22 AN EU DEFENCE EQUIPMENT POLICY
(24451)
8484/03
COM(03)113
| Commission Communication: European Defence - Industrial and market
issues - towards an EU Defence Equipment Policy.
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| Legal base | —
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| Document originated | 11 March 2003
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| Deposited in Parliament |
24 April 2003 |
| Department | Ministry of Defence
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| Basis of consideration |
EM of 15 May 2003 |
| Previous Committee Report |
None |
| To be discussed in Council
| 19-20 May 2003 GAERC |
| Committee's assessment | Politically important
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| Committee's decision | Cleared but relevant to any debate on the EU's defence capabilities
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Background
22.1 The European Councils in 1999 gave new impetus to
the European Security and Defence Policy (ESDP), defining a headline
goal to develop the EU's military capabilities so that, by 2003,
the Member States would be able to deploy and sustain forces capable
of the full range of Petersberg tasks,[43]
as set out in the Amsterdam Treaty. Since then, the European
Capability Action Plan (ECAP) has been drawn up to speed the process
of filling the capability shortfalls.
22.2 In 1996 and 1997, the European Commission
produced two Communications intended to encourage an efficient
European defence equipment market.[44]
Some proposals and action followed, but, in principle, the Commission
says, the Member States considered action at the European level
to be premature. However, in a Resolution of 10 April 2002, the
European Parliament invited the Commission to address the issue
of armaments in a new Communication.
The Communication
22.3 Not only are absolute levels of spending
by the EU Member States as a whole less than half of those of
the United States, but also the yield on their expenditure is
much less. According to the EP Resolution noted above, the real
military capability of the EU Member States is estimated to be
about 10% of that of the US. The Commission argues that "it
is crucial for both civil and defence sectors of the economy that
[the EU] creates an environment in which European companies can
give better value for money". Recognising the complexities
of the issue, the Commission notes:
"Cost efficiency of defence spending, the
maintenance of a competitive defence and technological industrial
base, better access for EU manufactured goods to third markets,
ethics and fairness in the arms trade, security of supply, and
also the need to respect Member States prerogatives in this sensitive
area are all important considerations when defining an EU armaments
policy".
22.4 For multinational military bodies such
as Eurocorps, Eurofor and Euromarfor to be efficient, the highest
degree of interoperability of armaments is required. A European
defence industry, which is able to survive successfully and support
the ESDP, will depend on consolidation as well as transatlantic
partnerships. In the Commission's view, the regulatory framework
is so fragmented that it limits the ability of companies to adjust
and "pushes them towards strategies and alliances which put
the Union in a disadvantageous position". One key contribution
which it can make is to improve the quality of that framework
and that is the purpose of this Communication on Europe's "Defence
Technological and Industrial Base" (DTIB).
22.5 Having reviewed the regulatory framework,
the market situation and the policy context in which Europe's
defence industry operates, the Commission concludes that the conditions
are not right for it to provide, cost-effectively, what the ESDP
requires. The EU must create for itself a more robust, internationally
competitive, Defence Technological and Industrial Base.
22.6 The Commission's long-term vision is
for a genuine European defence equipment market. It identifies
a number of measures to that end, which it proposes to undertake
without delay. It sets these out under seven headings:
Standardisation
- Both manufacturers and public
authorities, in particular Ministries of Defence (MoDs), will
benefit from a common work of reference on standards. These should
be consistent with those of NATO. A Defence Standardisation Handbook
is being drawn up on a voluntary basis by various stakeholders,
including MoDs and the industry, which will contain references
to standards and standard-like specifications commonly used to
support defence procurement contracts. The Commission expects
the first operational version to be ready by the end of 2004 and
hopes it will subsequently be given formal status. Once approved,
it would be used systematically in defence procurement contracts.
Monitoring of defence-related industries
- Data available from various
sources, including EUROSTAT, will be used for new monitoring activity.
Intra-Community transfers
- At present these transfers
involve a lot of red tape and are time-consuming. Procedures
such as individual licences for firms, import/export licences,
checks on delivery and, in some cases, end-user certificates,
apply equally to transfers to Member States and to non-Member
countries. The Commission will make an impact analysis to establish
whether there would be value in Community-level legislation.
Competition policy
- The Commission will reflect
on the application of competition rules in the defence sector,
taking into account the specific characteristics of the sector
and the provisions of Article 296 EC, which concerns products
with military purposes and Article 87 EC on state aids. It recognises
the need to assess the impact of developments such as recent complex
cross-border mergers and to ensure that there is greater clarity
for governments and the industry. It will also study further
the effects of public financial support, particularly where companies
manufacture military and non-military products, where there is
a need to ensure that there is no cross-subsidisation.
Spending better in defence procurement
- The Commission will issue an
Interpretative Communication on the implications of recent European
Court of Justice judgements on defence procurement and will work
on a Green Paper, to be issued in 2004, which will seek agreement
on procurement rules to be applied to defence goods.
Export control of dual-use goods and technologies
- The Commission considers that
it needs to become more involved in the various export control
regimes so that it can coordinate the positions of the Member
States in these regimes more effectively. While supporting the
central objective of the security of EU citizens, it would also
look at the functioning of the single market and the economic
interests of a variety of civil industrial sectors.
22.7 Under the heading Towards a more
coherent European advanced security research effort, the Commission
says that the establishment of the European Research Area demonstrates
that the EU and the Member States could derive greater benefits
from national research programmes if they were better coordinated.
The same is true of advanced security-related research. It will
ask national administrations, the business community and research
institutions to identify what they believe should form part of
a European agenda for advanced research in this area. It proposes
to launch a pilot project to evaluate the conditions and arrangements
needed for effective cooperation between national research programmes
relating to global security, carefully selecting a few subjects
where advanced technology is used. It will be looking in particular
for applications which could be useful for carrying out Petersberg
tasks.[45]
An EU Defence Equipment Agency
22.8 The creation of such an agency was
foreseen some years ago, but this year it has been endorsed more
emphatically. It received support in the Franco-British declaration,
issued after the summit in Le Touquet on 4 February 2003, and
the Brussels European Council of 21-21 March invited the Council
to consider the creation by the Council of an inter-governmental
defence capabilities development and acquisition agency. The
Defence Working Group of the Convention on the Future of Europe
has also recommended that it should be created on an intergovernmental
basis and has recommended that it should deal with armaments and
strategic research.
22.9 The Commission notes that a number
of Member States have established joint procurement and research
initiatives, including "ad hoc" agreements such as the
Letter of Intent (LoI) and its Framework Agreement aimed at industrial
restructuring[46] and
the Joint Armaments Cooperation Organisation, known as OCCAr.[47]
The Commission takes the view that any EU initiative should build
on this base. An "EU Defence Equipment Framework" should
be created which would be supervised by an Agency and should include:
- collaborative programmes,
progressively associating countries that wish to join under OCCAr
rules;
- research and technology,
with the possibility of a European Defence Advance Research Project
Agency being created in the longer term; and
- off-the-shelf procurement.
The Commission comments that it is time that this issue was addressed
at European level.
22.10 The Commission says that any Agency
that oversees this framework should reflect the political choice
of the Member States that much of this work should continue to
be conducted outside the EC Treaty, but it would be sensible to
draw upon Community mechanisms and financial instruments. Member
States may decide to develop some central financial mechanism
to ensure that those with disproportionately small national defence
budgets nevertheless contribute their fair share to EU capacities.
22.11 On the question of security of
supply, the Commission notes that mutual dependency between
nations already exists. Even where a nation procures from national
suppliers, most complex equipment includes components from non-domestic
sources. By moving to an EU-wide approach, governments could
avoid keeping non-competitive excess capacity and enjoy other
benefits from diversifying sources of supply, for instance a
reduction in dependency on any single country, such as the US,
for supplies.
22.12 By opening trade in defence
products to foreign markets, such as that of the US, EU defence
industries will be able to maintain and develop their design expertise
and competence in the most advanced technologies.
22.13 The Commission recalls that the Council
adopted a Code of Conduct on arms exports in 1998. The ideas
developed by the LoI signatories should serve as a basis for future
EU rules in this area.
The Government's view
22.14 The Secretary of State for Defence
(Mr Geoffrey Hoon) comments at some length on the subsidiarity
implications as follows:
"The Commission recognises that capability
development and defence equipment demand is an issue for the Member
States, while defence equipment supply is primarily a matter for
the industry itself to resolve. It also acknowledges that the
defence industry has many unique characteristics, justifying government-defined
dispensations to general EC market rules. These are covered in
Art. 296 TEC.
"The Commission sees its own role in improving
the regulatory framework of the defence industry as part of its
broad industrial policy responsibility (articulated in a Communication
of 16 December 2002).[48]
It also places its Communication in the context of its responsibility
to contribute to the Lisbon goals of making the EU the world's
most competitive and dynamic knowledge-based economy by the end
of this decade, whereby defence is a particularly important area.
The question of competence could arise if the Commission
were to pursue some of the action points it identifies in the
domain of regulation in relation to procurement rules, transfer
of defence goods, security of supply, and non-proliferation regimes.
In the domain of research, there is a potential for overlap between
the Commission's future research programme on "global security"
and some UK national defence programmes, but we need to await
more information to know whether this is the case. The Commission's
suggestion that its experience in running common civilian defence
programmes could be enlisted at the service of European defence
research, also needs consideration".
22.15 The Secretary of State then comments
on the policy implications of the document:
"The Government shares the Commission's
goal of creating a more competitive European Defence Technological
and Industrial Base (DTIB) as a source of innovation, high-value
employment and an essential component in Europe's ability to deliver
the capabilities it needs for ESDP — and NATO — engagements.
The importance of cost-effectiveness in defence spending and
the maintenance of a competitive DTIB are priorities we pursue
in the UK (as expressed in the Governments' Defence Industrial
Policy launched in October 2002).
"In general terms, the Commission has correctly
identified the key factors for maintaining or improving the competitiveness
of the defence industry and it makes a number of suggestions that
might be helpful in achieving greater reciprocal market access.
While we support the Commission's aim of a genuine 'European
Defence Equipment Market', we will continue to promote a non-interventionist
model and remain committed to overcoming the obstacles to more
effective access to overseas markets.
"Many of the issues raised by the Commission
are relevant to the roles that the UK would see assumed under
a future European Capabilities and Acquisition Agency. The creation
of such an Agency is foreseen by the Draft Constitutional Treaty
published on 23 April 2003 (Part II, Art.19) under the title "European
Armaments and Strategic Research Agency. We will want to ensure
that any Commission initiative is compatible with our view of
the Agency and its objectives".
Conclusion
22.16 The General Affairs and External
Relations Council of 19 May gave further endorsement to this proposal,
welcoming the Communication and encouraging the Member States
and the Commission to work together in considering the relevant
proposals in it, including that of a defence capabilities development
and acquisition agency. [49]
22.17 We note
the Secretary of State's statement that the Government will continue
to promote a non-interventionist model and will remain committed
to overcoming the obstacles to more effective access to overseas
markets. We welcome the Commission's suggestion that Member
States may decide to develop some central financial mechanism
to ensure that those with disproportionately small national defence
budgets nevertheless contribute their fair share to EU capacities.
22.18 We now clear the document, but
it is relevant to any debate on the development of the EU's defence
capabilities.
43 Petersberg Tasks include humanitarian and rescue
tasks, peace-keeping tasks and tasks of combat forces in crisis
management, including peacemaking. Back
44
Not deposited. Back
45
Petersberg tasks include humanitarian and rescue tasks, peace-keeping
tasks and tasks of combat forces in crisis management, including
peacemaking. Back
46
The Letter of Intent, and its Framework Agreement include six
countries namely: France, Germany, Italy, Spain, Sweden, and the
United Kingdom.Its aims at facilitating the industrial restructuring
process. Back
47
The acronym is taken from the French Organisme Conjoint de Coopération
en matière d'Armement.It includes France, Germany, Italy,
and the United Kingdom.It aims at improving the management of
co-operative programmes. Back
48
Presumably the Commission Communication of 11 December 2002 Industrial
Policy in an Enlarged Europe;(24150) 5078/03 and ADD1; see HC
63-xv (2002-03), paragraph 15 (19 March 2003). Back
49
Council Number 9379/03 (Presse 138), paragraphs 12,13 and 14. Back
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