6. Licensed Production Overseas

Licensed production overseas(137) (LPO) is the process whereby a company in one country allows a second company in another country to manufacture its products under licence. In terms of efforts to prevent irresponsible weapons proliferation and transfer within or from the EU, LPO is of particular concern since it involves setting up new centres of production and the spread of technology over which the government of the licensor company may have little or no control. The EU and the new Member States, have allowed LPO agreements to spread around the world for the manufacture of a wide range of MSP equipment ranging from body armour, machine guns, frequency hopping radios to helicopters and high-tech missile systems.

Criterion 7 of the EU Code requires Member States to consider the "risk that… equipment will be diverted within the buyer country or re-exported under undesirable conditions," and to consider "the capability of the recipient country to exert effective export controls." However, there is no Operative Provision in the Code to address the massive risks posed by the spread of LPO. The cases below illustrate how the lack of governmental control in this area can result in arms, ammunition or security equipment - made under licence from EU or new Member State companies - being transferred to human rights violating forces abroad.

France, Belgium, India and Nepal:
The Indian company, Hindustan Aeronautics Ltd (HAL) manufactures the Cheetah helicopter under licence from the French company Aerospatiale. This helicopter uses the Artouste IIIB engine, which is also manufactured by HAL under licence from Turbomeca (France).(138)

HAL also produce the Lancer Helicopter, which is reported to be an upgraded version of the Cheetah.(139) The Lancer is a light attack helicopter developed by HAL as a cost effective airmobile area weapon system. The company reports how the basic structure of the Lancer is derived from the reliable and proven Cheetah Helicopter and claims that the Lancer is optimized for anti-insurgency operations, close air support, suppression of enemy fire, attack on vehicular convoys, destruction of enemy machine gun positions and anti-armour applications. Each pod carries one 12.7 mm gun and three 70 mm rockets and has a firing rate of 1100 rounds per minute.(140) It was reported in 1999 that the gun/rocket pod fitted on the Lancer attack helicopter was "an FN Herstal product".(141) It is unclear what, if any, end-use control and parliamentary reporting has been provided to the French or Belgian parliaments.

In June 2003, it was reported that the Indian government had delivered two Hindustan Lancer light helicopters to Nepal. The reports stated that, although delivered for use by the Royal Nepal Army (RNA), the helicopters would have a law enforcement role and would undertake paramilitary surveillance and police patrol as well as army operations.(142) Other reports claimed that Nepal had obtained the helicopters, cost-free from India, as one of the main components of Indian aid for Nepal government's campaign against the Maoist rebels.(143)

It is currently unknown whether the Lancer attack helicopters have been used in any live fire attacks. However Amnesty International reported how "in the period immediately following the declaration of the state of emergency, there were several reports that civilians had been shot dead by the army from helicopters". In one such incident reported on 30 November 2001, "five civilians… were killed by shooting from an army helicopter while they were observing a religious festival (Baraha pooja) at Meldhara, Rolpa district. After widespread protests against shootings from helicopters, such incidents stopped being officially reported".(144) Other reports have indicated that the army helicopters have continued to be used since then.(145)

Germany, Belgium, France, Spain, Czech Republic, Turkey and Indonesia
The German company Heckler and Koch (H&K) has engaged in a number of licensed production arrangements with the Turkish state-owned arms manufacturer, MKEK. In 1998, for example, Heckler and Koch won an $18 million, ten-year contract for the licensed production of 200,000 HK33 5.56mm assault rifles in Turkey.

In 1998 the Turkish News Agency reported that MKEK was exporting 500 H&K MP5 sub-machine guns to the Indonesian police. These weapons were subsequently shipped to Indonesia at the very height of the massacres in Timor Leste in 1999. The MKEK deal was announced just a few months after the UK government had denied licenses for the same weapons to the Indonesian Armed Forces. The MKEK transfers took place just as the EU was agreeing to introduce an arms embargo on Indonesia. This came into force on 16th September 1999 and meant that neither Heckler & Koch in Germany or the UK would have been allowed to export MP5s to Indonesia, but the same weapon, made under a H&K license by MKEK in Turkey, could be transferred to the Indonesian security forces then engaged in widespread and systematic human rights violations.

On 23rd August 2000 the Turkish Minister of Defence signed a contract with a consortium of companies from Germany (Fritz Werner), Belgium (New Lachausee) and France (Manurhin) to install an ammunition manufacturing plant in Turkey. The plant will be run by MKEK and the lead foreign company will be Fritz Werner of Germany. This licensed production deal, which is estimated to be worth between 40 and 45 million euros (approximately US$35.9 million to US$40.4 million), will give MKEK the ability to produce 5.56 mm calibre ammunition for assault rifles.(146) It was further reported that Santa Barbara (Spain) was selected as the licensing firm for the gunpowder.(147)

The German, Belgian and French companies have all been granted export licences by their respective governments to fulfil this contract. It still remains far from clear how, if at all, the governments of Germany, Belgium and France will ensure that MKEK will not export ammunition to forces likely to use them for human rights violations. Among MKEK's other clients have been the governments of Burundi, Libya, Pakistan and Tunisia – all countries where Amnesty International has reported serious human rights violations by the security forces.(148)

MKEK is not the only Turkish company engaged in licensed production agreements with European companies. The Czech company Ceska Zbrojovka (CZ) has set up licensed production in Turkey of the CZ 75 B 9mm Luger pistol with the Turkish company Roketsan. The pistols were first exhibited at the IDEF 2001 arms exhibition in Ankara in September 2001.(149) A range of 10 pistols was subsequently on display at the IDEF 2003 exhibition with a Turkish name – TRUVA.(150) According to Jane's Infantry Weapons 2002-3, the CZ 75 is in use with the Czech police and police forces in various countries.(151)

Turkey lacks effective arms export controls based upon respect for international law and, despite its formal adherence to the EU Code, there is a real danger that the government will continue to allow the export of significant quantities of small arms and ammunition, many produced under licence from European companies, to security forces in other countries that persistently commit human rights violations.

United Kingdom and Pakistan:
In 1998 it was revealed that Pakistan Ordnance Factories (POF) was producing complete L64 105mm APFSDS (Armour piercing, fin stabilised, discarding sabot) tank rounds using a technical data pack supplied by the UK company, Royal Ordnance.(152) A report in Jane's Intelligence Review (JIR) in 2000 reported that "technology from the UK, Sweden and Belgium has resulted in improvement in advanced tank (and artillery) ammunition, which is produced in increasing quantities by Pakistan Ordnance Factories (POF) for domestic use and growing exports".(153) [Emphasis added].

Another JIR report stated that a 1999 shipment from POF had supplied Myanmar – where widespread and systematic human rights violations have been reported -with a range of ammunition for both small arms and artillery, including 105mm ammunition.(154)

In 2001, a Sri Lanka newspaper highlighted how Pakistan had supplied a range of military armaments including the Heckler and Koch G3 rifle (manufactured under license by POF), 120mm heavy mortars and hundreds of thousands of mortar and artillery ammunition, when other suppliers such as the UK had been reluctant to provide such arms.(155)

During the conflict between the Sri Lankan army and the Liberation Tigers of Tamil Eelam (LTTE), Amnesty International documented many cases of civilians being killed by indiscriminate bombing and shelling.(156) Whilst it is not known whether tank ammunition shells were used in these cases, Amnesty International remains concerned that that UK tank ammunition, produced under licence in Pakistan, can be exported to security forces, who may use it for serious human rights violations or breaches of international humanitarian law.

The present UK government has refused to adequately answer parliamentary questions seeking to establish when the licensed production agreement was established and if it is still current. In February 2002, the UK Trade Minister claimed "It would be inappropriate to comment on any such agreement entered into during the time of a previous Administration. In any case this is a matter between Royal Ordnance and Pakistan Ordnance Factories."

However, the Minister did make clear that "an export licence is not required from the Department of Trade and Industry's Export Control Organisation to export items from Pakistan to a third country."(157) This interpretation clearly undermines the purpose of the EU Code.

Ireland, South East Asia and Turkey:
On 22 June 2000, the Minister of State at the Department of Enterprise, Trade and Employment (DETE) was asked about the Irish government's views on licensed production. The response noted that there are no harmonised EU controls on licensed production agreements and went on to state that "while I have no reason to believe Irish companies avail of licensed production agreements to avoid our export controls system, I would, in principle, support the introduction of uniform controls on licensed production within the EU."(158)

However in September 2003, the 'Briefing Note on the Public Consultation Process on Ireland's Export Licensing for Military and Dual-Use Goods' stated that: "Ireland has no specific controls in this area, although important activities associated with this issue are subject to control".(159) Amnesty International is concerned at the lack of progress or political will from the Irish government on this issue.

Ireland has at least one company making extensive use of such LPO agreements. The Timoney Technology Group, based in Navan, County Meath, designs and develops a variety of armoured vehicles for military and commercial applications. Timoney's range of high mobility vehicles includes armoured personnel carriers, combat support vehicles, heavy transporters, and airport crash fire rescue vehicles.(160) The company's chief executive, Shane O'Neill, stated in January 2001 that 60 per cent of Timoney's sales currently went to the military, although he was hopeful that commercial sales would also increase. (161) Such diversification includes the contracts signed in 2000 to transfer technology to the Beijing Heavy Duty Truck Co in China for the manufacture of a new all-terrain, heavy duty truck.(162) Amnesty International is at present unable to identify the end user of these vehicles.

In September 2001, Timoney exhibited the Bushmaster troop carrier, built by its Australian licensee ADI Ltd at the UK Defence Systems Equipment International (DSEI) exhibition, for the first time outside Australasia. ADI recently won a contract from the Australian government for 350 armoured troop carriers. Whilst Amnesty International has no present concerns regarding the use of such vehicles by the Australian military, the fact that an Australian licencee is now manufacturing and marketing this vehicle to governments – particularly in the Asia Pacific rim – is of potential concern. (163)

Timoney design technology was also on display as part of the prototype Terrex AV8I armoured fighting vehicle that was exhibited for the first time at DSEI 2001. This vehicle is the product of collaboration between Timoney Technology Ltd and the Singapore company, ST Kinetics.(164) Shortly after the exhibition, ST Kinetics announced that it would take a 25% shareholding in Timoney Holdings Ltd, the parent company for Timoney Technologies.(165)

It was also announced in October 2003 that ST Kinetics and Turkey's Otokar Otobus Karoseri Sanayi AS (Otokar) had concluded co-operation agreements for two vehicles aimed at meeting the requirements of the Turkish Land Forces Command (TLFC). The first agreement involved development of an enhanced variant of the ST Kinetics Terrex infantry fighting vehicle. The Turkish version of the Terrex, to be called the Yavuz, involves joint design, manufacturing and marketing.(166)

Thus it would appear that Timoney's technology, licensed to ST Kinetics, may well be used in the production of a range of vehicles for the Turkish military, who in the past have used such equipment to facilitate human rights violations. At the Kurdish New Year celebrations in March 2002 in Mersin, for example, Mehmet ªen was killed by a tank that crushed him against a wall.(167) Unless the Irish export controls are rapidly changed, it is likely that this will take place with no debate or authorisation from the Irish government or parliament.

The Irish Parliament has literally no idea of the number and scale of such agreements. The table below shows the export licences granted for the "military list" category ML6 which covers the type of armoured vehicles that Timoney designs.

If Irish parliamentarians relied solely on the information gained from export licences issued, they would get a limited and highly misleading picture of Irish involvement in the manufacture of armoured vehicles and the possible impact on human rights.

Austria and Bulgaria:
The Austrian company Hirtenberger AG manufactures and sells a range of mortars and mortar ammunition. Its exports of mortars must be licensed by the Austrian government. The Arsenal JSC company in Bulgaria states that it produces 60mm and 80mm mortars under licence production agreements from Hirtenberger.(168) The mortars are also marketed by the Bulgarian arms agency Hemus.(169)

Given the Bulgarian government's inability over recent years to adequately regulate its arms industry and the cases of irresponsible arms transfers by Bulgarian companies in breach of UN arms embargoes and to human rights abusers,(170) Amnesty International is gravely concerned that this licensed production agreement could result in Austrian mortars, produced under licence in Bulgaria, being diverted to illicit end users. The Hirtenberger mortars produced under licensed production by Arsenal have recently been offered for sale by the Carigroup.(171) Given the lack of adequate reporting of prospective arms exports in Bulgaria, the Bulgarian parliament will not be able to discover to whom such weapons are exported. It is unclear to what extent the Austrian government is consulted (if at all) regarding the export of Hirtenberger mortars, made under licence by Arsenal, to other countries.

Lessons to be learned:
If current trends continue, the number of licensed production arrangements will continue to increase, and the means by which production technologies and component parts will be made available to licensed production facilities are likely to become more varied and difficult to control. The fact that LPO risks not only the proliferation of arms but of arms production technology and capacity, makes effective control of these arrangements of critical importance.

Despite the grave risks of these trends for the protection of human rights, the EU has been slow to act to adequately control LPO. However in the third EU Consolidated Report in 2001 an undertaking was finally made to "study the problem of manufacture under licence in third countries". (172) Subsequently the fifth Report in 2003 did contain an agreement by Member States that "when considering licence applications [for exports] for the purposes of production overseas of equipment on the Common Military List, account will be taken of the potential use of the finished product in the country of production and of the risk that the finished product might be diverted or re-exported to an undesirable end-user." (173) Although this does not refer to LPO as such, it would in most cases be relevant to licensed production arrangements entered into where the licensor is an EU-based company. This is a welcome step, but not enough to sufficiently control LPO.

The EU Member States should follow and promote internationally the "best practice" on this issue. In the United States, for example, licensed production (or "manufacturing license") agreements are treated as physical exports and require prior approval from the US State Department. The US licensed production contracts usually limit production levels and prohibit sales or transfers to third countries without prior US government consent. There is also provision, albeit limited,(174) for prior Congressional approval of licensed production deals.

Amnesty International calls on all EU Member State governments to agree a new Operative Provision of the EU Code and to introduce legislation without delay that requires their nationals and companies to seek prior licensing approval for setting up of all licensed production agreements for the manufacture of arms and security equipment. The criteria used by the government for such production export licence determinations should be as stringent as for direct arms exports and should be based on common Criteria in an enhanced EU Code.