Foreign Involvement in the Defence Supply Chain subcommittee chair, MP Richard Drax said: “Whilst the National Security and Investment Bill represents a step in the right direction, the government must provide businesses with further clarity by explicitly naming countries from whom investment is welcome.
“Investment in the defence supply chain from all countries that fall outside of an approved list, including Russia and China, must be barred. We cannot afford a laissez-faire approach to our national security and sovereignty.”
The report’s calls come as the UK moves towards publishing its Integrated Review of defence, security and foreign policy in March and ahead of HMS Queen Elizabeth’s maiden operational deployment this summer which will see the ship operate in the Indian and Pacific Oceans near China.
The report specifically mentions nine companies operating in the UK defence supply chain that Chinese firms have acquired since 2010. Companies listed include Gardner Aerospace, which manufactures components used on the Airbus A400M – Shaanxi Mineral Resources purchased the company in 2017.
In another example, Fineline Global purchased eXception PCB which manufactured circuit boards for the Lockheed Martin F-35 in 2016.
Evidence submitted to the enquiry disputed the potential ramifications of the purchase. Francis Tusa, editor of the Defence Analysis newsletter told MPs: “…what g-force that circuit board is due to take, and the voltages, power and temperature range. Quite frankly, if you gave an electrical engineer all that data, they would be able to start to reverse engineer the capabilities of the overall system.”
However, Defence Minister Jeremy Quinn said the company only supplied “bare plastic boards” that were used further in the supply chain for more advanced production stages.
The report also noted the UK’s decision to purchase two second-hand Chinese 737 airliners that will be converted into E-7 Wedgetail aircraft for the UK’s Airborne Early Warning and Control Capacity. The decision has been criticised by defence commentators.
The report also found that the financial pressure caused by the disruption of the Covid-19 pandemic had left some business in the UK defence industry vulnerable and increased the risk of ‘hostile foreign involvement’ in the defence supply chain.
Drax added: “The economic reverberations of Covid-19 have only exacerbated pre-existing vulnerabilities in the defence supply chain, leaving many small and medium-sized defence enterprises struggling to cope.
“Although the Ministry of Defence offers some support for the companies contending with the tough economic climate, there is not enough awareness of the resources that are available.”
The report criticised what it called the Ministry of Defence’s (MOD) ‘country-agnostic approach’ to foreign involvement in the defence supply chain, saying it meant it had been ‘open to potentially hostile foreign involvement’. MPs added the MOD should publish a list of countries it considers ‘friendly and from whom investment should be encouraged’.
The report adds: “All those countries falling outside of this list should be barred from investing in the UK’s defence supply chain, including China and Russia.”
MPs said the MOD should improve communication with small and medium-sized defence enterprises that are struggling to clarify the support available to them. MPs added that the global supply chain had been compromised by Covid-19, urging the MOD to proactively encourage domestic suppliers’ use and shorten its supply chain.
Drax added: “The economic reverberations of Covid-19 have only exacerbated pre-existing vulnerabilities in the defence supply chain, leaving many small and medium-sized defence enterprises struggling to cope.
“Although the Ministry of Defence offers some support for the companies contending with the tough economic climate, there is not enough awareness of the resources that are available.”
Commenting on the report, a MOD Spokesperson told Army Technology: “The MOD already provides support to the UK defence industry, including the targeted financial relief measures undertaken during Covid-19.
“We also carefully monitor foreign investments in the UK’s defence supply chain and undertake rigorous assessments when considering their potential risks to national security. The National Security and Investment Bill is intended to enhance the Government’s powers to screen and where necessary intervene.”
The UK is currently working to enshrine the National Security and Investment Bill into law, which is set to strengthen the government’s ability to screen and if necessary, intervene in foreign investment in the UK defence sector or sensitive areas of the economy.
The MOD is also contributing to the Investment Security Unit (ISU) design, which will sit inside the Department for Business, Energy and Industrial Strategy (BEIS). The ISU will identify, assess and respond to potential national security risks from market activity, strengthening protections against potential hostile activity.
The MOD added that the department had undertaken targeted financial relief measures to support companies’ cash flow, service delivery and help ensure staff stayed in the defence supply chain. The department added it was continuing ongoing support for the defence industry, remaining in contact with defence suppliers.
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