EC Proposes New Competitive Measures for Defence Market

December 6, 2007 // Published as a news service by IHS

The Dec. 5 package seeks to address the divergent national policies that create red tape, hamper innovation and competitiveness, and weaken the European Security and Defence Policy (ESDP).

The new defence package contains three elements:

• A communication with recommendations for fostering the competitiveness of the defence sector.
• A directive on defence procurement to enhance openness and intra-European competition in the defence markets of European Union (EU) member states.
• A directive on intra-EU transfers of defence products designed to alleviate the obstacles to intra-community trade.

The proposed new legislation will contribute to creating a genuine European market in this sector without sacrificing the control of member states over their essential defence and security interests.

Günter Verheugen, EC vice president responsible for enterprise and industry policy, said, "Opening the internal market for defence products will improve the competitiveness of the technological and industrial base of the European defence sector. This is also fundamental to establishing Europe's autonomy in this field."

Charlie McCreevy, EC commissioner for internal market and services, said, "Introducing transparent and competitive procurement rules applicable throughout the Union is crucial for the establishment of a common defence market. This will lead to greater openness of defence markets between member states to the benefit of all: armed forces, taxpayers and industries."

The EC believes that today's fragmented policy and legal framework is hampering the efficiency of Europe's defence markets and the competitiveness of its industries. For example, member states make extensive use of Article 296 of the EU treaty to exempt defence contracts from EU procurement rules, thereby adding more divergence and incoherence to defence markets.

Furthermore, national systems to control transfers of defence equipment do not distinguish between exports to third countries and transfers between member states.

Applying heterogeneous and disproportionate national licensing regimes hampers the security of supply between member states, costs business over €400 million a year and limits market opportunities for competitive SME subcontractors in other member states.

In addition, the use of non-harmonised standards hampers cooperation in R&D, procurement and production programmes.

Legislation to improve internal market for defence products
The EC presented two new legislative initiatives on Dec. 5:

• Directive on defence procurement, which will be applicable to arms, munitions and war material, as well as to certain sensitive non-military security equipments. The rules of the new directive are adapted to the specificities of such procurements, which are often particularly complex and sensitive. Member states will thus have at their disposal European Community rules that they can use without risk to their security interests. This will enhance transparency and openness of defence markets between member states. For more information, see Commission proposes enhancing openness and transparency in EU defence markets (Memo/07/547).
• Directive on intra-EU transfers of defence products, which aims to significantly simplify national licensing procedures, thereby facilitating cross-frontier commercial exchanges within the EU. This will contribute to making defence industries more competitive and facilitate participation by small to medium-sized enterprises in prime contractors' supply chains. The new legislation should enable member states to meet military needs at lower costs and enhance the security of supply for public procurement and industrial cooperation. For more information, see Commission proposes cutting red tape in EU defence industry, (Memo/07/546)

Policies to support the competitiveness of the defence sector
The EC also identified a number of other actions to strengthen the sector's competitiveness. In particular, the EC will:

• Promote the use of common standards.
• Use the legal instruments at its disposal to ensure fair competition for defence industry goods.
• Explore the merits of establishing an EU system on security of information.
• Launch a study in 2008 on how control of strategic assets might be undertaken in the future, particularly focusing on options for ensuring competitive supply at the European level without sacrificing national security interests.
• Foster greater overall coordination with, and between, member states to seek the best level of performance while allowing more cost-effective solutions.

For more information, see the EU web site on Defence Procurement and on the Intra-Community Transfer of Defence Products.

Source: European Commission.