Memorandum from the Defence Industries
Council (6 December 2000)
1. The Committee sought the views of the
Council, along with others in the defence industries, on the above
Agreement, which has recently been presented to Parliament. As
the Committee will be aware, the Agreement is a further step in
the process that was started by a declaration from the Heads of
State and Governments of France, Germany and the UK in December
1997 to facilitate the restructuring of the European aerospace
and defence electronics industries. This was followed by a joint
statement of the Defence Ministers of France, Germany, Italy,
Spain, Sweden, and the UK of 20 April 1998 stating their priorities
to harmonise aspects of their activities which impact on defence
industry restructuring and to remove obstacles to restructuring
which fall primarily to governments. This statement led on directly
to the signing of a Letter of Intent by the six Ministers on 6
July 1988. The letter set out in some more detail the subjects
that would be covered by this work:
Security of Information.
Research and Technology.
Treatment of Technical Information.
Harmonisation of Military Requirements.
2. The Letter described the organisation
for undertaking this work, with each nation chairing a six-country
working group on one of these subjects, and an Executive Committee
to manage the overall programme. It also gave a schedule for the
work, which was for the Executive Committee and the six working
groups to do their work from July 1998 until June 1999, and for
this to be carried through into agreements between July and December
3. The Framework Agreement now before the
House is the product of the process outlined above. It is not,
strictly speaking, the end product, because in most areas the
Agreement, as its title implies, is a framework for governments
to act, setting out the things they have agreed to do, and, in
many cases, the principles and guidelines by which they propose
to operate from herein. There is, therefore, much work still to
be done, in most of the areas covered by the Agreement, to implement
its provisions. Most of the six working groups mentioned above
are still active to this end.
4. The DIC welcomed the Letter of Intent
initiative when it was launched and had some input into the selection
of subjects for working group study. Industry has throughout the
life of the initiative regarded it as a positive development and,
in particular, supported its essential industrial objective. This
is stated succinctly in the Preamble to the Framework Agreement
(fifth paragraph) as "...to promote a more competitive and
robust European defence technological and industrial base in the
global defence market...". The spirit of the original Letter,
which envisaged harmonisation of activity and removal of governmental
obstacles in order to support this objective, is consistent with
industry's own approach as stated in the DIC input to the Strategic
Defence Review. In essence this is that industry has proved itself
competitive in the global market and welcomes any measures which
will improve access and efficiency in areas of that market.
5. It has become more apparent over time,
that the process has had, to some extent, a wider political objective,
as made clear in the same sentence quoted above: "to contribute
to the construction of a common European security and defence
policy". The relationship between industrial and political
objectives in Europe is complex and it is not proposed to comment
specifically on political issues in this note. However, in terms
of the questions posed by the Committee, industry sees significant
potential benefits from the Framework Agreement in facilitating
the development of the European market for defence goods and services.
But there is a risk that the fairly simple objectives stated in
1997 become part of a complicated political scene. In this respect
the pace of progress has not been as fast as industry would have
hoped; clearly it has not kept up with the rapid industrial consolidation
taking place in Europe. Industry remains concerned to see the
vigorous prosecution of harmonisation and removal of obstacles,
as first mooted at the end of 1997.
6. It follows from the nature of the process
involved, essentially one of governments finding consensus on
regulatory and policy issues, that industry has had a consultative
role in the drawing up of the Agreement, rather than a central
one. To be more precise each government has consulted its national
industry and taken into account the national industry view to
the extent it thinks fit. Only on one occasion have the six governments
and six industries sat together at the Executive Committee level,
though, to be fair, there have been a number of more open meetings
at the Working Group level. Industry has, on the whole, found
it reasonably easy to agree its views at a European level, using
the umbrella of the European Defence Industries Group (EDIG),
though EDIG's membership goes wider than the six signatory members,
so a sub-group has had to be formed.
7. Industry would have welcomed more dialogue
with governments at the European six-nation level. This would
have been a reasonable reflection of the fact that the globalisation
of the industry has moved forward rapidly in the three years this
process has been under way. To address the Committee's question
again, there has been a good deal of benefit through the process
of drawing up the Framework Agreement, in governments and industry
consulting together at the technical level. The risks here are
that given that the consultation remains dominated by national
positions, that the implementation of the agreement will be dogged
with disputes about national interpretations of its provisions.
In general terms the UK tends to lose out where the debate is
dominated by local and national considerations as opposed to the
wider interest in creating a competitive and efficient market
place. Industry has, in almost all areas, found it easier to reach
consensus at a six national level than have the governments. For
the future, industry proposes that the governments should work
to establish an agreed approach to implementation and involve
industry systematically in that process at the working group and
Executive Committee level, moving away as far as possible from
a national based approach.
8. UK Industry has been consulted by the
Ministry of Defence about most areas of the Agreement, though
the depth of consultation has varied. Industry's views have not
prevailed in some cases, but it is accepted that the Ministry
has made significant improvements to the drafts in almost all
areas where industry has made representations. The view has been
expressed that consultation between government and industry may
be closer in other countries, but that it is impossible to judge
objectively. However, industry sees the need for further consultation
on the implementation of the Agreement, and on the implications
for the development of the European defence market and the wider
9. As the Committee has noted, the Government
is also pursuing a dialogue with the USA under the Declaration
of Principles, and a related initiative on export controls. The
USA is believed to be discussing similar approaches with other
European nations. There are also several other European initiatives
that relate closely to the objectives of the Agreement: OCCAR,
which the Committee has already studied; proposals for a European
Armaments Agency; measures envisaged by the European Commission,
and the consideration being given to the future of the WEU and
its subsidiary bodies. These developments are inter-related and
may not be consistent with each other in all respects; the overall
picture is difficult to grasp. One risk is that UK industrial
interests may be lost in the complexity of these many initiatives.
Industry believes that government and industry should work closely
together over the next few months on the way forward in Europe.
Without such a dialogue there is again the risk that industrial
objectives will be lost in the complex of initiatives being undertaken
10. The transatlantic dialogue under the
Declaration of Principles, and, in the area of export controls,
the Defence Trade Security Initiative, is very important for UK
industry: the USA is by far the largest defence market in the
world, and has an acknowledged lead in many areas of technology.
The Committee has asked how these initiatives with the USA might
fit alongside the Framework Agreement. Industry is not in a position
to answer that question, but would observe that it is essential
for the UK to have a co-ordinated approach to these many separate
strands of our relations with other governments on armaments matters.
The effort to strengthen our relationships in Europe and the USA
and open up markets on both sides of the Atlantic is welcome but
there could be conflicting priorities and these need to be discussed.
It should also be taken into account that there is a difference
of approach: the Framework Agreement sets out the principles for
six governments to agree a common approach to policy and regulation.
The UK/USA dialogue is one in which the USA will have objectives
to change UK policy and regulation as well as vice versa. Industry
would like to be consulted on the balance of benefits available
to each side.
11. Industry regrets that this part of the
agreement does not make specific reference to the consultation
of industry. It would have welcomed consultation being a formal
part of the process rather than being left to the discretion of
working group or Executive Committee chairmen.
Security of Supply
12. Industry supports the objective of removing
impediments to the restructuring of the defence industry into
transnational defence companies (TDCs), leaving the distribution
of capabilities to the commercial judgment of the companies involved.
But the provisions in the agreement are only a modest step in
this direction and are open to varied interpretations in different
countries. For example, Article 4 speaks of ". . . measures
to achieve . . . a fair and efficient distribution and maintenance
of strategically important assets, activities and skills."
Industry has expressed concern about the different ways these
words could be interpreted. UK sub-contractors are concerned that
it will be used to maintain national barriers rather than to encourage
13. Article 8 dealing with the reconstitution
of supply has caused considerable concern in industry. The desire
of participating governments to reassure themselves is understandable,
but it seems curious that these provisions, which will presumably
only be needed where co-operation has broken down, should be supposed
to proceed "in a spirit of co-operation with industry".
Industry remains concerned about the way governments may use these
provisions, perhaps beyond the intention of use only in "exceptional
14. In the end it is the willingness of
governments to open up their markets and defence industries to
competition that will determine whether the industrial objective
of the Framework Agreement is achieved.
Transfer and Export Procedures
15. Industry has been disappointed with
progress in this area. As in other areas, the bringing together
of the six authorities will probably lead to modest improvements
in the handling of transfers within the area of the six nations.
But the objective should be a system of free circulation subject
to a single simplified export procedure.
16. But on the issue of exports outside
the six nations, industry has put forward proposals via EDIG for
lead nations to take responsibility for exports of products produced
under collaborative arrangements. The industries of all six nations
support this position.
17. This is one area where the relationship
between the implementation of the Framework Agreement and initiatives
with the USA could present problems of consistency.
Security of Classified Information
18. Government and industry have worked
closely together in this area and a number of useful reforms are
included in the Agreement. The main ones were agreements reached
mutual acceptance of personal security
how defence companies' facilities
will be cleared to process classified information;
acceptable rules governing access
to participating nations' classified information by their nationals
within their defence companies;
rules governing the protocol for
consent to the release of participating nations' information outside
use of commercial couriers for some
categories of classified information;
electronic transmission internationally
of "Restricted" information using commercial encryption
mutually accepted by the relevant national authorities;
simplifying the international visits
procedure by devolving certain responsibilities to defence companies,
rather than involving officials at every stage.
19. This is a positive outcome, which will
benefit companies involved in more than one of the six countries
considerably providing they are implemented consistently across
all the UK and other country agencies involved and at all levels
within them. For example, in the case of use of commercial encryption,
there is a risk that this will be interpreted in the UK as only
permitting use of encryption which has been formally evaluated
as in the past. This would imply long delays and limited choice
and no real benefit to industry.
Defence Related Research and Technology
20. There has been a good dialogue between
government and industry in this area and the results are welcome.
In particular, the Agreement holds out the promise of a more co-ordinated
approach to fulfilling common technological needs, and of the
more efficient use of resources. This is particularly the case
regarding the setting up of technology demonstrators and the programmes
with flexible geometry ie where participation can be limited to
those countries with a genuine contribution to make. In this respect,
the commitment in Article 34 to replace "juste retour"
is welcome, though industry remains unclear how a system of global
return will work in practice.
21. Overall, this part of the Agreement
should provide a positive basis for co-operation between the six
nations, and thereby enhance the work being done in the UK between
government and industry to improve efficiency in the use of R&T
resources. If it is not possible to agree a way forward for European
research within the Western European Armaments Group via the EUROPA
MoU, then the working group associated with this Agreement is
likely to play a key role in taking forward defence R&T with
the UK's key European partners.
Treatment of Technical Information
22. The working group in this area has consulted
with industry in detail. The result has been the setting down
of some useful principles in the Agreement. Industry is generally
positive about what has been achieved, though a great deal more
work is needed to bring these provisions into practical application.
Harmonisation of Military Requirements
23. This is the area which, for understandable
reasons, industry has been least involved in the detailed dialogue.
The provisions set down in the agreement are far-reaching and
broadly to be welcomed, especially the reference to a common dialogue
with industry in Article 45. But their implementation will require
considerable political will and the sorting out of a number of
relationships with other institutions, for example, will the body
envisaged in Article 48(2) be a development of the existing OCCAR
organisation, or a separate body? Harmonisation of military requirements
is generally recognised as a potentially important stimulus to
further industrial rationalisation, but so far only a very limited
amount has been achieved in practice.
Protection of Commercially Sensitive Information
24. Industry welcomes the recognition given
by the participating nations here, and in the treatment of technical
information, of the commercial value and market sensitivity of
much the information they will be transferring and holding. However,
the adoption of the basis for the NATO Agreement on Communication
of Technical Information for Defence Purposes and its further
adaptation, would have meant industry would have been working
from an existing regime that it understood well.
25. It is noted that Article 56 provides
for accession of further nations to the Agreement only where the
existing nations are unanimous in accepting them. Industry generally
applauds the actions of those nations that have taken the initiative
that has led to this Agreement. But there are risks in alienating
other European nations, which include some key customers for their
industries, if the Agreement becomes a closed shop on a long-term
basis. Industry would advise the governments to keep this issue