Letter of Intent-Framework Agreement
INTRODUCTION
1. The Letter of Intent (LoI) concerning
"Measures to Facilitate the Restructuring of European Defence
Industry" was signed on the 6 July 1998 by the Defence Ministers
of France, Germany, Italy, Spain, Sweden and the United Kingdom.
The LoI resulted in the signature of a Framework Agreement (FA)[2]
on 27 July 2000.
STATUS OF
RATIFICATION PROCESS
2. The FA states that it shall enter into
force between the first two nations to deposit their instruments
of ratification 30 days after receipt of the second instrument
and enter into force for the other remaining nations 30 days after
receipt of their instruments. Details of the deposit of the instruments
of ratification are shown below.
| State | Date of Deposit of Instrument of Ratification
|
| United Kingdom | 14 March 2001
|
| Germany | 19 March 2001
|
| France | 27 March 2001
|
| Sweden | 6 April 2001
|
| Spain | 12 July 2001
|
| Italy | (Pending)
|
3. Thus the FA came into force for the United Kingdom
and Germany on 18 April 2001. It has entered into force for all
LoI nations except Italy who has observer status for the time
being. Italy should complete its ratification process very soon.
Until the ratification process in the Italian Parliament is complete,
Italy has indicated that it will not sign the Implementing Arrangements
(IAs) that contain the negotiated provisions to implement the
FA. Neither can any non-IA measure already implemented (eg on
Security of Information) apply to Italy.
FA IMPLEMENTATION
4. An Executive Committee (ExCo) composed of senior officials
is, inter alia, responsible for exercising executive level oversight
of the FA. Six sub-committees (SCs) were created by the ExCo to
implement the six areas of the FA and they have negotiated provisions
to implement the FA requirements. The SC dealing with Security
of Information has agreed Procedural Guidelines to implement its
part of the FA. The five other SCs have negotiated IAs in the
form of Memorandum of Understandings. What follows represents
progress in each area.
SECURITY OF
SUPPLY
5. Work so far in implementing the FA in this area has
concentrated on drawing up measures in a Security of Supply IA
to:
(a) facilitate co-operation in the regulatory process
for mergers and acquisitions, where appropriate, to facilitate
the restructuring of European defence industry;
(b) facilitate the opening of defence equipment markets
for the benefit of the LoI nations and their defence industries;
(c) establish procedures for the maintenance or reconstitution
of key strategic activities;
(d) facilitate the prioritisation, acceleration or expansion
of production of defence articles to meet the requirements of
the LoI nations; and
(e) establish the general procedures for consultation
on security of supply.
6. The English text of the Security of Supply IA has
been finalised and its translations into French, German, Italian,
Spanish and Swedish are currently being verified. The IA signature
process should begin in the very near future. This will allow
MoD to start negotiations with UK Industry on a Code of Practice
on Defence Industry Restructuring and a Code of Conduct and Contractual
Conditions for Prioritisation of Supplies.
The potential impact of the new arrangements can be summarised
as follows:
(a) increased security of supply for MoD and UK Industry
when procuring from the other LoI nations;
(b) improved ability to address the implications for national
security of any proposed industrial restructuring in Europe;
(c) enhanced attractiveness of UK Industry when competing
for contracts from the other LoI nations where security of supply
is an important consideration; and
(d) greater reciprocal access to other LoI nations' markets.
EXPORT PROCEDURES
7. The English version of the IA on Transfer and Export
Procedures has been agreed between the LoI nations. Once final
verifications of its respective translations are complete, the
signature process will start hopefully next month. Notwithstanding
this, the UK, during 2002, completed the internal administrative
procedures necessary to enable the granting of Global Project
Licences (GPLs). The GPL is a single national licensing instrument
that controls all transfers related to a national military requirement
or an approved armaments programme by two or more LoI nations
or their industries. The first application for a GPL was received
towards the end of 2002, with the subsequent licence being issued
in early 2003. This will be included in the information on licensing
decisions and exports published in the Strategic Export Controls
Report issued annually by the Government. The next report covering
exports in 2002 will be issued in July 2003.
8. The granting of GPLs should have the effect of reducing
the burden on industry in applying for individual licences and
on the licensing authorities in processing individual licences
that are required for licensable military and dual-use goods required
for co-operative armaments or joint development and production.
The reduction is currently not quantifiable; it is dependent on
the take-up rate by industry in all six LoI nations.
SECURITY OF
INFORMATION
9. All of the measures identified in Part 4 of the FA
concerning Security of Information to remove unnecessary restrictions
by streamlining processes for the movement of information and
personnel have been implemented between the LoI nations except
Italy. Procedural Guidelines have been drawn up and agreed in
lieu of an IA to record the operating process of the security
measures.
10. The Security of Information measures introduced in
October 2001 streamlined the visit process to government and industrial
sites that involve classified information. These new procedures
reduced the time to process visit notifications from three weeks
to one day. The approval to utilise un-cleared Commercial Courier
companies for the transmission of Confidential material in exceptionally
urgent cases has significantly reduced the time and cost of transmitting
such material. With regard to the electronic transmission of RESTRICTED
information using "commercial type" encryption products,
the LoI nations have issued the list of national products approved
by each nation for such transmission, all nationally approved
products being mutually accepted by the other nations. The list
of products was promulgated to UK industry in March 2003.
RESEARCH AND
TECHNOLOGY (R&T)
11. An IA on R&T has been drawn up to formally establish
the terms of reference for a Group of Research Directors (GRD).
The presence of the GRD should enable a more formal top down approach
to European R&T to be adopted and regularly reviewed, with
the aim of better focussed use of scarce R&T resources. The
GRD also ensures the six Research Directors meet regularly, improving
the potential for cooperation and establishing an environment
in which real progress can be achieved. France, Germany, Spain,
Sweden and the UK have signed the IA. The IA also establishes
a code of conduct in order to improve the relations between nations
and industry in this field of defence related R&T.
12. Notwithstanding the negotiation of the IA, the GRD
started its work and launched at the end of 2002 an information
exchange between Governments for R&T plans and projects. Two
exchanges have already taken place and it is planned to continue
these exchanges twice a year. The GRD has also identified areas
for R&T co-operation and created four temporary expert groups
to study co-operation opportunities in those fields, which are
due to report by this summer.
TREATMENT OF
TECHNICAL INFORMATION
13. The signature of this IA is expected to be achieved
this summer. Once the IA has been signed the LoI nations' standard
requirements for Intellectual Property Rights (IPR) and technology
transfer will be harmonised. The adoption of the harmonised requirements
could have a potentially major beneficial effect in international
cooperative programmes where previous practice has been to negotiate
technology transfer provisions from scratch for each programme.
Upon signature of the IA instructions will be issued that the
principles of the IA should be adopted for future cooperation
programme Memoranda of Understanding (MoU) thereby reducing the
time taken to complete MoU negotiations and hopefully leading
to quicker contract placement.
14. The draft IA is also proving useful in respect of
OCCAR where it is now being used as a the template for future
OCCAR contract conditions. There are also future initiatives
arising under the FA in this area including the possible harmonisation
of Research & Technology conditions and the streamlining of
filing procedures for classified inventions.
HARMONISATION OF
MILITARY REQUIREMENTS
(HMR)
15. The main purpose of this work is to identify potential
co-operative equipment opportunities at the earliest possible
stage by structured methodology to identify those opportunities.
In essence, the measures entailed construction of a capability-based
database and a six nation HMR Board (HMRB) to select potential
co-operative opportunities from within that database. The Head
of Capability Requirements (or equivalent) from each LoI nation
sits on the HMRB. Capability data has now been exchanged between
UK, France, Germany, Spain and Sweden and a first draft of the
consolidated master database has been constructed. Formal agreement
amongst the LoI nations to adopt the new methodology is set out
in the IA, which has been signed by all LoI nations expect Italy.
The first HMRB meeting is scheduled for November 2003.
UK/US Declaration of Principles
INTRODUCTION
1. The UK and US Defence Secretaries on 5 February 2000
signed a Declaration of Principles (DoP) designed to improve defence
industrial and equipment co-operation between the UK and US. The
arrangement envisaged that UK firms doing business in the US should
be treated no less favourably than US firms doing business in
the UK. Progress on the negotiations initiated by the DoP is set
out below.
HARMONIZATION OF
MILITARY REQUIREMENTS
2. Following the signing of the Harmonisation of Military
Requirement Memorandum of Understanding (MoU) in February 2001,
a number of meetings took place between MoD and US DoD to establish
a clear and achievable programme of work to identify potential
opportunities for harmonisation of capabilities requirements,
which have the potential to develop into co-operative programmes.
Agreement was reached in October 2001 to concentrate on seeking
equipment co-operative opportunities in the following high priority
areas:
(a) Combating Global Terrorism.
(c) Joint Deployable Command and Control.
(d) Suppression of Enemy Air Defences.
(e) Chemical and Biological Protection.
3. Bilateral considerations continue though higher military
priorities, particularly in the US, have meant that progress has
been slower than originally envisaged.
MEETING NATIONAL
DEFENCE REQUIREMENTS
4. On 9 April 2002 the Chief of Defence Procurement and
his US counterpart signed Amendment No 1 to the US/UK Defence
Equipment Co-operation MoU affixing Annex VI on Meeting National
Defence Requirements (Security of Supply). This contained new
procedures to streamline requests and authorisation of support
under the US DPAS (the US Defense Priorities and Allocations System)
for contracts placed in the US by both the MoD and British Industry.
5. MoD reciprocates this support by means of a MoD/UK
Industry Code of Conduct, which was signed by Deputy Chief Executive
of the Defence Procurement Agency and the Secretary of the Defence
Industries Council on 4 July 2002. This Code creates a system
known as UK DPAS (the UK Defence Priorities and Allocations System).
UK defence companies that subscribe to this Code will accept US
contracts rated under US DPAS as "UK DPAS contracts".
They are committed to perform such contracts on a preferential
basis, where requested to do so by the US DoD. Any ensuing sub-contracts
placed in the US will be rated under US DPAS, when authorised
to do so by the US Department of Commerce to create a seamless
arrangement for the US.
6. UK Industry was fully consulted during the negotiations
of the new Annex and Code of Conduct. The new arrangements on
Security of Supply were advertised to Industry through the MoD
Contracts Bulletin. Membership of the Code of Conduct is voluntary.
Several companies have confirmed that they are content to join
UK DPAS while others are close to doing so. When the recruitment
phase is complete these arrangements will enable both Governments
and Industry to have increased confidence and assurance on Security
of Supply in both directions. It should also enhance the attractiveness
of UK Industry in US DoD procurements, as Annex VI specifically
states "In those US source selection evaluations where
security of supply is an important issue, membership in the system
will be a positive consideration during the source selection deliberative
process."
EXPORT PROCEDURES
7. Lord Bach, Minister of State for Defence Procurement,
wrote to the Chairman of the House of Commons Defence Committee
on 21 May 2003, informing him that UK and US Government officials
had reached agreement on 16 May 2003 on proposed texts for an
unclassified International Traffic in Arms Regulations (ITAR)
waiver. The waiver once implemented will provide for US export
licensing requirements to be waived in respect of certain unclassified
defence items and technical data exported to HMG and qualified
companies in the UK. There remain legislative, regulatory and
administrative implementation measures to complete the undertakings
by the UK and US Governments.
INDUSTRIAL SECURITY
8. UK and US security authorities reviewed the Industrial
Security Annex to the bilateral General Security Agreement dated
April 1961 with a view to streamlining the process for approving
visits to government or contractors' facilities involving access
to classified information and to examine means to expedite that
transmission of classified information. This resulted in a new
Implementing Arrangement (IA) for operations between the MoD and
DoD, which was signed on the 27 January 2003 with full implementation
achieved on 1 April 2003. Both the UK and US security authorities
have issued instruction to their respective defence contractors
to promulgate the revision to security procedures.
9. The main benefit arising from the new IA is that advantage
has been taken of a recent change to US legislation to remove
the US Government oversight responsibility for the protection
of UK RESTRICTED information. This means that, as with RESTRICTED
contracts placed with UK companies, a risk management approach
is being adopted and the protective security requirements for
the RESTRICTED aspects of contracts will be included in the contract
document and be a contractual obligation.
10. A further benefit of the IA is that RESTRICTED and
UNCLASSIFIED visits to US defence contractors do not require the
approval of the governments and may be arranged directly between
the sending and receiving facilities. A commitment has also been
given by the US DoD to extend this procedure for visits to US
DoD facilities within two years. In respect of transmission of
classified information the security authorities agreed that UK
RESTRICTED information may be transmitted or accessed electronically
via a public network like the Internet, using government or commercial
encryption devices mutually accepted by the UK and US security
authorities. In reality this means that the DoD will accept any
encryption device approved by the MoD.
OWNERSHIP AND
CORPORATE GOVERNANCE
11. The UK and US security authorities incorporated Corporate
Governance within the above mentioned IA provisions. The IA ensures
reciprocity in the oversight and compliance of company board resolutions
in connection with the application of national Foreign Ownership
Control and Influence (FOCI) requirements, in particular associated
with companies owned by a third country.
RESEARCH AND
DEVELOPMENT
12. The UK and US have agreed that generating technologies
that both UK and US industries can access is a key common objective.
A review of our past bilateral collaboration has shown that it
has yielded some tremendous mutual benefit in terms of information
exchange and increased common understanding, but it has rarely
been aimed at producing technology that is available to our industries.
Indeed at present only 5-10% of our current co-operation leads
to technology that can be delivered to both industries. A review
of the Memoranda of Understanding under which the UK and US collaborate
on Science and Technology has been completed and indicates that
a number allow for industrial exploitation of research results
for "defence purposes" and, subject to agreement of
the participants, for non-defence purposes.
13. As existing Memoranda of Understanding already allows
UK and US Industry to exploit the results of joint research, the
next step is to establish a few collaborative projects specifically
aimed at generating technologies for both our industries to turn
into battle winning products. The UK has identified a number of
areas where the UK has programmes that are believed offer good
opportunities for such collaboration. The UK and US met in April
2003 to discuss how to take these proposals forward and how to
accelerate the process necessary to commence a collaborative activity
in order to move rapidly forward to the real issue of generating
and transitioning new, combat winning technology. Discussions
between nominated points of contact for each programme are now
ongoing.
TECHNICAL INFORMATION
14. Amendment No 2 to the US/UK Defence Equipment Co-operation
MoU was signed on the 24 Oct 2002 affixing Annex VII, which contains
provisions dealing with the resolution of problems relating to
flow of technical information and the formation of a trouble-shooting
Joint Technical Information Group. The potential benefits of the
arrangement include the following:
(a) The increased oversight and control of contracts placed
by the US DoD on behalf of the MoD with a right of review if the
provisions of the associated Memoranda of Understanding cannot
be met.
(b) The improved right to secure direct commercial sales
from US industry (as opposed to US Foreign Military Sales) together
with increased US DoD support.
(c) A requirement to ensure the equal treatment of UK
contractors in terms of the Intellectual Property Rights (IPR)
to be secured by the US DoD.
(d) The right to access US DoD owned information directly
from US contractors.
15. Annex VII attempts to deal with many of the problems
relating to the transfer of technology from the US and the lack
of opportunities for UK based contractors. The first meeting of
the Joint Technical Information Group took place on the 28 February
2003 at which the US promised to provide us with the text from
the software that they use to generate Memoranda of Understanding.
On export issues the US DoD agreed to review the latest Global
Project Authorisation (GPA) for the Joint Strike Fighter (JSF)
to ensure that all its provisions would be made available to MoD.
It was also confirmed that flexibility with regard to purchases
from the US using US Foreign Military Sales the UK could secure
the same rights as the US. Finally, the US DoD confirmed that
for the JSF the US would agree to collect levies on behalf of
the UK. The next meeting of the Joint Technical Information Group
will take place on 18 July 2003 and will follow up the various
commitments made by the US DoD and the MoD at the last meeting.
PROMOTING DEFENCE
TRADE
16. The UK and US have decided to summarise a number
of measures in a Government to Government Statement of Intent
(SoI), which is still under negotiation. The measures include:
(a) Ombudsman. The SoI includes a requirement for
US DoD and MoD to appoint ombudsmen and to establish procedures
to enable industry to appeal in cases where either nation is accused
of failing to consider fully qualified sources in each other's
country. The ombudsmen will also be charged with discussing and
clarifying issues related to understanding and complying with
procedures and requirements for reciprocal access. The system
will be introduced with the signing of the SoI.
(b) Acquisition Regulations, Policies and Instructions.
The SoI will require the US and UK to ensure that their respective
acquisition regulations, policies and instructions emphasise the
need for value for money and encourage full consideration of each
other's countries equipment. The US is in the process of a comprehensive
review of acquisition processes and is involving British Defence
Staff, Washington, in that review.
(c) Reciprocal Acquisition Training. The MoD's
Defence Procurement Management Training (DPMT) organisation has
been discussing how to expand its co-operation with the US Defence
Acquisition University (DAU). Some benefits have already materialised,
eg DAU presentations on DPMT courses. Other ideas are being pursued.
(d) Domestic Preference Requirements and Industrial
Participation (IP). Our aim here is to offer the prospect
of some relaxation of our IP policy on the basis of clear evidence
of greater market access for UK companies in the US market.
2
Publication reference: Treaty Series No.33; Cm 5185 (ISBN No.
0-10-151852-8). Back
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