UK’s DESO Done In
On July 25/07, new UK Prime Minister Gordon Brown announced that the UK MoD Defence Export Services Organisation (DESO) will be shut down. The agency was set up in 1966, when the UK arms industry was largely state-owned and concerned with selling off surplus equipment. Neither of these premises remain true, but as all government agencies tend to do, it has shifted its mission to fulfill other needs within its client base. According to The Guardian, DESO lobbies within Whitehall for export licences, and spends £15 million per year to help British firms sell equipment abroad. British firms pay below-market fees in return for these services. Industrial promotion activities will be shifted into the Department of Trade & Industry (now the Department for Business, Enterprise and Regulatory Reform), with the implementation plan scheduled for finalization by the end of 2007.
Left-wing organizations like Campaign Against Arms Trade (CAAT) have lobbied for DESO’s demise since 1974. In the end, however, DESO appears to have been done in by opposition from Treasury officials on corporate subsidy grounds. Political observers will recall that Treasury has been Mr. Brown’s cabinet department for many years under former Prime Minister Tony Blair. DESO has also been caught up in the scandal over the GBP 43 billion Saudi Al-Yamamah framework, which is connected to Saudi buys of Tornado aircraft and maintenance services and its still-pending purchase of the BAE/EADS Eurofighter.
The UK defence industry, whose exports sit at GBP 5-6 billion per year, is deeply unhappy with the announcement, whose content and timing reportedly surprised them. DESO’s has now been dissolved, and its successor has begun operations, despite BAE Systems CEO Mike Turner’s letter that said:
“…At no stage was any indication given by the MoD or any other government department that a change of this signfiicance was being planned… The nature of the defence market, including the customer base of other governments seeking to provide for their national security needs, is such that home government support is an essential ingredient for success, DESO’s particular brand of support is one of the reasons why the UK’s defence export performance is second on to the USA, despite the overwhelming weight of support offered by other governments normally at the very highest levels (eg. US, France, Russia). Competitors envy the targeted and coherent export promotion offered by DESO, and the French in particular have been seeking to emulate DESO. I can think of no benefit that ‘synergy’ with UK T&I can offer that can begin to outweigh the lost excellence of the DESO operation.
…the MoD directly benefits from the success of UK defence industry in the export market. Independent analysis has demonstrated that this is an overall net financial benefit accounting for the costs of DESO and other government activites. More importantly, the Defence Industrial Strategy was clear about the benefits to MoD from a domestic industry that is able to sustain a very healthy 25% of its output for export, thereby maintaining capability in the UK for future needs and – crucially at present – in support of current operations.
The UK defence industry is one of the UK’s few remaining success stories in terms of a high skilled manufacturing and engineering sector delivering major export success for the nation. Across the defence industrial base, we play a significant role in terms of R&D spend, supporting science, engineering, and technology in schools and colleges, providing first class engineering apprentices. With such high social returns, we would have expected the government to continue supporting this sector.
For all these reasons, I and my colleagues in the sector and profoundly concerned about this decision and the manner in which it has been reached. I appreciate that at least the announcement signals keeping government-to-Government arrangements, including the all important Saudi contracting arrangements under the MoD.
At the very least, I hope that the government will fully and openly consult with the defense industry how in practice the changes should be implemented to minimize the damage to this successful export sector.
I would appreciate the opportunity to discuss these matters with you when I am in the UK week commencing 6 August.”
See the full letter via DID’s archives [PDF format, 570k]. Some UK observers already see the annual DSEI defense exhibition as under threat due to the decision.
April 1/08: The new UK Trade & Investment Defence & Security Organisation (UKTI DSO) opens for business, marking the formal transfer of responsibility for defense exports from the Defence Exports Services Organisation (DESO) to UKTI, Britain’s international business development organization. UKTI release and details.
Dec 12/07: DESO’s dissolution date is set. A release from UK Trade & Investment outlines the specifics of the new arrangements, as it says that:
“Support for defence exports will become the responsibility of UKTI Defence and Security Group, a new business group of UK Trade & Investment (UKTI), the Government’s international business development organisation, from 1st April 2008. UKTI Defence and Security Group will be an integrated group within UKTI, made up of civilian and military staff…”
- DSEi Site. It is now part of Clarion Events Ltd’s portfolio, produced “in association with” UK Trade & Investment.
- UK Department for Business, Enterprise and Regulatory Reform
- The Telegraph (July 29/07) – BAE backlash against axing of export agency
- UK Prime Minister’s Office (Jan 25/07) – Machinery of Government: Defence Trade Promotion
- The Guardian (July 9/07) – Treasury plans to shut arms sales department
- Campaign Against Arms Trade – Defence Export Services Organisation campaign page
- DID coverage of the UK’s Defence Industrial Strategy
- DID (Dec 28/05) – France Delivers EUR 7.1B of Arms in 2004, Says Report
- DID (Nov 1/05) – Russian Defense Industry Exports Stabilizing at $6B/Year, But Structure May Change. Since then, their exports have picked up speed on the strength of several major deals.