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Report: Foreign Involvement in the Defence Supply Chain

14 February 2021

Today, the Defence Sub-Committee is publishing its report on Foreign Involvement in the Defence Supply Chain.

The report examines the extent of hostile foreign ownership in the defence supply chain and finds evidence of some involvement from undesirable countries. The Committee therefore calls on the Government to end its country-agnostic approach to foreign direct investment and to publish a list of countries it considers friendly, and from whom investment should be encouraged. The report concludes that all those countries falling outside of this list should be barred from investing in the UK’s defence supply chain, including China and Russia. The Sub-Committee argues that the Government’s current approach, could result in British high-technology and equipment aiding a potentially hostile military.

The Sub-Committee supports the introduction of the National Security and Investment Bill which provides much-needed screening of foreign direct investment. The planned Investment Security Unit, that sits within the Department for Business, Energy and Industrial Strategy, must draw on experience across Whitehall, including the Ministry of Defence, which should proactively feed into all the relevant assessment processes.

The report additionally finds that the financial pressure of Covid-19 has left some businesses in the defence industry vulnerable, increasing the risk of hostile foreign involvement in the defence supply chain through foreign takeovers. The Ministry of Defence must improve its communications with small and medium-sized defence enterprises that are currently struggling and clarify what support is available. The global supply chain has been compromised by the impact of Covid-19 and the Ministry of Defence must proactively encourage domestic alternatives for supply and shorten the supply chain.

Chair's comment

Chair of the Sub-Committee on Foreign Involvement in the Defence Supply Chain, Richard Drax MP, said:

“Despite the Government demonstrating an understanding of the risks that foreign involvement in the defence supply chain poses, more should be done to maintain the integrity and autonomy of our defence industry. This heightened awareness of risks must lead to a tightening of regulations and a new approach.  

“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 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.

“No British company should be left with the choice of either going under or accepting hostile foreign investment, and the Government must ensure that no one finds themself in this position.”

Further information

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