Memorandum from the Defence Manufacturers
Association (28 November 2000)
You sought DMA comments for the Defence Committee
on the European Framework Agreement signed at Farnborough in July
As you may know, the major sections of the Agreement
were considered by multi-national groups, which included UK Defence
Industry representation. A number of the individuals involved
were from DMA member companies. Notwithstanding this involvement
in the detail of the Agreement, the Association has some reservations.
We generally welcome the concept of an Agreement
which provides a Governmental framework within which companies
considering mergers, joint ventures and acquisitions in Europe
can establish and develop their business. The Framework, as drafted,
however, is so heavily caveated throughout as to allow for national
interpretation (a let out) in most of its key clauses. For example,
the terms of Article 4, paragraph 1, referring to the "maintenance
of strategically important assets, activities and skills"
allows for the protection of national capabilities rather than
encouragement of cross-border competition. The effectiveness and
fairness of this will depend on all signatories agreeing upon
a similar "interpretation". This issue will be of particular
concern to UK SMEs that seek the most open possible market.
The Preamble refers to the 1997 Agreement on
the restructuring of the aerospace and defence electronics industries.
It is worth noting that the latest Agreement is likely to be more
problematical and cause greater concern than the first amongst
the excluded, smaller nations of Europe which, whilst not having
viable aerospace and defence electronics sectors, have a significant
defence industrial capability in more traditional areas: shipbuilding,
armoured vehicles, ammunition, etc. We are also concerned at the
thesis that this will "contribute to the construction of
a common European security and defence policy" and would
prefer the concept of an "identity within NATO" rather
We welcome the recognition that the creation
of transnational Defence Companies (TDCs) is a matter "for
industry to determine" but note that the creation of BAE
SYSTEMS and EADS has already reduced the significance of the Agreement
for the United Kingdom. Of equal, and possibly greater importance
for us, could be the Declaration of Principles with the US.
We are particularly interested in the articles
in Part 3 relating to Export Procedures. Article 13 is significant
in proposing the creation of a list of "permitted export
destinations" for co-operative armament programmes. This
seems directly to conflict with current UK Strategic Export Control
policy, which requires that all exports are considered on a case-by-case
basis. We have pressed Government, unsuccessfully, for some time
to establish permitted destination lists for a wide range of defence
exports. We believe that UK policy here should be consistent.
We would, of course, welcome any outcome of the Agreement that
simplified the transfer of defence equipment between the Party
We have been and remain concerned about Article
34 with regard to "juste retour". A similar proposal
to seek a "global" rather than an "individual"
project return, has been made for the operation of OCCAR. We advocate
the elimination of "juste retour" in principle and are
not persuaded that the concept of a "global" return
can be sensibly policed or achieved.
Article 37, relating to the transfer of technical
information could, if wholeheartedly pursued in Europe, risk the
willingness of the US to share technology with the UK in cases
where they would not wish it to be divulged elsewhere.
Article 39 refers to the disclosure of Government-owned
technical information in relation to the creation of a TDC. Much
of this information resides in DERA (soon to be privatised) or
is jointly owned by Government and Industry. Industry would wish
to see mechanisms put in place to protect its own IPR and make
provision for the protection of all UK information in the event
of a TDC subsequently failing or being broken up. We accept that
these concerns are mitigated by the clauses of Part 8 concerning
the Protection of Commercially Sensitive Information. All these
clauses imply, however, the creation of a significant bureaucracy
and bureaucratic process to monitor, police and control them.
This will not be welcome for industry.
We have long advocated greater Harmonisation
of Requirements in Europe (Part 7) but here, more than in any
other section of the Agreement, there should be clear reference
to the NATO context. European requirements must be compatible
and inter-operable with those of the non-EU NATO nations.