Defence and Security Procurement

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Mr. Davies: There has now been agreement on the security issue that in fact very much satisfies us, but the countries that were particularly pushing for this and that were our allies in this connection were Italy, Sweden, the Netherlands and Romania.
Mr. Burns: I think from that answer that there was a misunderstanding of the question. I was talking about not our allies, but those member states that opposed our position.
Mr. Davies: It follows from my answer that those I have not listed were either lukewarm or initially opposed, but they have decided to withdraw their objections, because as I have explained the directive as it has been currently brought forward is broadly satisfactory to us.
Dr. Murrison: On that subject, is the Minister now saying, then, that he has succeeded in his aim of removing security from the scope of the directive?
Mr. Davies: The important point is that security is a reason for not applying the public procurement directive. I hope that the hon. Gentleman has things the right way round when he refers to excluding security from the directive. When we say that we are applying article 296 and the essential security interests of the nation will be at risk if we do not apply a derogation from the public procurement directive, we want to ensure that one of the acceptable grounds for doing that is security—either of information, because we need to have relationships with suppliers that we trust to be able to secure information, or of supply, which is another aspect of security—and we want to be certain that we can continue to get help and support, maintenance, upgrading and so forth from particular suppliers. Those are legitimate reasons for not applying the public procurement directive.
Dr. Murrison: I am grateful to the Minister for that answer. It is all very interesting, but the Minister in the other place said in her letter of 21 October that
“we have not succeeded in our key aim of removing Security from the scope of the Directive”.
This is a simple question for the Minister: is he saying that the Government have now succeeded in their key aim—I emphasise, their key aim—of removing security from the scope of the directive? Yes or no?
Mr. Davies: There has been a negotiation on this matter, and inevitably in a negotiation one cannot achieve 100 per cent. of one’s desiderata. [Interruption.] Let me complete my answer to the question.
We came up with an initial formulation, which we have not decided to pursue, but we have decided that what is now available in relation to the compromise text that is before the Committee today is satisfactory. I repeat that we have obtained a new exemption for intelligence activities, an exemption for contracts involving sensitive information that, if revealed, would threaten essential security interests, and a clarification that national security is a sole competence of member states; it is for member states alone to define their essential security interests. That protection is in the text, though it was always implicit in the system.
Dr. Murrison: On the same point, I am sorry to have to press the Minister, but we do not have before us the text to which he refers. He has apologised for that, which is fine, but is he saying that what he has just read out constitutes the burden of the text or is there more? If so, could he describe it, for our benefit?
Mr. Davies: I am happy to repeat that the UK remains one of a number of member states—it was initially a small number of member states, and I think that I gave the hon. Gentleman that number—that are specifically calling for the exclusion of security from the scope of the directive, but given the lack of support for that in the European Parliament, we have come to the conclusion that there is no realistic prospect of achieving that primary position. That is the position to which I just referred. We believe, however, that the text that we now have is satisfactory, because the presidency, the Commission and other member states have been receptive to us in terms of our prime and necessary desiderata in this area.
Mr. Burns: I return to my original question. Notwithstanding what the position may now be, which member states did not support our position originally?
Mr. Davies: The countries that particularly did not support us in this matter were those with state police forces such as the Gendarmerie, the Carabinieri and the Guardia Civil. Without being indiscreet and appearing to open up here negotiations that may sometimes have been conducted confidentially or discreetly, from what I have just said the hon. Gentleman can guess the identities of some of the countries concerned.
Mr. Burns: The Minister read out the names of three forces. Will he confirm that only three member states did not support that position, or tell us how many are referred to in the briefing from his civil servants?
Mr. Davies: No, I cannot confirm that. I explained clearly that the member states that initially opposed us were those with quasi-military or paramilitary state police forces of the kind that I described. All countries with such state police forces fall into that category.
Mr. Burns: I am sorry, but can the Minister’s civil servants write him an answer quickly. Will he please tell the Committee—I cannot see why not—which countries they were, by name rather than by organisation? Come on, Minister.
Mr. Davies: I am happy to give the hon. Gentleman an answer. If I cannot give him an answer at this moment, I will provide one very rapidly.
Mr. Burns: You do not know, do you?
Mr. Davies: I have already explained to the hon. Gentleman that I have not been involved in the negotiations.
Mr. Burns: But you are the Minister answering.
Mr. Davies: I can tell the hon. Gentleman this: he must know at least a few things about international negotiations and there are always some who take the lead in opposing something, some who do not express a view and some who express a mild view and then change their minds.
Mr. Burns: Give us the names.
The Chairman: Order. Let the Minister respond.
Mr. Davies: The key nations that took that line all along were France, Italy, Spain and Portugal. The countries that supported us strongly were the ones that I read out earlier, and the rest took an intermediate position.
Mr. Hands: The Minister twice used the word “essential” in relation to the interests of security: once in his opening statement and once in reply to a question from my hon. Friend the Member for Westbury. Is the word “essential” defined at any point in the documents? Surely there is a risk of various member states describing virtually everything as essential to their security.
Mr. Davies: That is a good point. The word “essential” appears in the foundational document in this context—in article 296, previously article 238. The word “essential” is essential. It is for the courts to decide how it should be interpreted in any particular case, but it represents a fairly high threshold. It does not mean desirable, tempting or even useful; it means essential. It would be for the European Court of Justice to decide in the event that the Commission decided to challenge a particular interpretation.
However, I must add that I have said that it is accepted in the document and throughout the Union that it is for member states to determine in the first instance what they consider essential. We have the right to make our own determination in that matter, and it could be challenged only if the Commission took a case to the European Court of Justice.
Mr. Hands: For the sake of clarity, if the Government determined that a particular consideration was essential for our national security, could it still be appealed, presumably by a foreign contractor, in the European Court of Justice?
Mr. Davies: No. It could be appealed under the appeal procedure in the directive, to which I referred, and we would uphold our view. As we had determined that it was essential, unless we thought that we had made a mistake, we would reject the appeal. Subsequently, of course, nothing would prevent the Commission from taking a case to the European Court of Justice. Theoretically, that case could turn on the interpretation of the word “essential”.
As I said, there have been a number of cases over the years in which it would clearly have been impossible for member states to argue, if they were put up to it in the court or elsewhere, that what they were doing was essential to their security interests. They were allowed to get away with it. As a result, there was no jurisprudence on the matter, because the Commission had not taken up any cases. In its communication of 2006, to which I referred, it stated explicitly that in future it would enforce the regime as it was supposed to have existed since 1957, and set out the guidelines that the Commission would adopt in interpreting the then regime. It has now made the regime explicit in the document in a new and authoritative way.
Dr. Murrison: May I bring us to a subject which I am sure the Minister expected me to raise, that of reciprocity, and in particular, the reciprocity that has been drafted in Committee by the European Parliament? It states:
“In the selection of candidates, contracting authorities should take into account the need for autonomy and operational sovereignty from a European perspective, the need to sustain European industrial and technological pre-eminence, where this is economically valuable, and the need for reciprocity of market access, vis- -vis third states.”
What is the Minister’s response to that? I hope he will assure me that he will resist that because it brings into question the subject of mutuality in the placing of contracts. I need hardly say what that would mean in the context of US-UK trade and how incompatible it would be with the goal of global open markets and free trade. MEPs apparently want a reciprocity clause in order to promote what they call European autonomy and operational sovereignty. Although the Minister might privately have some sympathy for that position, can he assure us that the Government will resist reciprocity in the strongest possible terms?
Mr. Davies: Yes, I can give the hon. Gentleman the assurance that he seeks. We do, in principle, like the idea of a world in which people act in a reciprocal, balanced and fair fashion. There are a number of cases where we have had disappointments in that respect in the area of defence contracts, and we tend to express ourselves clearly when that occurs. With respect to the directive, we do not think the provision proposed by MEPs would be useful. We feel that it might send protectionist signals of the kind that the hon. Gentleman mentions, which we would find disturbing. We certainly do not want to do that or in any way damage our relations with third countries, one of which he mentioned, with which we have a particularly important defence arrangement. It is our intention to resist any such proposal.
Dr. Murrison: Will the Minister then confirm that ultimately it will not be his decision or that of his Government, because the matter will be decided by qualified majority voting by the Council?
Mr. Davies: The hon. Gentleman is right. This is a qualified majority voting issue and it is being determined by the process of co-decision. We certainly do not think we have exhausted our negotiating leverage or influence on the subject.
Dr. Murrison: On the assumption that the Council insists on the measure, which we understand is a racing certainty, what plans do the Government have to mitigate its effect? I need hardly emphasise to the Minister the potential implications for our indigenous industry and our relationships with the United States and others.
Mr. Davies: We are working towards various compromises but I should tell the hon. Gentleman, before he takes too pessimistic a view of the prospects, that so far no member states have expressed a view in favour of reciprocity. The initiative so far derives entirely from the European Parliament.
Mr. Jenkin: May I change the subject? I apologise for missing the hon. Gentleman’s opening statement. Will he explain a little more what consultations he has had with our American counterparts about the draft directive, given that the American relationship is by far our most important bilateral defence procurement relationship? Do they in the United States understand what this directive means and are they happy that we should be entering into these obligations with our European partners, which have the potential to exclude the Americans from some of these considerations?
Mr. Davies: The hon. Gentleman is right that our most important collaborative relationship in the area of defence procurement, as in every other area, is with the United States. We have therefore had detailed discussions with the United States and covered the issue of reciprocity, on which I have just responded to a question from the hon. Member for Westbury. We are determined not to allow the directive to do any damage of the kind in question to our relationship with the United States.
The hon. Member for North Essex was kind enough to acknowledge that he was not present for my introductory remarks, during which I said that we secured, in the directive, a number of provisions of great interest and concern to us. One of those was that member states should be allowed to undertake joint venture relationships in the defence procurement area with third countries. That is covered in article 8 or 9. We had our relationships with other countries, and especially with the United States, in view when we went into that matter. Those relationships are now fully protected in the directive.
Mr. Jenkin: Does the Minister think that the directive will advance or retard the prospects of ratifying the US-UK defence trade treaty?
Mr. Davies: I have no reason to suppose that it will cause the slightest difficulty in that respect. I think our consultation with the United States will have been regarded by our American partners as exemplary in this context, since we have, as I said, had detailed discussions with them. We drew their attention to the issue and took on board their comments. I do not think that we could do more in the context of our close collaborative relationship with the United States.
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Prepared 25 November 2008