Documents considered by the Committee on 13 November 2017 Contents

30European Defence Fund

Committee’s assessment

Politically important

Committee’s decision

(a) and (c): Cleared from scrutiny; (b) Not cleared from scrutiny; further information requested; drawn to the attention of the Defence Committee and the Foreign Affairs Committee.

Document details

(a) Communication from the Commission: Launching the European Defence Fund; (b) Proposal for a Regulation establishing the European Defence Industrial Development Programme; (c) Reflection paper on the future of European defence

Legal base

(a)—; (b) Article 173 TFEU; QMV; (c) —

Department

Ministry of Defence

Document Numbers

(a) (38819), 10164/17, COM(17) 295; (b) (38831), 10589/17 + ADD 1, COM(17) 294; (c) (38820), 10165/17, COM(17) 315

Summary and Committee’s conclusions

30.1In its Defence Action Plan, published in November 2016, the European Commission announced the creation of the European Defence Fund.500 It said the purpose of this Fund would be to invest in research into new defensive technology, and to provide support for the joint development of Member States’ military capabilities.

30.2In June 2017, the Commission published a Communication describing the state of play in the preparations for the European Defence Fund (document A).501 This made clear that the Fund is to consist of three distinct elements, which we describe in more detail in the “Background” section of this Report:

30.3Alongside its Communication, the Commission also published a “reflection paper” on the future of European defence (document C), setting out a number of high-level hypothetical scenarios for the development of the Common Security and Defence Policy by 2025.503 The most far-reaching of these would see a “Common Security and Defence”, under which the EU itself would take responsibility for certain military operations using integrated national defence forces.

30.4The Minister for Defence Procurement (Harriett Baldwin) submitted an Explanatory Memorandum on all three documents in July 2017.504 She broadly welcomed the proposals relating to the European Defence Fund, but expressed reservations about the role the European Commission wants to play in setting the Fund’s strategic priorities. The Minister also argued, in the context of the UK’s status post-Brexit as a “third country” vis-à-vis the EU, that the proposed restrictions on non-EU countries’ participation in both the Research and Capability Windows are “protectionist”, and run “counter to the need to attract new investment and ideas into defence”. She warned that, once the UK is outside the EU, this restrictive approach to participation could be “used in a way that disadvantages the UK and the UK defence industry” (see “Implications of Brexit” below).

30.5More generally, the Government’s position paper on the post-Brexit relationship with the EU on matters of foreign policy and defence505 expresses the Government’s wish to explore a “deep and special partnership” between UK and EU defence industries, as part of which both sides “could also consider options and models for [UK] participation in the Commission’s European Defence Fund including both the European Defence Research Programme and the European Defence Industrial Development Programme”.506 The Prime Minister has also proposed a transitional arrangement507 between the UK and the EU post-Brexit (while a new partnership is negotiated) during which “access to one another’s markets should continue on current terms and Britain also should continue to take part in existing security measures”.508 She also pledged that the UK would “honour [financial] commitments” made as a Member State. To what extent this could temporarily extend the UK’s participation in EU funding programmes such as the EDF on the same terms as a Member State, with concomitant financial implications for the Treasury, is not clear.

30.6With respect to the reflection paper on the future of the CSDP, the Minister expressed concerns about further integration of defence forces at EU-level which she argued could cause unnecessary duplication with NATO’s activities (see “Background” for more information). This was subsequently reiterated in the Government’s position paper.509

30.7The European Defence Fund is the cornerstone of the Commission’s Defence Action Plan, and of significant political importance as it marks the first time the EU budget will be used to fund military research and development. We agree with the Minister that the powers accorded to the Commission to drive the programming of the Fund deserve closer scrutiny. It is important, given that defence remains a national competence under the Treaties, that Member States are the driving force behind the EDF.

30.8We also agree that, in principle, it would be beneficial for UK industry if the Research and Capability Windows of the Fund were open to participation by non-EU countries. This is not presently the case for the Research Window (except, as the Government has noted, for Norway, although its participation is linked to its membership of the EEA),510 and nor would it be possible under the Capability Window if the eligibility requirements as proposed by the Commission are not amended.511

30.9In the period immediately following Brexit, the UK’s continued participation in the EDF could be linked to the terms and duration of the Prime Minister’s proposed “implementation period”, during which it appears the Government envisages that the status quo of the UK’s membership of EU programmes would be maintained. The terms of the financial settlement relating to the UK’s departure from the EU is also relevant, as the EU has proposed a system512 under which the UK would continue to pay for its share of EU commitments under the entire 2014–2020 Multiannual Financial Framework (MFF) in return for continued participation in EU funding programmes—including presumably the EDF—until the end of that budgetary period.513 Any participation beyond that point would have to be negotiated separately.

30.10After the end of any “implementation period”, continued eligibility of UK entities to bid for funding would require the Regulations governing the EDRP and the EDIDP to permit “third country” participation. It is unclear whether there is an appetite among other Member States to accommodate the UK in this way, given the sensitivities around military technology, and we wait for further information from the Minister on this point. Equally, we are unsure how the UK could influence the strategic direction of the EDF and the management of its funds after Brexit, as the Government would no longer be represented in the Council or on the EDF Coordination Board.

30.11Moreover, post-Brexit participation in the EDRP, the EDIDP or both will come at a cost. Norway must adhere to the relevant EU legislation for each EU programme in which it participates, and make a financial contribution proportional to its GDP.514 If the same methodology applied to the UK post-Brexit, it would have to make a contribution amounting to 16 per cent of the commitment appropriations set annually by the Parliament and Council for the EDRP or EDIDP respectively. If the Commission’s proposed joint budget for both Windows of €1.5 billion per annum were to be accepted, that could result in an annual UK contribution of €240 million (£214 million).

30.12It bears emphasising that under this system, if the UK wanted to participate, it would have no control over the amount of its annual contribution; it could either make the size of the payment as calculated by reference to its GDP and the total commitment from the EU budget, or refuse to participate altogether. The rebate the UK currently enjoys on its contributions to the EU budget would also not apply.

30.13Given the above, we are awaiting urgent clarification from the Government with respect to its proposed terms for the interim arrangement, its position on the principles the financial settlement, as well as the details of its long-term vision for defence cooperation with the EU and any associated legal or financial obligations. In the meantime, we are unable to form a judgement on the likelihood that the UK will pay into, and benefit from, the European Defence Fund after March 2019.

30.14Separately, the Committee has taken note of the Commission’s reflection paper on the future of Europe’s defence, and the Minister’s conclusions that further integration of defence forces at EU-level, even post-Brexit, is unlikely to be in the UK’s interest. We welcome the fact that the Government’s paper for future UK-EU cooperation on foreign policy and defence clearly reiterates the UK’s position on the delineation of defensive responsibilities between the EU and NATO. However, we hope that the Government will without further delay provide greater clarity about the mechanisms and structures it proposes to put in place to maintain a close working relationship with the EU on foreign policy and defence matters, and how these would link to the scenarios set out by the Commission.

30.15Overall, we consider that the launch and development of the European Defence Fund and the reflection process on the future of the CSDP are of significant political importance to the UK. We are content to clear the Communication on the European Defence Fund and the reflection paper on the future of European defence from scrutiny. However, we will retain the proposal for a Regulation on the EDIDP under scrutiny while the legislative procedure is underway.

30.16We also ask the Minister to:

30.17We draw these developments to the attention of the Defence Committee and the Foreign Affairs Committee.

Full details of the documents

(a) Communication from the Commission: Launching the European Defence Fund: (38819), 10164/17, COM(17) 295; (b) Proposal for a Regulation establishing the European Defence Industrial Development Programme: (38831), 10589/17 + ADD 1, COM(17) 294; (c) Reflection paper on the future of European defence: (38820), 10165/17, COM(17) 315.

Background

30.18In December 2013, the European Council (the EU’s Heads of State and Government) kicked off a process of strategic reflection on the achievements of, and challenges facing, the EU’s Common Security and Defence Policy (CSDP).516 This led the European Commission to publish the European Defence Action Plan (EDAP) in November 2016. The Action Plan outlined a number of initiatives to ensure the EU’s defence industrial base can meet the EU’s Member States’ “current and future security needs”.

30.19Notably, the EDAP included a pledge to launch a European Defence Fund (EDF), an umbrella term for three linked initiatives which will fund the research and development of new military technology, and assist EU Member States in the joint acquisition of new defence equipment. The European Council endorsed the plan for a Defence Fund in December 2016.517

30.20In June 2017, European Commission published three documents relating to the European Defence Fund:

The European Defence Fund

30.21The European Defence Fund is a new initiative first announced in the Commission’s European Defence Action Plan in November 2016. The June 2017 Communication (document A) makes clear that the Fund, while presented as a single scheme, will in fact consist of three distinct elements:

30.22The Fund and its constituent components are to become fully operational under the EU’s next long-term budget (the Multiannual Financial Framework or MFF), which will run from 2021 to 2027. However, some of the funding programmes are being established on an interim basis during the current budgetary cycle.

30.23The Commission wants total expenditure between both the EU and the Member States on improving military capability through the European Defence Fund to reach a “reference amount” of investment totalling €5 billion per annum in the medium-term, with less than a third (€1.5 billion) to come from the EU budget and the rest financed by national governments.

30.24The EDF will be overseen by a Coordination Board, which would consist of Member States, the EU’s High Representative for Foreign Affairs, the European Defence Agency, the European Commission, as well as industry. Its purpose would be to “ensure consistency between the Research and the Capability Windows in light of broader priorities set in the defence field”. In her Explanatory Memorandum, the Minister notes that it is “unclear” what powers the Coordination Board will have. She also expressed concerns that the Commission wants to set the EDF’s funding priorities, with Member States only able to block its plans on the basis of qualified majority voting.

The Research Window of the European Defence Fund

30.25The first component of the European Defence Fund is the so-called “Research Window”, which will finance research into “innovative defence products and technologies” from the EU budget. The Research Window is in effect already operational. It was first launched as a pilot project under the 2015518 and 2016 EU budgets,519 which gave the European Defence Agency (EDA) €1.5 million (£1.4 million) to fund research into defensive technologies. This marked the first time the EU budget was used to fund military research.520

30.26In April 2017, with the consent of the Council and the European Parliament, the Commission launched a “Preparatory Action” on defence research. This is in effect a scaled up pilot project, with a much larger budget of €90 million (£83 million) for the period 2017–2020. The purpose of the Preparatory Action is to test the added-value of the EU budget supporting defence research.521 The funding will be focused on research into critical defence technologies, disruptive technologies and interoperability between national military systems. Participation is open only to EU Member States and Norway.522

30.27If the Member States judge the results of the Preparatory Action positively, the European Commission is expected to formalise the use of the EU budget for defence research through a proposal for a €3.5 billion (£3.2 billion) European Defence Research Programme (EDRP). This would be part of the wider package of proposals for EU funding programmes under the new Multiannual Financial Framework for the 2021–2027 period. According to the Commission, this prospective financial envelope make the EU one of the biggest investors in defence research in Europe.

30.28The precise relationship between the EDRP, once formally established, and the successor programme to Horizon 2020 (the EU’s civilian research & development funding instrument for 2014–2020) is yet to be determined, but the Commission has said the financing of the defence research programme “should be separate from and not affect the civilian research programme”. It is expected to have broadly similar governance structures.

30.29Following the announcement of the European Defence Fund in 2016,523 the Minister singled out the Research Window as the Fund’s most positive aspect, telling our predecessors that it offered the “potential to support Member States defence capabilities and stimulate cross-border innovation”. In her Explanatory Memorandum of July 2017, she added that the “additional research spending … should help counter the significant decline in Europe’s R&D expenditure in contrast to potential adversaries”.

30.30In September 2017, the Government explicitly confirmed that it would seek continued participation in the European Defence Research Programme after Brexit. In its “future partnership paper” on post-Brexit collaboration with the EU on science and innovation, it said:

“A three-year Action [preparing for the European Defence Research Programme] was launched in 2017 and the UK has been instrumental in defining its work programme. The UK would welcome dialogue with the EU and its Member States on the future of this programme and terms for non-EU involvement, noting that Norway will have third-party association in this preparatory phase.”524

30.31The Government paper does not make note of the fact that Norway’s participation in the Research Programme is explicitly linked to its membership of the European Economic Area (EEA),525 nor that it will contribute an amount to the preparatory action’s budget proportional to its GDP compared to that of the EEA as a whole.526

The Capability Window of the European Defence Fund

30.32The “Capability Window” of the European Defence Fund has the objective of supporting the “joint development and joint acquisition of key defence capabilities” by the EU’s Member States.

30.33The Capability Window consists of two separate elements:

European Defence Industrial Development Programme

30.34According to the Commission, the EU has “comparatively low defence spending” combined with “uncoordinated national policies”, with the “large majority” of Member States not engaging in any joint defence procurement at all. As a result of this, “duplications prevent the industry from achieving optimal size of production as comparatively small national markets are served in isolation”.

30.35The Commission contends that the resulting inefficiencies have knock-on effects for the military capabilities of EU countries: the higher cost of purely domestic programmes for the development of new defence technology has led to “critical shortages” of key equipment. Moreover, in joint CSDP missions, the lack of interoperability between different sets of national equipment limits the added value of collaborative EU military efforts.527

30.36As part of the European Defence Fund’s Capability Window, the Commission has therefore proposed a Regulation to establish of a €500 million industrial development programme (document B) which will invest in the early stages of development of new defensive technology that will then be acquired by multiple EU Member States.528 The money would be invested in “the design, prototyping,529 testing and qualification of defence products”, as well as certification, technical specifications and feasibility studies.530

30.37Under the terms of the Commission proposal, the EDIDP would be a €500 million (£460 million) funding programme to run from 2019 until the end of 2020, in alignment with the current Multiannual Financial Framework (MFF). A fully-fledged successor programme would run for the duration of the 2021–2027 budgetary cycle.531 To ensure the Programme does not lead to spending in excess of the ceilings established by the current MFF, its budget for 2019 and 2020 will be diverted from other EU programmes. The Commission proposes to reduce by €375 million the current allocations to the Connecting Europe Facility, the European Satellite Navigation Programmes (Galileo), the European Earth Observation Programme (Copernicus) and the ITER Programme, as well as using €125 million from the unallocated margin.532

30.38As EDIDP would only partially finance projects, with Member States expected to contribute the remainder, the Programme is also meant to ensure national defence expenditure is spent more efficiently. The Commission estimates that, if the entire €500 million were to be invested from the EU budget, Member States would have to invest up to €2.5 billion to make the development projects financially viable. Development projects undertaken as part of the Permanent Structured Cooperation (PESCO) on defence matters between a sub-set of Member States, which is expected to be formally agreed at the December 2017 European Council, would benefit from higher co-financing rates under the EDIDP.533

30.39The proposal contains a number of eligibility requirements to determine whether an organisation could apply for funding from the EDIDP.534 In particular, each project in receipt of funding must have at least three participating organisations, which must be based in at least two different EU Member States and be majority owned and controlled by either EU governments or EU nationals. Moreover, all “infrastructure, facilities, assets and resources” used by the beneficiaries, including subcontractors and other third parties, must be located within the EU.

30.40In her Explanatory Memorandum on the Regulation, the Minister argues that the proposal for the EDIDP is “appropriate”, as the resources involved in developing defence capabilities are “regularly too high for countries to pursue individually so cooperation is often a necessity”.535 She therefore agrees with the Commission that action at EU-level can reduce duplication and fragmentation, saying she “broadly welcomes” the proposal as a means of “strengthening the UK and European Defence Technological and Industrial Base”.

30.41The Minister’s Memorandum highlights areas where the Government will seek clarification or amendments to the legal text, namely:

30.42As regards the implications of Brexit for UK participation in the EDIDP, the Minister is critical of the restrictions on the nationality of eligible undertakings, saying they run “counter to the need to attract new investment and ideas into defence”. She adds:

“We believe the rule that Member States or nationals of Member States must own over 50% of the undertaking for it to qualify for funding is inappropriate in the context of international shareholders and attracting new investment. The provision that all assets and resources used by the participants, including subcontractors, funded under the EDIDP are not to be located in the territory of non-Member States is overly protectionist and unrealistic.”

30.43She argues that, as the proposal stands, there is a risk that the EDIDP could disadvantage the UK defence industry if only collaborative programmes made up of EU member states are considered, or if proposals from consortia that include UK companies in their supply chains are excluded. She concludes:

“The level to which we participate in the EDIDP post our exit will be a matter for our negotiations. During those negotiations the Government believes that it is in both ours and the EU’s interests for us to have a positive relationship on the EDIDP.”

30.44As regards the diversion of EU budget funding for the EDIDP, the Minister notes that the reduction in Galileo’s budget “raised some concerns from the UK Space Agency”, but that it is considered “manageable based on current expenditure plans”. She adds that most of the actual expenditure under the Programme would be incurred after the UK’s likely date of exit from the EU in March 2019, meaning that “the exact financial implications are dependent on the UK-EU exit negotiations”.

The financial toolbox for joint acquisition of military equipment

30.45The final element of the European Defence Fund focusses on improving the military capabilities of EU countries by facilitating the joint procurement of defence equipment by groups of Member States. In the EU, four-fifths of military procurement and 90 per cent of defensive research and technology investment in the defence sector are financed along national lines. The Commission argues this leads to inefficiencies and duplication:

“A high degree of fragmentation remains, with 178 different weapon systems in Europe compared to 30 in the US. Too little coordination in defence planning leads to an inefficient use of taxpayers’ money, unnecessary duplication and suboptimal deployability of defence forces. There are wide differences in the level of defence spending between Member States. Enhanced solidarity, including through the involvement of the EU budget, is needed to deliver common defence capabilities.”536

30.46To reduce fragmentation and duplication, the Commission is proposing to create a “financial toolbox”, effectively a set of standardised financial tools to facilitate joint procurement exercises for defence equipment by groups of Member States. Its use would be voluntary. The toolbox is linked to the proposal for a Defence Industrial Development Programme (see paragraphs 30.34 to 30.44 above). Funding from that Programme will be contingent on the prospective beneficiary demonstrating a commitment by EU Member States to “jointly produce and procure the final product or technology in a coordinated way”.

30.47With respect to the toolbox, the Minister’s Explanatory Memorandum notes only that an ad hoc Committee will be established to develop a standardised set of financial instruments and the Commission will set up an internal Task Force to act as a ‘one stop shop’ providing support to member states on collaborative projects. The Minister does not refer to OCCAR, the Organisation for Joint Armament Cooperation, which the UK co-founded in 1996. OCCAR also facilitates the development of defensive technology between its members and other “participating countries”, all but one of which are EU Member States.537

Reflection paper on the future of European defence

30.48The Commission’s reflection paper on the future of European defence (document C) complements its proposals for the European Defence Fund, setting out high-level hypothetical options for the long-term development of the EU’s Common Security and Defence Policy.538 The Commission presents three options, which range from maintaining the status quo, to greater financial and operational integration of defence policy at EU-level, through to a third option of a ‘true’ Common Defence and Security, in which operational responsibility for a variety of defence activity would lie with the EU, rather than with individual Member States.

30.49The Minister submitted an Explanatory Memorandum on the reflection paper on 13 July.539 In it, she refers to the Prime Minister’s call for a “deep and special partnership with the EU” post-Brexit, including on security matters. While acknowledging that these deliberations are “a matter for the remaining members of the EU”, she concludes that maintaining the status quo with respect to the functioning of the CSDP would “appear to complement UK national interests”.

30.50With regards to the two options that would require more integration of defence forces at EU-level, she concludes that “after Brexit, the UK as a non-EU Member State would be unlikely or even unable to support [these positions]”, as they would conflict with the UK’s “national key principles of retaining sovereign defence forces and avoiding duplication of NATO”.

30.51The UK’s position on the delineation of responsibilities between NATO and the EU was subsequently reiterated in the Government’s position paper on the post-Brexit relationship with the EU on matters of foreign policy and defence,540 which calls for an “unprecedented” partnership in terms of both scope and “degree of engagement”.541 This paper also expresses the Government’s wish to explore a “deep and special partnership” between UK and EU defence industries, as part of which both sides “could also consider options and models for [UK] participation in the Commission’s European Defence Fund including both the European Defence Research Programme and the European Defence Industrial Development Programme”.542

Implications of Brexit

30.52The European Defence Fund is the cornerstone of the Commission’s Defence Action Plan, which our predecessors considered in March 2017.543 In view of the UK’s withdrawal from the EU, UK-based organisations will no longer be eligible to bid for funding from the Fund from March 2019. Currently, the EDF’s Research Window is open only to the EU and Norway, and the eligibility of non-EU countries to participate in the long term will be decided after the Commission tables a legislative proposal in 2018 to formalise the programme for the duration of the next Multiannual Financial Framework. The EDIDP under the Capability Window as proposed by the Commission would not provide for any non-EU participation at all.

30.53The Minister has broadly welcomed both the Research and Capability Windows of the Defence Fund, but the Government is—understandably—keen to loosen the proposed restrictions on third-country participation in the EDF. The Minister has called these restrictions, particularly in the Commission proposal for the EDIDP, “protectionist” and said they “run counter to the need to attract new investment” in the defence industry. This demonstrates the Government believes there is substantial added value in the Fund which it is keen to preserve post-Brexit.

30.54However, it is inevitable that, in the eyes of the other Member States, any concerns about protectionism will be linked specifically to the UK’s withdrawal from the EU. It is unclear whether there is an appetite among other Member States to alter the eligibility requirements to the benefit of the UK as a non-EU country. As things stand, the UK defence industry will benefit only temporarily from funding opportunities under the Research Window, and potentially not at all from the Defence Industrial Development Programme under the Capability Window (which will not begin commit funding until 2018 at the earliest). We consider it likely that UK organisations will struggle to make successful bids from the EDIDP, given that partners from other Member States will not want to risk jeopardising their projects if the UK members of a consortium cease to be eligible for funding in less than two years’ time.

30.55There is a possibility that UK-based organisations will remain eligible for EU funding from the Fund during the Prime Minister’s proposed transitional arrangement immediately following Brexit. She has stated that, while the new framework for the UK-EU economic and security relationship is negotiated, “access to one another’s markets should continue on current terms and Britain also should continue to take part in existing security measures”.544 She also pledged that the UK would “honour [its] commitments” under the 2014–2020 Multiannual Financial Framework. Under the methodology for the Brexit financial settlement proposed by the European Commission,545 the UK would continue to pay for its share of EU commitments under the current and previous Multiannual Financial Framework (MFF), including those yet to be made under the EU’s annual budgets for 2018, 2019 and 2020. In return, the UK would remain eligible for EU funding programmes post-Brexit until the end of that budgetary period.546

30.56Crucially, however, the Commission argues that any continued UK participation in EU funding programmes should be subject to “the applicable Union legal rules”. It is unclear whether that precludes UK participation in the programmes such as the EDF, where the basic acts for the funding programme explicitly prohibit participation by “third countries”. We are in any event unable to judge at this stage how likely it is that the UK will accept this approach, as the Government has not publicly stated whether it accepts the principles of the financial settlement as proposed by the Commission. Neither has it provided details of the Prime Minister’s pledge to “honour commitments” made during the UK’s EU membership.

30.57In the long term, the UK could seek participation in the European Defence Research Programme and the European Defence Industrial Development Programme after the end of the transitional period. Judging by the conditions of Norway’s participation in the defence research preparatory action, or Switzerland’s association to Horizon 2020, that would require the UK’s adherence to the applicable EU legal framework and an annual financial contribution proportional to the UK’s GDP, without a formal role in setting the European Defence Fund’s strategic direction or oversight over its management and funding decisions. Whether that is an acceptable trade-off is for the Government to judge. Alternatively, if it will seek a different arrangement, we await details about the Government’s detailed proposals.

30.58In light of the above, we cannot at this stage come to an informed conclusion about the UK’s position vis-à-vis the European Defence Fund following Brexit. We will consider these proposals again once we have received further information from the Minister.

Previous Committee Reports

The previous Committee considered the European Defence Action Plan in March 2017.

See: Thirty-Sixth Report HC 71–xxxiv (2016–17), chapter 11 (22 March 2017).


500 For more information on the EDAP, see our predecessors’ Report of 22 March 2017.

501 See Commission document COM(17) 295.

502 See www.occar.int. The acronym is derived from the organisation’s name in French, l’Organisation Conjointe de Coopération en matière d’Armement.

503 See Commission document COM(17) 315.

504 Explanatory Memorandum submitted by the Ministry of Defence (10 July 2017).

506 Idem, p. 20. Similarly, the Government’s paper on post-Brexit collaboration with the EU on science and innovation states that the UK “would welcome dialogue with the EU and its Member States on the future of [the EDRP] and terms for non-EU involvement”.

507 The Prime Minister called this an “implementation period”, but the Committee remains unpersuaded that there will be an agreement on the future UK-EU partnership ready for implementation by the end of the Article 50 period in March 2019.

508 Prime Minister, “A new era of cooperation and partnership between the UK and the EU“ (22 September 2017).

510 Norway’s participation is allowed because it applies EU legislation on research and technological development as part of its commitments under the EEA Agreement. See page 5 of the Annex to the Commission Decision (http://ec.europa.eu/DocsRoom/documents/22629). Iceland and Liechtenstein, while both part of the European Economic Area, do not participate in the EDRP as neither has a military force.

511 The Commission proposal restricts participation to entities established in an EU Member State, which are also majority-owned either by an EU government or EU nationals. See also paragraph 30.39 below.

512 European Commission, “Essential principles on financial settlement“ (12 June 2017).

513 The last commitments under the 2014–2020 MFF will be made in 2020, but payments are expected to be made until 2024.

514 The methodology used to calculate Norway’s payments to EU programmes means that its share of GDP of the European Economic Area (approximately 2.4 per cent) as a whole is multiplied by the amount of the relevant EU budget lines each year.

515 See paragraph 30.31 and associated footnotes for more information on the conditions of Norway’s participation in the defence research programme.

516 For more information on the reflection process that preceded the publication of the Defence Action Plan, see our predecessors’ Report of 22 March 2017.

517 European Council, “European Council conclusions“ (15 December 2016).

518 See: 2015 EU budget, Item 02 04 77 02—Pilot project—CSDP research.

519 See: 2016 EU budget, Item 02 04 77 02—Pilot project—CSDP research.

522 Norway’s participation is allowed because it applies EU legislation on research and technological development as part of its commitments under the EEA Agreement. See page 5 of the Annex to the Commission Decision (http://ec.europa.eu/DocsRoom/documents/22629). Iceland and Liechtenstein, while both part of the European Economic Area, declined to participate as neither has a military force.

523 Explanatory Memorandum submitted by the Ministry of Defence (21 February 2017).

525 The Commission Decision on the “preparatory action” for the EDRP notes that Norway’s participation is “subject to amendment of Protocol 31 to the EEA Agreement“, which deals with “cooperation in specific fields outside the four freedoms”. Among other things, it obliges Norway to implement EU legislation relating to science and innovation, allowing it to participate in the relevant EU programmes.

526 On 5 October 2017, the European Commission submitted a draft Council Decision to amend the EEA Agreement to allow for Norway’s participation in the preparatory action. It notes that Oslo’s contribution will be €585,000 in 2017, compared to total commitment appropriations of €25 million from the EU budget for that year (in line with Norway’s “proportionality factor” of approximately 2.4 per cent). Post-Brexit, the UK’s contribution, using the same methodology, would be nearer 16 per cent.

528 See for more information the proposal for a Regulation (Commission document COM(17) 294).

529 In view of the significant costs involved in prototyping of new products, Article 11 of the Commission proposal would cap the EU’s contribution at 20% of the total cost of prototype development. For other types of eligible projects, EU funding could cover the total cost.

530 The proposal makes clear that the EU would not become the owner of any products or technology developed using funding from the Programme, and nor would it own the intellectual property rights.

531 In 2018, the Commission is expected to propose a long-term Defence Industrial Development Programme for the duration of the entire 2021–2025 EU budgetary cycle. The Commission wants this successor Programme to have a significantly larger budget, at €1 billion per annum.

532 The unallocated margin is the difference between the ceiling set for a financial year by the MFF, minus the appropriations already allocated by the EU budget for that year.

533 For more information on PESCO, please refer to this EEAS fact sheet. The Committee expects the formal European Council Decision to launch PESCO will be subject to scrutiny in due course.

534 Any funding granted would usually take the form of grants or loans, with individual funding decisions to be taken by the Commission subject to the agreement of a qualified majority of Member States under the so-called examination procedure.

535 Explanatory Memorandum submitted by the Ministry of Defence (10 July 2017).

536 See Commission document COM(17) 295, p. 3.

537 The OCCAR members are Belgium, France, Germany, Italy, Spain and the UK. The participating countries are Finland, Lithuania, Luxembourg, the Netherlands, Poland, Sweden and Turkey.

538 Commission document COM(17) 315.

539 Explanatory Memorandum submitted by the Ministry of Defence (13 July 2017).

541 The Committee have considered the implications of this paper for UK-EU cooperation on military matters and development policy post-Brexit elsewhere, notably in the Reports of 26 November 2014 on the Maritime Security Strategy, the Instrument contributing to Stability & Peace and the European Fund for Sustainable Development.

542 Idem, p. 20. Similarly, the Government’s paper on post-Brexit collaboration with the EU on science and innovation states that the UK “would welcome dialogue with the EU and its Member States on the future of [the EDRP] and terms for non-EU involvement”.

543 See the previous Committee’s Report of 22 March 2017

544 Prime Minister, “A new era of cooperation and partnership between the UK and the EU“ (22 September 2017).

545 European Commission, “Essential principles on financial settlement“ (12 June 2017).

546 The last commitments under the 2014–2020 MFF will be made in 2020, but payments for those commitments will be made until at least 2023.




20 November 2017