12 European Defence Procurement
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COM(05) 626
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| Commission Communication: Results of the consultation launched by the Green Paper on Defence Procurement and on the future Commission initiatives and Annex
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| Legal base | — |
| Document originated | 6 December 2005
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| Deposited in Parliament | 18 January 2006
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| Department | Defence |
| Basis of consideration | Ministerial letter of 13 July 2006
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| Previous Committee Report | HC 34-xxiii (2005-06), para 10 (29 March 2006); also see HC 42-xxxvii (2003-04), para 3 (17 November 2004)
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| To be discussed in Council | To be determined
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| Committee's assessment | Legally and politically important
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| Committee's decision | Cleared
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Background
12.1 The Commission's September 2004 Green Paper is one of the
outcomes of its May 2003 Communication, "European Defence
— industrial and market issues — towards an EU defence
policy", which aimed to improve the EU regulatory framework
so as to promote a robust, internationally competitive Defence
and Technological Industrial Base. The previous Committee cleared
that Communication in June 2003,[40]
noting the Government's commitment to promoting a non-interventionist
model and to overcoming the obstacles to effective market access
overseas.
12.2 That Communication also foreshadowed the establishment of
the European Defence Agency (EDA), which the previous Committee
considered on several occasions and which was ultimately debated
in European Standing Committee B in 2004.[41]
12.3 The Commission described its Green Paper as its contribution
to "the gradual creation of a European Defence equipment
market (EDEM) which is more transparent and open between Member
States and which, whilst respecting the sector's specific nature,
would increase economic efficiency". It described moving
towards a truly European market as "crucial towards strengthening
the competitiveness of European industry, improving the allocation
of defence resources and supporting the development of the Union's
military capabilities under the European Security and Defence
Policy". Having examined the nature of the EDEM and various
earlier attempts at introducing greater openness and competition,[42]
the Commission floated two proposals:
- clarifying, by way of an Interpretative Communication, the
existing legal framework, including the identification of the
types of contract that fall within the scope of Article 296 EC
(which allows Member States not to apply EC procurement rules
under specified national security conditions); and
- examining the desirability of 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 co-ordinate defence procurement
procedures in cases where Article 296 EC is not applicable, with
new, flexible (but not otherwise defined) EU-wide rules that would
take into account the specific nature of the defence sector.
12.4 In a letter and Explanatory Memorandum of 27 October 2004,
the Government said that it had put forward a "Non-Paper"
in which it had outlined a third, and its preferred, approach,
which it had worked up in close consultation with the National
Defence Industry Council — a voluntary Code of Conduct,
supervised by the EDA and relying on peer pressure against Code-breakers.
The then Committee endorsed this. But, recognising the difficulties
of reconciling enhanced transparency and greater open competition
with the inevitable constraints resulting from fundamental considerations
of national security, it also recommended the Green Paper for
debate in ESC B, before the Government concluded its detailed
response to the Commission consultation. That debate took take
place on 8 February 2005.[43]
Commission Communication
12.5 We considered this latest Communication, which is the Commission's
report on that consultation and presents the actions it now intends
to take, on 29 March. Having now completed the consultation, the
Commission continued to advocate both proposals, each of which
it said would be subjected to an RIA. In his covering Explanatory
Memorandum, the Minister for Defence Procurement (Lord Drayson)
gave a cautious welcome to the notion of an Interpretative Communication
(IC), provided Member States were consulted on the text, and expressed
a preference for seeing the impact of the IC and the EDA Code
of Conduct before proceeding with a Directive; but if the Commission
were to go ahead, he said that the Government "would aim
to participate actively in the preparatory work to ensure that
the regulation is as helpful as possible".
12.6 Although this might have suggested that we should have cleared
the Communication and awaited Commission proposals, we noted that
the Commission itself found it very hard to sum up their findings:
there was clearly no widespread support for a new Directive; still
the Commission proposed to press ahead, even though it was no
more able than it was 18 months ago to describe it other than
in generalities, and notwithstanding the arguments against it
put forward by some of those consulted, whom it did not identify,
and whom it oddly referred to, as if this somehow devalued them,
as being "widely differing".
12.7 We also found the Minister's somewhat half-hearted response
surprising, as it contrasted strongly with the position taken
by the Minister for the Armed Forces during the debate on the
EDEM:
"we do not believe that the benefits that might result
from introducing a specific defence procurement directive are
sufficient to offset the drawbacks. In particular, an additional
regulatory burden on top of those already in place is unlikely
to support our aim of making defence markets more effective and
efficient. We do not, therefore, support the development of a
new directive at this time".[44]
12.8 We therefore asked the Minister — since it did not
emerge from either the document or the EM — why the Government
now apparently found the case for a Directive more compelling
than it did last February, and why it did not instead insist —
all the more so now that the EDA Code of Conduct had been agreed
— that the Commission concentrated in the first instance
on an Interpretive Communication, instead of tying up its own
and Member State resources for what was likely to be several years
on a proposal that it could not properly justify at this stage,
and for which there was no Member State or industry demand. And
in the meantime, we kept the document under scrutiny.[45]
The Secretary of State's letter
12.9 In his letter of 13 July 2006, the Secretary of State for
Defence (Mr Des Browne) responds as follows:
a. "The Communication is a report of consultation
and contains no specific proposals either for policy or legislation.
The EM was intended only to alert your Committee to the range
of issues being considered by the European Commission, not to
provide analysis of what the Committee correctly assesses to be
a series of disparate findings.
b. "Our position on a Defence Directive
has not changed. The case now is no more compelling than it was
in February 2005. We do not support the development of a Defence
Directive at this time. Nor do we have a reason to believe that
the Finnish Presidency plan to bring the issue before the Council,
and we do not expect to have to engage on a proposal soon. The
expectation is that a first draft would not be ready to issue
until the second half of 2007. Despite these factors and our present
position, it would be imprudent absolutely to rule out change
in the light of possible future developments, some of which could
result from a tauter definition of the limits of Article 296,
which we expect to see in the Interpretive Communication.
c. "The Commission's priority is to issue
its IC on Article 296 (probably later this year), work which we,
and UK industry, welcome. There is no need to insist on reprioritisation
by the Commission; rather we intend to monitor progress and work
constructively with the Commission without commitment to support
the adoption of a Directive at Council".
Conclusion
12.10 We are puzzled by the first of the Secretary
of State's comments. Many Communications contain no specific proposals
for legislation, but are nonetheless of interest to the House
because they discuss policy — as, contrary to what he says,
does this one, since it examines different approaches and clearly
hankers after the one, despite a lack of support for it.
12.11 We are nonetheless grateful to him for this
clarification of the Government's position, which would appear
to be to go along with the development of a draft Regulation,
although it sees no case for this, because, when it finally emerges,
it might be better than it presently seems.
12.12 In the meantime, we look forward to scrutinising
the Interpretive Communication, which we may wish to discuss with
the Minister in due course, given the crucial importance of a
competitive UK and European defence industry.
12.13 We now clear the document.
40 (24451) 8484/03; see HC 63-xxiii (2002-03), para
22 (4 June 2003). Back
41
Stg Co Deb, European Standing
Committee B, 22 June 2004, cols. 3-24. Back
42
Which is set out in detail in our consideration of the Green Paper:
see headnote. Back
43
Stg Co Deb, European Standing
Committee B, 8 February 2005, cols. 3-26. Back
44
OR, 8 February 2005, col 5. Back
45
See headnote. Back
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