Select Committee on Defence Appendices to the Minutes of Evidence


Memorandum from Perkins Engines Company Ltd (24 November 2000)

  Thank you for your letter of 3 November 2000 and the attached copy of the Framework Agreement, which I have read with interest. I believe that the measures proposed within the agreement carry both benefits and risks for British defence companies, and I am grateful to the Committee for the opportunity to articulate my views.

  The aims expressed by the Parties are, of course, laudable and if they could be achieved in full, they would permit a rationalisation of defence procurement that would benefit both the taxpayer and industry. While the former would appreciate the economic benefits of a procurement system which made most effective use of the combined research and technology and manufacturing capability of the states involved, the latter would welcome the truly level playing field on which it could compete for defence orders. With the current level of over-capacity in the European defence industry, rationalisation of the kind proposed in the Framework Agreement makes sound economic sense. In fact, the recognition, in Article 4, of the likely consequences of industrial restructuring is somewhat tardy, bearing in mind that Transnational Defence Companies (TDCs) have been forming at an ever increasing rate over the last 10 years. The abandonment of national industrial capacity, and the consequent acceptance of mutual dependence, has already started, and it is easy to make the economic case to support the trend.

  However, different states have, not surprisingly, adopted different attitudes to such transnational restructuring. Those with a largely privatised defence industrial base which stands or falls on its commercial success have, generally speaking, taken a laissez-faire view, encouraging restructuring but accepting no financial responsibility for the consequences. Those with a defence industry still largely in state ownership have been more protective, expressing support for transnational co-operation but still insisting upon the involvement of national assets even when the economic case is questionable. The search for simplified and harmonised rules and procedures mentioned in Article 6 is to be commended, but an unimpeded Transfer of Defence Articles and Defence Services is likely to remain unachievable despite this Agreement.

  One is also tempted to express doubts whether effective and timely consultation between the Parties (Article 7) will actually resolve any industrial issues. National interest is rarely sacrificed on the altar of collaborative venture, and the fact that the freedom of TDCs to distribute industrial capabilities according to economic logic is actually subject to the willingness of the Parties to relinquish their right to retain certain defined key strategic activities on national territory, whilst understandable on political grounds, does not bode well for transnational ventures.

  Parties with a large financial stake in their indigenous defence industry may be prepared to bear the full cost of the reconstitution of national key strategic activity (Article 8). However, it must be considered unlikely that those which do not have such interests including the United Kingdom, would commit public funds to such reconstitution.

  The spirit of enhanced co-operation in times of emergency (Article 10) is to be welcomed, but past experience indicates that while one Party may consider that it is facing an emergency, another may, due to reasons of perception or political expediency, choose to disagree and to obstruct rather than facilitate co-operation of the kind envisaged.

  The effective introduction of the proposals in Parts 3-6 of the Framework Agreement would, undoubtedly, be of benefit to the European defence industry as a whole. However, it may be less easy than is apparently foreseen for governments to encourage defence companies to share research and technology activity and technical information. Moreover, an agreement on export policy will be difficult to achieve in the light of the inevitable differences of opinion between Parties as to what should constitute a permitted Export destination.

  Whilst the Parties may recognise the need to harmonise the military requirements of their armed forces (Part 7), the achievement of anything approaching the envisaged level of conceptual and doctrinal commonality must be considered to be highly unlikely. The constitution of "European" military forces will certainly meet the requirements of certain operations, but it remains a fact that Parties have and will continue to have other military commitments. The capabilities required to meet these commitments will continue to be cited by Parties as a justification for separate procurement, normally from indigenous sources.

  The above observations notwithstanding, it is my opinion that the Framework Agreement constitutes a sound basis upon which to take forward the process of European defence industry rationalisation. However, the governments involved, particularly those of the Parties which lack the leverage that comes with public ownership, should not expect that commercial advantage will easily be relinquished by their defence companies. Simplified and harmonised rules are to be welcomed, but regulation that is perceived to be inequitable is not.

  Thank you again for the opportunity to comment on the Framework Agreement.

previous page contents next page

House of Commons home page Parliament home page House of Lords home page search page enquiries index

© Parliamentary copyright 2001
Prepared 14 February 2001