House of Commons - European Scrutiny

Select Committee on European Scrutiny Thirty-Second Report

19 European Defence Agency

(27501)

—

Report by the Head of the European Defence Agency to the Council

Legal base —

Document originated 8 May 2006

Deposited in Parliament 18 May 2006

Department Defence

Basis of consideration EM and Minister's letter of 31 May 2006

Previous Committee Report None; but see HC42-xxii (2003-04), para 4 (9 June 2004) and HC42-xxxvii (2003-04), para 3 (17 November 2004)

To be discussed in Council 15 May General Affairs and External Relations Council (with Defence Ministers)

Committee's assessment Politically important

Committee's decision Cleared

Background

19.1 The Thessaloniki European Council in June 2003 tasked the Council with taking action to create an intergovernmental agency to develop defence capabilities for crisis management, to promote and enhance European co-operation on armaments, to strengthen the European Defence Industrial and Technological Base and to create a competitive defence equipment market. It should also promote research aimed at "leadership in strategic technologies for future defence and security capabilities, thereby strengthening Europe's industrial potential in this domain".[60]

19.2 We first considered this matter on 19 November 2003, when we cleared a draft Decision on the creation of an Agency Establishment Team (AET) to work on setting up the European Defence Agency (EDA). That draft Decision required the AET to submit proposals to the Council by the end of April 2004 on the administrative aspects of the Agency and its financial framework and a draft outline of its first operational programme.

19.3 In June 2004 we considered the draft Council Joint Action establishing the EDA. It set out:

how the Agency would perform its four key tasks — capabilities, armaments, defence industrial issues, and research;
staffing and organisational structure, including its relationship with existing European Security and Defence Policy (ESDP) bodies;
budgetary and financial rules;
arrangements for the establishment of ad hoc projects and budgets; and
the EDA's relations with the European Commission, third states and organisations and entities; like the Institute for Security Studies and the Satellite Centre — the other two bodies set up to support the Common Foreign and Security Policy — the Agency would have its own legal personality, independent of the Council Secretariat.

19.4 In his accompanying Explanatory Memorandum, the then Secretary of State for Defence said that the Agency would play a key role in rationalising and harmonising capability requirements under the EU capabilities development process, linking this directly to industrial and research efforts and thereby improving the military effectiveness of both ESDP and NATO. The Agency would be directed by a Steering Board of national Defence Ministers, as they would have the political authority, policy expertise and financial means to ensure that Agency recommendations were implemented by national governments. The Steering Board would act under the authority of the Council, which would issue guidelines and decisions by unanimity. The fact that the Agency Steering Board would make most subsequent decisions by qualified majority voting would help prevent its policy recommendations being held hostage to national hobby-horses; however, the UK had negotiated a reinforced "emergency brake" mechanism, which would allow any Member State to block a recommendation detrimental to key national interests. Projects would be identified and financed on an opt in or opt out basis, preserving the right to participate or not according to the UK national interest in each particular case.

19.5 He added that the Government attached great importance to the Agency working effectively with NATO, under the overall framework of co-operation and consultation between the EU and NATO, and also fully supported the establishment of such relations between the Agency and third states so as to enable them to take part in ad hoc projects and in substantial consultations. This was consistent with the Government's view that the activities of the Western European Armament Group and Western European Armament Union, whose membership included Turkey and Norway, should be gradually integrated into the Agency. We recommended it for debate in the European Standing Committee.[61]

19.6 During the debate, which took place on 22 June 2004, the then Secretary of State for Defence stated that the EDA's principal purpose would be to improve the military capabilities of Member States and would "not turn into a supranational body that dictates procurement decisions" or "force the UK to compromise the kit for our armed forces or to accept a 'fortress Europe' defence industrial policy". He said that it incorporated two key British proposals: the Secretary General/High Representative should head it, because "he has the political clout to cajole and prod Member States into making good on their commitments"; and it should be directly under the authority of Defence Ministers, who sit on the Steering Board. While QMV was appropriate for the Steering Board, which directs internal operations, unanimity was required for decisions relating to its role, including its work programme and budget, because they "affect the external activities and the military capabilities of member states".[62]

19.7 Later in 2004, we also considered the European Commission Green Paper on Defence Procurement, which was one of the outcomes of its May 2003 Communication, "European Defence — Industrial and market issues — towards an EU defence policy", the aim of which was to improve the EU regulatory framework so as to promote a robust, internationally competitive Defence and Technological Industrial Base. After examining the nature of the European defence equipment market and various earlier attempts at introducing greater openness and competition, the Commission floated two alternatives for the future:

an interpretative Communication, clarifying the existing legal framework, including the types of contract that fall within the scope of Article 296 EC (which allows Member States to deviate from EU procurement rules under specified national security conditions, and which appears to be interpreted and applied differently by individual Member States); and
adapting the EU's acquisition rules to take into account the specific characteristics that differentiate defence equipment acquisition from other forms of public procurement and bringing forward a new Directive to coordinate defence procurement procedures where Article 296 EC is not applicable.

19.8 In October 2004, the then Minister for Defence Procurement outlined the Government's preferred, third approach — a voluntary Code of Conduct, supervised by the EDA and relying on peer pressure against Code-breakers. Our predecessors felt that this would be consistent with the Government's overall approach, be quicker to agree and implement, be less of an imposition on industry and leave the Commission with no greater involvement than hitherto: either of the alternatives would be the opposite. They felt that the Code approach would arguably have a better chance in practice of succeeding than would a law-based regime, because those who are determined to interpret Article 296 EC (and any further rules or Directives) so as to exclude non-national suppliers would always find ways of doing so; also, the EDA, with a Board of 25 EU defence members, was likely to be more effective in clarifying the existing legal framework and identifying the types of contract that fall within the scope of Article 296 EC than the Commission would be.[63] The Green Paper was debated on 8 February in European Standing Committee B.[64]

19.9 At their informal meeting at Hampton Court in October 2005, EU Heads of State and Government noted the EU's rapid expansion in crisis management and its increasingly important role in the world. Following these discussions, the Presidency asked the Secretary General/High Representative, Javier Solana, to take work forward in four specific areas and to provide initial "orientations" for the December meeting of the European Council. With his 14 December 2005 to the Prime Minister, Mr Solana enclosed what he describes as "four short papers", whose approach is, he says, his own (though after consulting the current and incoming Presidencies and the Commission) and which cover the following areas:

— "improving our defence capabilities by increasing levels of research spending, finding opportunities for research collaboration, tackling capability gaps and collaborating as partners on training;

— "ensuring our crisis management structures can meet the new demands on them including for responding to natural disasters;

— "increasing CFSP funding, with a better way to finance civilian operations rapidly;

— "ensuring the EU is ready to assume greater responsibility in Kosovo and improving the coordination of EU action in the Balkans, especially on organised crime".[65]

19.10 The Government agreed with the House of Lords Select Committee on the European Union (in responding to its special report on the EDA) that it would deposit the Agency reports to the Council referred to in Article 4 of the Joint Action establishing the EDA — its May report on activities during the previous and current year and its November report on current year activity and "draft elements" of the work programme and budgets for the following year — and the Council's annual guidelines to the Agency that set the framework for its work programme.

The Head of the Agency's Report

19.11 The Head of the Agency's 10 May 2006 report to the Council therefore describes the activities that the Agency has been engaged in during the previous and current year. i.e., since the EDA's inception. The report highlights the work being carried out in the four "Flagships" (European defence equipment market, armoured fighting vehicles (AFVs), command, control and communication (C3) and unmanned air vehicles (UAVs)). It also highlights the Hampton Court-related activities on capabilities (strategic airlift and air-to-air refuelling) and research and technology (targets on R&T) as well as ongoing work on a long-term vision for European Security and Defence Policy capabilities. In view of its admirable brevity and clarity, we are attaching it to this Report.

The Government's view

19.12 In his 31 May 2006 Explanatory Memorandum, the Secretary of State for Defence (Des Browne) says that no new policy implications arise from this report and that "the UK will continue to engage positively with EDA to ensure that it is an effective tool in helping to improve military capability in Europe". He comments on the main features as follows:

FLAGSHIP PROGRAMMES

"On the European Defence Equipment Market flagship work is ongoing to implement the Code of Conduct on defence procurement. The UK has confirmed that it will subscribe to the Code, which will come into force on 1 July 2006. The UK also continues to work with the Agency on the other flagships (Unmanned Air Vehicle, Command Control and Communications and Armoured Fighting Vehicles) through the Integrated Development Teams, Project Teams and Capability Technology Boards. As specific projects are identified and defined within these groups MoD will decide on a case by case basis whether there is merit in UK participation.

STRATEGIC LIFT & AIR-TO-AIR REFUELLING

"The UK is encouraging pMS [participating Member States] to use the EDA as a facilitator to help find solutions to the current shortfalls in Air-to-Air refuelling (AAR) and strategic lift within Europe. On AAR the UK is already at an advanced stage with a national solution to this requirement. However, other pMS formed an ad hoc group, under the umbrella of the Agency, to look at PFI and other approaches to collective procurement of this capability. On Strategic lift the UK is encouraging pMS to work together so that nations can acquire capability that would be able to satisfy national requirements as well as their commitments to international institutions such as the EU, NATO and UN.

"A framework has been proposed, which aims to help nations work across institutions. It also puts forward a series of options which pMS could evaluate to understand which option could best suit their needs.

RESEARCH AND TECHNOLOGY

"Work to transfer the Western European Armaments Organisation (WEAO) portfolio is progressing well and an Administrative Arrangement between the Agency and Norway has been concluded. However, the UK is disappointed that an Administrative Arrangement with Turkey has not yet been concluded. We will continue to press for this to happen as soon as possible.

"Despite the slow emergence of new Category B ad hoc projects the UK is confident that more will be forthcoming as the Agency continues to develop and implement the required legal instruments that underpin collaborative working. UK and France have already put forward such a Category B project on lightweight radar systems. This project is being evaluated by other pMS within the Capability Technology Boards in order to gauge whether or not they too may wish to participate.

"Work is still ongoing to develop the vehicle for Joint investment in Defence R&T and separately an R&T programme of work in the area of Force Protection. Final proposals on both of these are expected by the end June. At that point the UK and others can decide whether to participate in this work.

"On the issue of defence R&T the UK has long argued that pMS within Europe spend too little on this important area. EDA figures bear this out, showing that on average less than 1.5% of pMS' defence budgets are spent on R&T. To help remedy this situation EDA have been exploring whether targets should be set for increasing the average spend on defence R&T. At the 15 May EDA Steering Board the UK put forward a realistic but challenging target to increase average spending on defence R&T to 1.75% of defence budgets by 2010 and suggested that this target should be disaggregated so that each pMS has a real impetus to boost spending in this area. However, there is as yet no consensus between pMS on this issue. The EDA will continue to develop this work further with pMS before putting forward further proposals.

LONG TERM VISION

"Work on the long term vision will be an important step to help agree the likely ESDP capabilities that will be required in the 2020-2030 timeframe. This will help to shape future work programmes so that pMS may, where appropriate, begin to work together to achieve shared objectives looking out beyond the 2010 timeframe of the Headline Goal. The Government therefore looks forward to receiving the EDA's initial report to the Steering Board following the integration of the three strands of work on the Long Term Vision.

FINANCIAL FRAMEWORK

"pMS will in the second half of this year begin to consider in earnest the medium term financial arrangements for the Agency. I believe, as my predecessor has previously commented, that the Agency should predominately be a catalyst for nations cooperating together, addressing shortfalls, on the basis of foresight and rigorous analysis. I do not believe that the case has yet been made for very large increases to the EDA's budget over the next 3 years. However, I will discuss this issue further with other pMS over the coming months with the aim of finding a mutually satisfactory outcome by the time of the November GAERC and Steering Board."

TIMETABLE

19.13 The Secretary of State says that the Council noted this report on 15 May. Looking ahead, he says that in November the Head of the Agency will submit to the Council a report on the Agency's activities in the current year and will provide information on the draft elements for the Agency's work programme and budgets for next year; and that the 3 year financial framework for the years 2007-09 and the 2007 budget for the Agency are due to be agreed by November 2006 General Affairs and External Relations Council and EDA Steering Board.

The Secretary of State's letter

19.14 As well as agreeing to deposit the Agency reports to the Council referred to in Article 4 of the EDA Joint Action, the previous Secretary of State has also written ahead of and after EDA Steering Board meetings. At our instigation these papers have also been copied to the Defence Select Committee, with a view to facilitating both the operation of the Agency and the development of European Security and Defence Policy, given the central contribution that the Agency is supposed to make to its future. The latest such letter and papers report the outcome of the EDA Steering Board on 15 May 2006, following his predecessor's 4 May 2006 "scene-setting" letter.

19.15 In our 8 May reply to that earlier letter, we noted that, thus far, the EDA's one concrete achievement was the Code of Conduct on Defence Procurement, which was designed to use discussion, agreement and peer pressure rather than new EU legislation — for which the Commission nonetheless continued to press, and towards which the present Minister for Defence Procurement seemed to be taking a more relaxed approach than that taken by the Minister for the Armed Forces in the European Standing Committee debate on the Commission Green Paper on the European Defence Equipment Market.[66] We also noted that the EDA seemed to be moving ahead on the R&T front in a way that his predecessor did not favour, his preference in a letter of last October having been for "the Agency to act as a market place, facilitating ad hoc groups of Member States working together, rather than itself facilitating significant R&T projects". We asked, in particular, how the Secretary of State saw the activities of the EDA in relation to the Government's Defence Industry Strategy, and whether it still subscribed to the quotation attributed to the Minister for Defence Procurement in the Financial Times in February, that the EDA needed to "learn to walk before it can run … [and] to show it can really add some value". We also noted that the involvement of the Commission seemed to be leading the EDA into temptation, as the previous Secretary of State noted in his letter, on the funding of civilian airlift for ESDP operations; if, as he rightly said, the Commission has no competence in ESDP, we asked how he saw this being avoided in future, given the funding problems to which the EDA refers, the pressure on national budgets and the challenges to ESDP aspirations noted in the Solana "orientations" presented to the Hampton Court meeting. Against this background, we said it would be useful if, in his Explanatory Memorandum on the Head of Agency Report, he were to give his view on whether it could be confidently said that, two years on, the EDA was shaping up in the way envisaged in the June 2004 debate.

19.16 The Secretary of State says:

"The EDA is a long term project and we are still in the relatively early stages of setting in place the processes by which it will help nations deliver capability improvements. The meeting on 15 May was my first engagement with the EDA but I believe it is broadly developing along the right lines. Lord Drayson and I are indeed of the opinion that, while it has a useful role to play in each of its main areas of activity, the EDA should not widen the scope of its activity too quickly or seek to launch too many new initiatives, but should, in the short term, focus on areas where it can add value, such as strategic lift.

"All participating Member States and the EDA itself recognise that capability development remains an intergovernmental process, although there are different views on how the EDA can best support nations. We and several other states continue to argue that the EDA should provide a mechanism that encourages and enables countries to cooperate bilaterally or multilaterally, investing their resources according to their own assessment of priorities. There is also a view that commonly funded projects would provide a better approach. We have not yet resolved the right balance between these two approaches.

"The UK will continue to support the EDA as it develops along the lines originally conceived and reflected in the Joint Action under which it was established. This approach is consistent with the Defence Industrial Strategy, as is demonstrated by the agreement on the Code of Conduct for defence procurement, which will help to open defence markets across participating Member States."

Conclusion

19.17 At our last meeting we considered the latest Presidency Report on European Security and Defence Policy and drew attention to the thoughts in the Solana "orientations" on the funding challenges it faces.[67] Also germane is a recent paper on European Security and Defence Policy by the Federal Trust,[68] which reviews the progress made thus far on the main aspirations of ESDP — the Helsinki Headline Goal,[69] the Headline Goal 2010[70] and the battlegroup concept[71] — and opines that "the most obvious obstacle derives from the relatively low overall level of military expenditure by the EU's member states", pointing out that "in 2004, the US alone spent more than twice as much on defence as all the EU member states combined". It also notes that defence spending "also varies unevenly among the member states. About 80 per cent of total EU spending and 98 per cent of military R&D expenditure are covered by the six most important arms-producing countries" — the UK, France, Germany, Italy, Spain and Sweden. The importance of an effective EDA is thus made all the more evident.

19.18 But there remain clear suggestions that there is still no unity of view on how it should operate, as evidenced by the ongoing debate to which the Secretary of State refers on its future financing and its approach to Research and Technology, and which is perhaps reflected in the concluding sentence, directed to the participating Member States, by the Head of the Agency: "The Agency is their instrument, and they must determine how they wish it to develop." Perhaps most important of all will be the forthcoming Long Term Vision.

19.19 We look forward to continuing pre- and post-Steering Board reports from the Secretary of State and to the November Head of Agency report, and the accompanying EMs setting out his views on these central issues, which are likely to have a crucial bearing on both the EDA's future and on making a reality of ESDP aspirations.

19.20 We now clear the document.

60 Presidency Conclusions - Thessaloniki, 19 and 20 June 2003, paragraph 65 (SN 200/03). Back

61 See headnote. Back

62 22 June 2004, Stg Co Deb, European Standing Committee B, cols 3-5. Back

63 See headnote. Back

64 8 February 2005, Stg Co Deb, European Standing Committee B, cols 3-26. Back

65 The so-called "Solana orientations" are available at http://ue.eu.int/ueDocs/cms_Data/docs/pressdata/EN/reports/87644.pdf. Back

66 See 8 February 2005, Stg Co Deb, European Standing Committee B, col 5. Back

67 (27564) HC 34-xxxi (2005-06), para 34 (14 June 2006). Back

68 http://www.fedtrust.co.uk/admin/uploads/PolicyBrief26.pdf. Back

69 A military capability target agreed in 1999 - of deploying 50-60,000 troops, capable of conducting the full range of "Petersberg Tasks" (the sort of crisis operations envisaged in Article 17.2 TEU), within 60 days, sustainable for up to a year, with air and naval support as necessary - to be achieved before the end of 2003. Back

70 Agreed in 2004, and focussing on the qualitative aspects of capabilities - interoperability, deployability and sustainability. Back