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Defence and security at the crossroads

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While an innovative and competitive European defence industry is key to meet the objectives of the Common Security and Defence Policy, this highly sensitive sector has often been constrained by market fragmentation. Two European Directives will now strengthen the foundations of an open and competitive European Defence Equipment Market and a long-term, strong and genuine European Defence Technological and Industrial Base. On the occasion of the transposition of these Directives, a high level conference, chaired jointly by Commission Vice-President Tajani and Commissioner Barnier, will discuss new challenges the sector is facing.

Europe’s defence and security industry, which provides highly skilled employment, contributes significantly to the security of its citizens and is crucial in enabling the EU to operate autonomously and to cooperate internationally. The sector also drives economic growth, involving cutting-edge research and development in fields such as electronics, ICT, transport, biotechnology and nanotechnology. Many new technologies developed for defence have also turned into drivers for growth in civil sectors such as in global positioning and earth observation, and companies producing ancillary equipment and systems can be found all over Europe.

Where to from here?

Developing and nurturing  an innovative and competitive European Defence Technological and Industrial Base (EDTIB) operating in an open and transparent European Defence Equipment Market is key in order to deliver EU and Member State policy objectives and, in particular, those of the EU Common Security and Defence Policy (CSDP). For this to be achieved however, a number of challenges must be overcome, and current budget cuts in nearly all EU Member States affecting procurement and R&D must be faced.

The defence industry, which is highly regulated at national level due to its sensitivity, differs from other economic sectors because it depends almost entirely on national governments. Industry turnover is either generated through state customers or exports to third country governments.

The sector is also characterised by marked fragmentation along national lines, whilst big companies are concentrated in only six countries – France, UK, Germany, Italy, Spain and Sweden – with the UK and France dominating.   Europe's defence-related industries – primarily the defence part of sectors such as aeronautics, space, electronics, land systems and shipbuilding – have largely operated so far outside the internal market rules.

This situation has generated red tape and hampered innovation. Many defence programmes and research projects are duplicated. The EU, for example, has 16 major naval yards (compared to three in the US) and 11 tank programmes (compared to two in the US).

Furthermore, national systems to control the transfer of defence equipment to other Member States often do not distinguish between exports to third countries and transfers between Member States. The lack of a harmonised licensing regime has hampered the security of supply between Member States and cost over an estimated €400 million a year. In addition, the defence industry has been badly hit by the financial crisis, with falling defence budgets in the EU and ongoing Member State reviews of national defence strategies.

Providing solutions

In order to open up national markets, reduce fragmentation, and increase transparency and the overall competitiveness of the sector, the European Commission adopted in 2007 the  Defence Package including the Communication "A strategy for a stronger and more competitive European defence industry" and proposals for two directives, which were approved by the Parliament and the Council in 2009. These two Directives – Directive on Defence and Security Procurement (2009/81/EC)pdf and Directive on the Simplification of Intra-EU Transfers of Defence-related Products (2009/43/EC)pdf – must be transposed into national law during the summer of this year.

Enhancing efficiency of defence spending

The procurement Directive coordinates national award procedures and therefore streamlines the regulatory patchwork of Europe's defence and security markets. It adjusts existing EU public procurement law to suit the specificities of the defence sector, in particular by establishing specific provisions on security of supply and security of information. These are vital for a sector where works, supplies and services can often be extremely sensitive.  The Directive also allows the use of flexible award procedures, which is important to manage the complexity of many defence acquisitions. All this will enable Member States to use the new rules for the vast majority of their defence procurement contracts which have been exempted up until now from EU rules on the basis of Article 346 TFEU.

Importantly, the Directive will bring a requirement for the EU-wide publication of contracts over a certain value, underpinned by non-discriminatory award procedures. This will encourage greater transparency and openness, make public procurement more efficient and improve market access of European companies in other Member States.

Promoting industrial cooperation at EU level

The Directive on intra-EU transfers on the other hand aims to establish a genuine European market for defence equipment in which common production projects are stimulated and competitiveness of EU defence companies is enhanced, without sacrificing Member States' control over their essential defence and security interests. The Directive will achieve this through a harmonised licensing procedure which uses a common set of simplified licences and harmonized reporting requirements for suppliers of defence-related products that will contribute to increasing transparency.

It will encourage Member States to replace their existing individual licences with general licences for intra-EU transfers where the risk of unauthorised re-exportation to third countries is limited. For example, this would cover purchases by armed forces of another EU Member State and transfers to certified companies of components in the context of industrial cooperation. Furthermore, general licenses will largely contribute to reducing the current administrative burden for licensing authorities and companies.

Overall the Directive will support cross-border industrial cooperation by enabling defence industries to benefit from smoother and more predictable supply chains. SMEs, often operating as defence subcontractors, will more easily be able to join cross-border programmes managed by large system integrators, and security of supply for EU armed forces relying on cross-border deliveries will be improved.

A dynamic strategy is neededto improve Europe's existing approach to the defence industry. The transposition into national law of these two Directives and closer cooperation will help increase competitiveness within the sector, prepare it for future challenges and promote its capacity for innovation.

Discussing Europe’s defence

European Commission Vice-President Antonio Tajani, who is in charge of Industry and Entrepreneurship, and Internal Market and Services Commissioner Michel Barnier have organised a high-level conference on Defence and Security Industries and Markets, which will take place on 23 May 2011 in Brussels.

The main objectives of the conference are to give political momentum to the process of implementation and application of the two Defence Package Directives mentioned in the article, and to discuss at high political level how to foster, in times of budget austerity, the creation of the competitive industrial and technological base needed to support the Common Security and Defence Policy (CSDP) as well as Member States' policy objectives.

The conference will be structured along two panels under the working titles "Markets" and "Industries". The first panel will address market-related issues. The guiding question will be how to establish a fully fledged European Defence Equipment Market and how to make it efficient: what elements already exist? What still needs to be done and by whom? The focus will be on the regulatory framework and the demand side of the market.

Commissioner Barnier, will appear in the first panel alongside Italian Industry Minister Paolo Romani, Andreas Schwab MEP, Antoine Bouvier, CEO of MBDA, Victor Chavez CEO of Thales UK, and  Claude-France Arnould, Chief Executive of the European Defence Agency.

The second panel will discuss the future of the EDTIB – and in particular how to ensure the competitiveness of the European defence industry – in the current economic and budgetary situation. The "leitmotiv" will be: what the EU should do to ensure a competitive industrial and technological base needed to support Member States and the broader policy objectives of the EU, in particular, the CSDP?

The second panel will feature Vice-President Tajani, Sten Tolgfors, Swedish Minister for Defence, Italian Under-Secretary for Defence Guido Crosetto, Arnaud Danjean, Chair of the Sub-Committee on Security and Defence of the European Parliament, Pierfrancesco Guargaglini, President of Finmeccanica, and Domingo Ureña Raso, President of Aerospace and Defence Association of Europe.

The full programme of the conference is available at: http://ec.europa.eu/internal_market/publicprocurement/docs/defence/conference20110523/programme_en.pdfpdf Choose translations of the previous link 

Contact

‘Defence, Aeronautic and Maritime Industries' Unit,
Directorate-General for Enterprise and Industry

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