 31 March 2015, p. 5. 7 DIT ECO, Strategic export controls: country pivot report, January 2018, p. 7.

7 Commons Library Briefing, 18 May 2018

goods covered by Council Regulation 1236/2005 are therefore not included in the count of non-military goods of other SIEL subtypes.

There has been an upward trend in the total number of SIEL licences issued since 2008. In 2017 there were just under 11,000 licences issued; this is an increase of around 32% compared to 2008. Licences for military goods have consistently been the majority of all permanent SIEL licences. Between 2008 and 2017 the average number of licences issued per year was around 10,400.

Source: DIT ECO, Strategic export controls: licensing statistics, table e.

The value of permanent SIEL licences has fluctuated year to year. In most years the total value of licences was between £6-8 billion. In 2013 the value of all permanent SIEL licences issued was £17 billion. Part of the peak of 2013 can be explained by around £7.7 billion worth of non-military licences issued for export to Israel in Q1 2013 (although these licences were surrendered before any goods were shipped) and the re-issuing of military licences for combat aircraft to Saudi Arabia in Q2 2013 (as discussed above).8

In 2017 the total value of SIEL licences issued was £8.3 billion. Around £5.6 billion of this was for military graded licences, £2.6 billion for non-military licences and £25 million for dual-use licences.

For further detail on the number and value of SIEL licences issued by destination country please see the downloadable Excel tool accompanying this briefing paper.

8 DIT ECO, Strategic export controls: commentary 1 January to 31 March 2015, p. 5.

Standard individual export licencesThe count and value of the total permanent SIEL licences issued each year

Military, Non-military, Dual use

0

2,000

4,000

6,000

8,000

10,000

12,000

2008 2011 2014 2017

Count

£0

£4

£8

£12

£16

£20

2008 2011 2014 2017

Billi

ons

ValueNon-military licences worth £8bn to Israel -these licences werenot used

8 UK Defence Industry Exports

3. SIPRI Arms Transfer Database The Stockholm International Peace Research Institute (SIPRI) has developed a unit of measurement to measure the volume of international transfers of major conventional weapons: the trend-indicator value (TIV).

SIPRI calculates the TIV on the known unit production costs of weapons and it is intended to represent the transfer of military resources rather than the financial value of the transactions. The TIV figures should not be directly compared with GDP, military expenditure and the sales/financial value of export licences.

SIPRI provides the following examples to demonstrate how the TIV is calculated9:

• The transfer of newly produced complete weapons systems: In 2009, Germany delivered 6 Eurofighter combat aircraft to Austria. One Eurofighter is valued at 55 million SIPRI TIV. Therefore, the delivery is valued at 330 million SIPRI TIV.

• Transfer of surplus weapons: In 2009, Germany delivered 43 surplus Leopard-2A4 tanks to Chile. One Leopard-2A4 tank is valued at 4 million SIPRI TIV and a used version is valued at 1.6 million SIPRI TIV (40 per cent of the value of a new version). Therefore, the delivery is valued at 68.8 million SIPRI TIV.

• Transfer of significant components for major conventional weapons systems: In 2009, Germany delivered 8 MTU-8000 diesel engines for frigates to Singapore. One MTU-8000 diesel engine is valued at 4 million SIPRI TIV. Therefore, the delivery is valued at 32 million SIPRI TIV.

• Licensed production arrangement: In 2009 the Republic of Korea was granted a license to produce one Type-209PN submarine. One Type-209PN submarine is valued at 275 million SIPRI TIV. Therefore, the delivery is valued at 275 million SIPRI TIV.

Further information on the calculation of TIV can be found in the SIPRI Measuring International Arms Transfers fact sheet.

In 2017 the volume of UK arms exports globally was 1.2 billion TIV. Most of these exports went to Asia10 (1.1 billion TIV). Over the last twenty years the average volume of UK arms exports per year was 1.2 billion TIV. Arms exports to the Americas used to be the second highest export region after Asia, although since 2013 these have been relatively few in volume.

9 SIPRI, Arms Transfer Database: sources and methods, accessed 7 February 2018. 10 Broad world regions have been aggregated using ISO-3166 country codes. See Luke

Duncalf, ISO-3166 countries with regional codes, accessed 7 February 2018.

9 Commons Library Briefing, 18 May 2018

Note: TIV volume may not sum to total due to rounding; world regions aggregated using ISO-3166 country codes. Source: SIPRI, Importer/exporter TIV tables, accessed 14 April 2018; Luke Duncalf, ISO-3166 countries with regional codes, accessed 7 February 2018.

In 2017 the greatest volume of arms exports from the UK were for aircraft: 946 million TIV, around 78% of total TIV volume. Between 1997 and 2017 most of the volume of arms exports from the UK were for vehicles and other transportation (aircraft, ships and armoured vehicles). Vehicle and other transportation accounted for 70% of all arms exports.

Source: SIPRI, Importer/exporter TIV tables, accessed 14 April 2018.

Asia, Africa, Americas, Oceania, Europe

TIV UK arms transfers volume by broad world region, TIV millions

The majority of UK arms exports go to Asia

0

500

1,000

1,500

2,000

2,500

1997 2001 2005 2009 2013 2017

Proportion of total TIV UK arms transfers volume by weapon type, 1997-2017

The majority of UK arms exports have been vehicles

10 UK Defence Industry Exports

4. Arms exports to Saudi Arabia There were 279 SIEL licences issued for export to Saudi Arabia in 2017 with a total value of £1.1 billion. In terms of the number of licences issued in 2017, the majority (58%) were for goods deemed to be non-military in nature/use. The clear majority (98%) of the value came from licences for goods deemed to be for military use.

Source: DIT ECO, Strategic export controls: licensing statistics, table e.

Some of the value of licences issued for export to Saudi Arabia is essentially duplicated and counted twice in the time series above. In 2009 approximately £1.5bn of goods licensed to Saudi Arabia was for combat aircraft. As the order had not been completed in 2013 new licences were again issued for the same value of the same goods, and again in 2015 for the same reason.

Between 2008 and 2017 1.5% of all permanent SIEL military licences issued had Saudi Arabia as an end user destination, although they accounted for 32% of the value of all military licences. This measure does not account for the duplicated licences described above.

Between 2007 and 2017 Saudi Arabia has received the most of the UK’s arms transfers when measured by TIV. The USA and India received the second and third most. In 2017 the estimated volume of the UK’s arms transfers to Saudi Arabia was around 0.4 billion TIV – this was around 36% of the total UK arms transfer volume globally.

Military Non-military Dual Total

Count

2008 35 48 0 832009 54 86 0 1402010 91 111 4 2062011 91 97 3 1912012 107 92 2 2012013 102 166 4 2722014 108 174 3 2852015 130 144 8 2822016 91 192 0 2832017 116 163 0 279

Value

2008 £100,719 £4,122.55 £0 £104,8412009 £1,659,670 £37,579 £0 £1,697,2492010 £338,953 £81,819 £722 £421,4942011 £1,734,086 £12,480 £773 £1,747,3402012 £101,602 £4,134 £2,534 £108,2712013 £1,601,730 £21,760 £6,287 £1,629,7772014 £76,666 £55,594 £615 £132,8752015 £2,838,880 £113,566 £14,607 £2,967,0532016 £676,701 £74,515 £0 £751,2162017 £1,128,389 £20,399 £0 £1,148,788

Standard individual export licences to Saudi ArabiaThe count and value of permanent SIEL licences issued each year, £ thousands

11 Commons Library Briefing, 18 May 2018

Source: SIPRI, Importer/exporter TIV tables, accessed 24 April 2018.

The USA is the largest exporter of arms transfers to Saudi Arabia, while the UK is the second largest. In 2017 the estimated volume of the USA’s arms transfers to Saudi Arabia was around 3.4 billion TIV. This accounted for around 83% of arms transfers to Saudi Arabia in 2017.

Source: SIPRI, Importer/exporter TIV tables, accessed 24 April 2018.

There has been a clear trend in the volume of arms transfers to Saudi Arabia. In the late 1990s arms transfers to Saudi Arabia increased before reducing considerably in the 2000s. From around 2008 transfers began to increase almost year on year. The estimated volume of transfers to Saudi Arabia in 2017 was the largest in the last twenty years.

Saudi Arabia has received most of the UK's arms exportsTop ten recipients of UK arms transfers by TIV volume between 1997-2017, TIV millions

0 1,000 2,000 3,000 4,000 5,000 6,000 7,000

Saudi Arabia

USA

India

Canada

Oman

Turkey

Indonesia

China

Italy

Australia

Saudi Arabia imports the most arms from the USATIV arms transfers volume to Saudi Arabia by country, TIV millions

UK

USA

OTH

ER

0

1,000

2,000

3,000

4,000

5,000

1997 2001 2005 2009 2013 2017

BRIEFING PAPER Number CBP 8310 18 May 2018

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