(1)

The return of high-intensity warfare brought about by Russia’s unprovoked and unjustified war of aggression against Ukraine has a negative impact on the security of the Union and the Member States and requires a significant increase in the capacity of Member States to reinforce their defence capabilities. The long-term deterioration of regional and global security requires a step-change in the scale and speed at which the European Defence Technological and Industrial Base (EDTIB) is able to develop and produce the full spectrum of military capabilities.

(2)

The Heads of State or Government of the Union, meeting in Versailles on 11 March 2022, committed to bolster European defence capabilities. They agreed to increase their defence expenditures, step up cooperation through joint projects and common procurement of defence capabilities, close shortfalls, boost innovation and strengthen and develop the European defence industry.

(3)

The Commission and the High Representative of the Union for Foreign Affairs and Security Policy (the ‘High Representative’) presented a Joint Communication on the Defence Investment Gaps Analysis and Way Forward on 18 May 2022, highlighting the existence, within the Union, of defence financial, industrial and capability gaps.

(4)

In its conclusions of 14 and 15 December 2023, the European Council, having considered work carried out to implement the Versailles declaration of 11 March 2022 and the Strategic Compass for Security and Defence approved by the Council on 21 March 2022, underlined that more needs to be done to fulfil the Union’s objectives of increasing defence readiness. To achieve such readiness and defend the Union, a strong, resilient, innovative and competitive European defence industry is a pre-requisite.

(5)

On 20 July 2023, the European Parliament and the Council adopted Regulation (EU) 2023/1525 (5), aimed at urgently supporting the ramp-up of manufacturing capacities of the European defence industry, securing supply chains, facilitating efficient procurement procedures, addressing shortfalls in production capacities and promoting investments. On 18 October 2023, the European Parliament and the Council adopted Regulation (EU) 2023/2418 (6), aimed at supporting collaboration between Member States in the procurement phase to fill the most urgent and critical gaps in a collaborative way, especially those gaps created by the response to Russia’s war of aggression against Ukraine.

(6)

Regulations (EU) 2023/1525 and (EU) 2023/2418 were designed as emergency response and short-term programmes, expiring on 30 June 2025 and 31 December 2025 respectively.

(7)

This Regulation should build on Regulations (EU) 2023/1525 and (EU) 2023/2418 and extend their logic in a more long-term and structured perspective, by providing financial support for the period 2025-2027 for the reinforcement of the competitiveness, responsiveness and ability of the EDTIB to ensure the availability and supply of defence products in a predictable, continuous and timely manner. In light of the current security situation, it appears necessary to extend that Union support to incentivise collaboration between Member States in the procurement of a broader scope of defence equipment.

(8)

On 23 June 2022, the European Council decided to grant the status of candidate country to Ukraine, which expressed a strong will to link reconstruction with reforms on its European path. On 15 December 2023, the European Council decided to open accession negotiations with Ukraine and declared that the Union and its Member States remain committed to contributing, for the long-term and together with partners, to security commitments to Ukraine, which will help the latter to defend itself, resist destabilisation efforts and deter acts of aggression in the future. Strong support to Ukraine is a key priority for the Union and an appropriate response to the Union’s strong political commitment to support Ukraine for as long as necessary.

(9)

The damage caused by Russia’s war of aggression to the Ukrainian economy, society and infrastructure, and in particular damage caused to the Ukrainian Defence Technological and Industrial Base (the ‘Ukrainian DTIB’), means that comprehensive support is required to rebuild the Ukrainian DTIB. Such support is essential in order to provide Ukraine with the capacity to maintain essential state functions, contributing to the fast recovery, reconstruction and modernisation of the country, to the integration of the Ukrainian DTIB into the EDTIB, and to the adaptation of the Ukrainian DTIB to meeting the standards of the North Atlantic Treaty Organisation (NATO) and other relevant standards. A strong Ukrainian DTIB is vital for Ukraine’s long-term security as well as its reconstruction.

(10)

Actions supporting the reinforcement of the Ukrainian DTIB should be financially supported by the Union. In particular, the Ukraine Support Instrument under this Regulation should incentivise Member States to cooperate with Ukraine and the Ukrainian DTIB with a view to ramping up the Ukrainian defence manufacturing capacities and to fostering the common procurement of defence products from the Ukrainian DTIB. That support is complementary to the support provided under the Ukraine Facility established by Regulation (EU) 2024/792 of the European Parliament and of the Council (7), and to military support provided to Ukraine under the European Peace Facility established by Council Decision (CFSP) 2021/509 (8) and through bilateral assistance from Member States. It is also consistent with the Union’s continued and unwavering support for Ukraine’s independence, sovereignty and territorial integrity within its internationally recognised borders.

(11)

Russia must be held fully accountable and pay for the massive damage caused by its war of aggression against Ukraine, which constitutes a blatant violation of the Charter of the United Nations. The Union and its Member States should, in close cooperation with other international partners, continue to work towards that goal, in accordance with Union and international law, taking into account Russia’s serious breach of the prohibition on the use of force enshrined in Article 2(4) of the Charter of the United Nations and the principle of State responsibility for internationally wrongful acts, including the obligation to compensate for the financially assessable damage caused. In coordination with international partners, progress has been made on how extraordinary revenues held by private entities stemming directly from the immobilisation of Russia’s sovereign assets could be directed to support Ukraine, including the Ukrainian DTIB, in a manner that is consistent with applicable contractual obligations and in accordance with Union and international law. Additional support could be drawn from the transfer to the Union of extraordinary cash balances of central securities depositories arising from the unexpected and extraordinary revenues stemming from the immobilisation of Russia’s sovereign assets or any other relevant Union restrictive measures.

(12)

Following the strong commitment of the G7 leaders to helping Ukraine meet its urgent short-term financing needs and to supporting its long-term recovery and reconstruction priorities, on 28 October 2024 the European Parliament and the Council adopted Regulation (EU) 2024/2773 (9) which established the Ukraine Loan Cooperation Mechanism and provided exceptional macro-financial assistance to Ukraine. Regulation (EU) 2024/2773 provides that the Memorandum of Understanding on policy conditions for that macro-financial assistance is to include a commitment to promote cooperation with the Union on the recovery, reconstruction and modernisation of the Ukrainian defence industry, in line with the objectives of Union programmes aimed at the recovery, reconstruction and modernisation of the Ukrainian DTIB and of other relevant Union programmes.

(13)

A financing agreement within the meaning of Article 114(2) of Regulation (EU, Euratom) 2024/2509 of the European Parliament and the Council (10) (the ‘Financial Regulation’) should be concluded with Ukraine for the implementation of the actions set out in this Regulation which concern Ukraine or legal entities established in Ukraine receiving Union funding. The financing agreement with Ukraine, along with the contracts and agreements signed with legal entities established in Ukraine receiving Union funds, should ensure compliance with the obligations set out in Article 129 of the Financial Regulation.

(14)

To fund the actions that aim to strengthen the competitiveness and readiness of the EDTIB based on Article 173 of the Treaty on the Functioning of the European Union (TFEU) and the actions that aim to contribute to the recovery, reconstruction and modernisation of the Ukrainian DTIB, taking into account its possible future integration into the EDTIB, under Article 212 TFEU, this Regulation should establish a European Defence Industry Programme (the ‘Programme’) setting out the conditions for Union financial support under Article 173 TFEU and a Ukraine Support Instrument setting out the specific conditions for Union financial support under Article 212 TFEU.

(15)

The Programme should be consistent with the defence capability priorities commonly agreed by Member States within the framework of the common foreign and security policy (CFSP), Member States’ cooperation within the framework of the permanent structured cooperation (PESCO) established by Council Decision (CFSP) 2017/2315 (11), the European Defence Agency’s (EDA) initiatives and projects and the Union’s civil and military assistance to Ukraine. The Programme should duly take into account the relevant activities carried out by NATO and other partners where such activities serve the security and defence interests of the Union.

(16)

This Regulation should lay down a financial envelope for the period 2025 to 2027 which is to constitute the prime reference amount, within the meaning of point 18 of the Interinstitutional Agreement of 16 December 2020 between the European Parliament, the Council of the European Union and the European Commission on budgetary discipline, on cooperation in budgetary matters and on sound financial management, as well as on new own resources, including a roadmap towards the introduction of new own resources (12), for the European Parliament and the Council during the annual budgetary procedure. It is appropriate to allow for additional financial resources to be made available to the Programme and the Ukraine Support Instrument, including through additional contributions provided by the Member States.

(17)

The European Council, in its conclusions of July 2020, stated that the duration of the Multiannual Financial Framework (MFF) sectoral programmes should, as a rule, be aligned with the timeframe of the MFF 2021-2027. After the expiry of the MFF 2021-2027, Union funding to sectoral programmes will be subject to the outcome of negotiations on the next MFF, applicable from 2028.

(18)

The possibilities provided for in Article 73(4) of Regulation (EU) 2021/1060 of the European Parliament and of the Council (13) could be applied provided that the project complies with the rules set out in that Regulation and the scope of the European Regional Development Fund and the European Social Fund Plus as set out in Regulations (EU) 2021/1058 (14) and (EU) 2021/1057 (15) of the European Parliament and of the Council, respectively. This could, in particular, be the case where the production of relevant defence products faces specific market failures or suboptimal investment situations in the Member States’ territories, in particular in vulnerable and remote areas, and such resources contribute to the achievement of the objectives of the programme from which they are transferred. In line with Article 24 of Regulation (EU) 2021/1060, the Commission is to assess the amended programmes submitted by the Member State and make observations within two months of the submission of the amended programme.

(19)

In view of the need to invest better and together in the competitiveness, responsiveness and ability of the EDTIB to ensure the timely availability and supply of defence products as well as in the recovery, reconstruction and modernisation of the Ukrainian DTIB, it should be possible for Member States, Union institutions, bodies and agencies, third countries, international organisations, international financial institutions and other third parties to contribute to the implementation of the Programme and of the Ukraine Support Instrument. Such contributions should be implemented in accordance with the same rules and conditions and should constitute external assigned revenue within the meaning of Article 21(2), point (a), (d) or (e), of the Financial Regulation and should be indicated in the annual budgetary procedure in accordance with the Financial Regulation. Member States should have the flexibility to decide how to allocate the amounts contributed to the Programme or to the Ukraine Support Instrument. It should be possible for Member States to choose to make those funds available to all entities eligible for funding under this Regulation, to benefit only the Member States concerned, or to additionally benefit other Member States or, where relevant, Ukraine. That flexibility is essential to ensure the most efficient use of resources, enabling the allocation of funding where it is most needed.

(20)

Member States should be able to use the flexibility in the implementation of their shared management allocations offered by Regulation (EU) 2021/1060. It should therefore be possible to transfer certain levels of funding between shared management allocations and the Programme or the Ukraine Support Instrument, subject to the conditions set out in Regulation (EU) 2021/1060. It should be possible for resources that remain uncommitted by the end of 2028 to be transferred back to one or more respective source programmes, at the request of the Member State concerned, in accordance with the conditions set out in Regulation (EU) 2021/1060.

(21)

The objectives pursued under the Programme to increase the competitiveness and readiness of the EDTIB by initiating and accelerating the adjustment of industry to structural changes imposed by the evolving security environment, including with a view to ensuring security of supply of defence products throughout the Union, can contribute to promoting the Union’s economic, social and territorial cohesion as foreseen under Regulation (EU) 2021/241 of the European Parliament and of the Council (16). Therefore, provision should be made to allow for Member States’ contributions supported by the Recovery and Resilience Facility to be used for the purpose of supporting industrial reinforcement actions under this Regulation. That possibility should be used to the extent that it contributes to achieving the objectives set out in Article 4 of Regulation (EU) 2021/241. The application of the principle of ‘do no significant harm’ within the meaning of Article 17 of Regulation (EU) 2020/852 of the European Parliament and of the Council (17) is essential to ensure that the reforms and investments undertaken under the Recovery and Resilience Facility are implemented in a sustainable manner. All measures supported by the Recovery and Resilience Facility are to be undertaken in compliance with the applicable Union and national environmental acquis, in particular relating to environmental impact assessment and nature protection. At the same time, some defence end-products are, by their very nature, likely to directly or indirectly harm the environment. Therefore, the application of the principle of ‘do no significant harm’ to Member States’ contributions supporting industrial reinforcement actions which concern those products might not be feasible. In addition, it could be appropriate not to apply the principle of ‘do no significant harm’ where the supported industrial reinforcement action concerns defence products, or components or raw materials intended or used wholly for the production of defence products. Indeed, the Union is confronted with a stark deterioration of its security context which has increased the level of threat to the Union. This necessitates immediate and massive investments in and support to the resilience and scaling up of the EDTIB to strengthen its ability to prepare for future supply crises and ensure the timely availability and supply of defence products across the Union. This represents, in the present situation, an overriding objective of public security which takes precedence over other considerations. In this context, it is necessary to prevent any disruption along defence supply chains, in particular by allowing industrial reinforcement actions concerning defence products, components and raw materials to be supported, where appropriate, without restrictions related to the application of the principle of ‘do no significant harm’. Therefore, where Member States use their voluntary contribution supported by the Recovery and Resilience Facility in favour of industrial reinforcement actions under this Regulation, those actions should not be subject to the application of the principle of ‘do no significant harm’, provided that the Member State concerned justifies in the contribution agreement with the Commission that it is not feasible or appropriate to ensure that the type of activities intended to be supported under this Regulation comply with the principle of ‘do no significant harm’.

(22)

Third countries which are members of the European Economic Area should be able to participate in the Programme as associated countries in the framework of the cooperation established under the Agreement on the European Economic Area (18), which provides for the implementation of the programmes on the basis of a decision adopted under that Agreement.

(23)

As this Regulation aims to enhance the competitiveness and efficiency of the Union’s and Ukraine’s defence industries, and in order to ensure the protection of essential security and defence interests of the Union and its Member States, to benefit from Union financial support under the Programme and under the Ukraine Support Instrument, recipients of such financial support should be legal entities which are established and have their executive management structures in the Union, in associated countries or in Ukraine and which use for the purposes of the action infrastructure, facilities, assets and resources located on the territory of a Member State, of an associated country or of Ukraine. In addition, recipients of such financial support should not be subject to control by a non-associated third country other than Ukraine or by another third-country entity. In that context, control should be understood as the ability to exercise a decisive influence on a legal entity directly, or indirectly through one or more intermediate legal entities. Where Member States, associated countries or Ukraine are the recipients of such financial support, for the purpose of common procurement, equivalent criteria should apply to the contractors and subcontractors for the procurement contracts, with a view to ensuring that the same conditions apply to them while reflecting the fact that those contractors and subcontractors are not recipients of Union funding.

(24)

Eligibility criteria should take into account existing supply chains and the industrial cooperation with non-associated third countries other than Ukraine and should allow capability requirements to be met. Therefore, common procurement involving one subcontractor that is allocated between 15 % and 35 % of the value of the contract, and that is not established or does not have its executive management structures in the Union, an associated country or, where relevant, Ukraine should, under a certain condition, be eligible for funding under the Programme and the Ukraine Support Instrument.

(25)

In certain circumstances, it should be possible to derogate from the principle that legal entities involved in an action supported by the Programme use infrastructure, facilities, assets and resources located on the territory of a Member State or of an associated country, and are not subject to control by non-associated third countries or non-associated third-country entities. In that context, a legal entity established in the Union or in an associated country using infrastructure, facilities, assets or resources located outside the territory of a Member State or of an associated country, or controlled by a non-associated third country or a non-associated third-country entity, should be able to participate as a recipient if strict conditions relating to the security and defence interests of the Union and its Member States, including the principle of good neighbourly relations, as established in the framework of the CFSP pursuant to Title V of the Treaty on European Union (TEU), including in terms of strengthening the EDTIB, are fulfilled. Similar derogations should be provided for actions supported under the Ukraine Support Instrument, to allow for the use of infrastructure, facilities, assets or resources located outside the territory of a Member State or Ukraine, and for the participation of legal entities established in the Union and controlled by a third country other than Ukraine or by another third-country entity.

(26)

Legal entities established in the Union or in an associated country and controlled by a non-associated third country or a non-associated third-country entity should be eligible to be a recipient if guarantees approved in accordance with the national procedures of the Member State or associated country in which they are established are made available to the Commission and assessed prior to a decision to award Union funding. Such guarantees should only be issued provided that strict conditions relating to the security and defence interests of the Union and its Member States, as established in the framework of the CFSP pursuant to Title V of the TEU, are fulfilled and maintained throughout the action. The Commission should inform Member States meeting as a committee about legal entities considered to be eligible following such assessment. Information relating to subsequent assessment of eligibility, due inter alia to a reported change of ownership in the course of implementation, will also be reported to Member States meeting as a committee in order to ensure transparency in the monitoring of ongoing compliance with the eligibility conditions. The participation of entities controlled by non-associated countries or non-associated third-country entities should not contravene the objectives of this Regulation. For the purposes of the Ukraine Support Instrument, such rules regarding eligibility should apply in the case of legal entities established in the Union and controlled by a non-associated third-country other than Ukraine or by another third-country entity.

(27)

In order to increase the competitiveness of the EDTIB, foster the recovery, reconstruction and modernisation of the Ukrainian DTIB and ensure the timely availability and supply of defence products from those defence technological and industrial bases, it is important to establish minimum requirements concerning the value generated within the Union and associated countries or, where relevant, Ukraine. This will enhance the efficiency of the Union support under the Programme and the Ukraine Support Instrument. Therefore, for actions supported by Union funding under the Programme or the Ukraine Support Instrument, the cost of the components originating outside the Union and associated countries or, where relevant, Ukraine should not be higher than 35 % of the estimated cost of the components of the end-product or of the product the increase in production capacity of which is supported by Union funding. The objectives pursued under this Regulation will be achieved all the more effectively if the cost of those components is lower than that 35 % threshold. Recipients of Union funding are invited to aim to gradually lower that percentage in new products. Raw materials are not considered components.

(28)

Considering the need to safeguard the operational capacity of Member States’ armed forces and to ensure their ability to use the defence products covered by an action conducted under the Programme without limitations imposed by third countries, it is necessary to establish additional requirements relating to the ability to decide on the definition, adaptation and evolution of the design of such defence products. Therefore, recipients of Union funding or, where relevant, the contractor or the consortium of contractors should not be subject to legal or contractual limitations by non-associated third countries or by non-associated third-country entities affecting their ability to decide on the definition, adaptation and evolution of the design of the defence product, including on the substitution or removal of the components that are subject to restrictions imposed by non-associated third countries or by non-associated third-country entities. In light of the current geopolitical situation, a specific and targeted derogation to that requirement should exceptionally and temporarily be provided for the ramp-up of industrial capacities for the production of ammunition and missiles. Such derogation should consist of allowing the recipients of Union funding or the relevant governmental authorities of the Member States concerned to provide the Commission with a legally binding commitment from the non-associated third country or the non-associated third-country entity concerned that the recipients will obtain that ability to decide. The recipients should take all measures to ensure that that commitment is implemented. Where the recipients, despite their efforts, cannot obtain such ability to decide, corrective measures would be taken in accordance with the Financial Regulation, in particular Article 132.

(29)

In order to ensure that, in the implementation of this Regulation, the international obligations of the Union and its Member States are respected, actions relating to products or technologies the use, development or production of which is prohibited by applicable international law should not be eligible for funding under the Programme nor under the Ukraine Support Instrument.

(30)

The Programme and the Ukraine Support Instrument should provide financial support in accordance with the Financial Regulation to actions contributing to strengthening the competitiveness, responsiveness and ability of the EDTIB or the recovery, reconstruction and modernisation of the Ukrainian DTIB to ensure the timely availability and supply of defence products, such as cooperation of legal entities in the common procurement of defence products and actions aimed at accelerating the adjustment to structural changes of the production capacity of defence products, components and corresponding raw materials. This could include industrial coordination on the reservation of defence products, access to finance for undertakings involved in the manufacturing of defence products, reservation of manufacturing capacities (‘ever-warm facilities’) or industrial processes of reconditioning of expired products, expansion, optimisation, modernisation, upgrading or repurposing of existing, or the establishment of new, production capacities in that field. It could furthermore cover a number of additional supporting actions, in line with the objectives of this Regulation, such as the training, reskilling or upskilling of personnel.

(31)

In view of the current geopolitical context, and in particular Russia’s war of aggression against Ukraine, the protection of the Union’s essential security interests requires the adoption of specific measures on the procurement of defence products aimed at fostering the competitiveness of the EDTIB and ensuring the timely availability and supply of defence products procured from the EDTIB, throughout the Union. The protection of the Union’s essential security interests also requires the involvement of Ukraine and of the countries which are members of the European Economic Area in those measures, not only because of their geographical position and the fact that Ukraine is directly faced with Russia’s ongoing war of aggression, but also in view of their close procurement partnership with the Union, as reflected in particular in the Association Agreement between the European Union and the European Atomic Energy Community and their Member States, of the one part, and Ukraine, of the other part (19) and in the Agreement on the European Economic Area.

(32)

As it is important to mitigate any distortion of the market, the Commission should be able to recover profit generated by successful industrial reinforcement actions supported by the Union budget in accordance with the principle of proportionality. By derogation from Article 195(2) of the Financial Regulation, such recovery of profit should take fully into account all revenue generated, including revenues from Member State, Ukraine and third-party support to the action, in addition to the Union support itself. The profit recovered should be re-used to help achieve the objectives of this Regulation.

(33)

The functioning of the defence industry sector does not follow the conventional rules and business models that govern more traditional markets. Demand comes almost exclusively from States, which also control all acquisition of defence-related products and technologies, including exports. Therefore, the defence industry does not engage in substantial self-funded industrial investments and only does so as a consequence of firm orders. Furthermore, the EDTIB faces persistent barriers in accessing finance, including co-financing, in particular private finance for investments, due to the risks market actors associate with such investments. Leveraging public investment for the Union defence sector is vital given the compelling need to boost investment in that sector. This applies particularly to supporting actions, which benefit the EDTIB in a broader sense, for example by enabling and facilitating other actions set out in this Regulation, thus acting as multipliers with a potentially high leverage effect. As the supporting actions would not be undertaken otherwise, it appears justified that, by derogation from Article 193(1) of the Financial Regulation, the Union financial support under the Programme cover up to 100 % of the eligible costs for the supporting actions.

(34)

As the different types of actions are complementary and necessary for offsetting the complexity of cooperation and de-risking industrial investments via Union financial support allowing a faster adaptation of the defence industry to ongoing structural market change, it appears justified that a substantial amount, representing at least 15 % of the financial envelope allocated to the Programme, be reserved for actions referred to common procurement action and at least 30 % of that envelope be reserved for industrial reinforcement actions. The Union support for industrial reinforcement actions should cover up to 35 % of eligible costs in order to enable recipients to implement actions as soon as possible, to de-risk their investment and therefore to accelerate the availability of relevant defence products.

(35)

For actions under the Ukraine Support Instrument, Union support for industry reinforcement and supporting activities involving legal entities established in Ukraine should be able to cover up to 100 % of the eligible costs in order to accommodate the increased complexity and environment of the Ukraine defence industry, including the need to meet NATO standards and other relevant standards, as well as the increased risks associated with Russia’s war of aggression against Ukraine, taking into account the need to rebuild and modernise industrial capacities in a resilient way.

(36)

Common procurement actions should be funded under this Regulation by way of grants taking the form of financing not linked to cost based on the achievement of results by reference to work packages, milestones or targets of the common procurement process, in order to create the necessary incentive effect.

(37)

The Union financial contribution under the Programme for common procurement actions, intended as an incentive for cooperation, should not exceed 15 % of the estimated value of the common procurement contract. Given the increased complexity that comes with common procurement with Ukraine, the Union financial contribution under the Ukraine Support Instrument should not exceed 25 % of the estimated value of the common procurement contract.

(38)

Upon fulfilment of specific conditions linked to the objectives of the Programme, the cap for the Union financial contribution to common procurement actions should be raised to 25 % of the estimated value of the common procurement contract in order to compensate for particular complexities relating to enhanced cross-border cooperation within the Union and cooperation within the context of a Structure for European Armament Programme (SEAP). The need to gradually reduce strategic dependencies should also be taken into account, justifying an increased funding rate where the action supports the common procurement of restriction-free end products. In addition, given the particular security situation of Ukraine and Moldova in light of Russia’s war of aggression against Ukraine, it is also appropriate to provide for such an increased funding rate in cases where the supported action results in the common procurement of additional quantities of defence products for those two countries. Furthermore, the geopolitical context, including Russia’s war of aggression against Ukraine, has exposed the Union and its Member States to a high risk of materialisation of conventional military threats, thereby creating a need for increased defence investments. It is thus also justified to provide for an increased funding rate of up to 25 % for common procurement actions in cases where the defence investment expenditure of the majority of Member States participating in the action concerned exceeds 30 % of their respective defence spending. For industrial reinforcement actions, it should be possible to raise the cap to up to 50 % of eligible costs where the majority of beneficiaries are small and medium-sized enterprises (SMEs) or middle-capitalisation companies (mid-caps) established in Member States or in associated countries or where the action is carried out by a SEAP, and where the action demonstrates a contribution to the creation of new cross-border cooperation, such as expanding the geographical scope of existing supply chains or by significantly increasing the trade, collaboration or joint projects between entities in different Member States or the expansion of existing cross-border networks in ways that enhance overall capacity and resilience of the EDTIB, where it involves building new infrastructure, facilities or production lines, or where it contributes to the establishment of new, or the ramping-up of existing, manufacturing capacities of crisis-relevant products. In addition, when Member States specifically decide to allocate funding to the Programme only to the benefit of the Member States concerned or to the additional benefit of other Member States, it should be possible, by way of derogation from Article 193(1) of the Financial Regulation, to increase flexibility and allow for a Union financial contribution to industrial reinforcement actions covering up to 100 % of the eligible costs. That possibility should also apply to cases where Member State contributions supported by the Recovery and Resilience Facility are used for the funding of such actions. This will maximise the impact and effectiveness of the action.

(39)

In accordance with Article 196(2) of the Financial Regulation, a grant may be awarded for an action which has already begun, provided that the applicant is able to demonstrate the need for starting the action prior to signature of the grant agreement. However, costs incurred prior to the date of submission of the grant application are not eligible, except in the cases provided for in Article 196(2), second subparagraph, of the Financial Regulation. In order to enable continuity of funding perspective for actions that could have been supported by 2024 funding under Regulations (EU) 2023/1525 or (EU) 2023/2418, in the financing decision it should be possible, by way of derogation from Article 196(2), second subparagraph, of the Financial Regulation, to provide for financial contributions under the Programme in relation to actions that cover a period starting from 5 March 2024 and have not been completed before the signature of the grant agreement. In view of the links between the Programme and the Ukraine Support Instrument, as well as the need to urgently support the reconstruction, recovery and modernisation of the Ukrainian DTIB, taking into account its possible future integration into the EDTIB, the same derogation should apply to financial contributions under the Ukraine Support Instrument. In no circumstances should the same costs be financed twice by the Union budget.

(40)

When assessing proposals submitted by applicants, the Commission should pay particular attention to the contribution of those proposals to the objectives of this Regulation. The proposals should be assessed, in particular, against their contribution to the increase in defence industrial readiness and resilience and their contribution to cross-border defence industrial cooperation among Member States, associated countries and Ukraine.

(41)

Developing defence manufacturing capacities throughout the Union, taking into account the risks associated with the increased deterioration of the Union’s security context, is essential to ensure that all Member States contribute to and benefit from a robust EDTIB. As regards industrial reinforcement actions, particular attention should be paid to the contribution of the action concerned to industrial resilience, in particular to ensuring the availability and security of supply of defence products throughout the Union in response to identified risks, such as high exposure to the risk of materialisation of conventional military threats.

(42)

In accordance with the Financial Regulation, Regulation (EU, Euratom) No 883/2013 of the European Parliament and of the Council (20) and Council Regulations (EC, Euratom) No 2988/95 (21), (Euratom, EC) No 2185/96 (22) and (EU) 2017/1939 (23), the financial interests of the Union are to be protected by means of proportionate measures, including measures relating to the prevention, detection, correction and investigation of irregularities, including fraud, to the recovery of funds lost, wrongly paid or incorrectly used, and, where appropriate, to the imposition of administrative penalties. In particular, in accordance with Regulations (Euratom, EC) No 2185/96 and (EU, Euratom) No 883/2013, the European Anti-Fraud Office (OLAF) has the power to carry out administrative investigations, including on-the-spot checks and inspections, with a view to establishing whether there has been fraud, corruption or any other illegal activity affecting the financial interests of the Union. The European Public Prosecutor’s Office (EPPO) is empowered, in accordance with Regulation (EU) 2017/1939, to investigate and prosecute criminal offences affecting the financial interests of the Union as provided for in Directive (EU) 2017/1371 of the European Parliament and of the Council (24). In accordance with the Financial Regulation, any person or entity receiving Union funds is to fully cooperate in the protection of the financial interests of the Union, grant the necessary rights and access to the Commission, OLAF, the European Court of Auditors and, in respect of those Member States participating in enhanced cooperation pursuant to Regulation (EU) 2017/1939, the EPPO, and to ensure that any third parties involved in the implementation of Union funds grant equivalent rights.

(43)

A specific provision should be introduced in this Regulation requiring the associated countries participating in the Programme to grant the necessary rights and access required for the authorising officer responsible, OLAF and the European Court of Auditors to comprehensively exercise their respective competences.

(44)

Pursuant to Article 85 of Council Decision (EU) 2021/1764 (25), natural persons and bodies and institutions established in overseas countries and territories (OCTs) are eligible for funding subject to the rules and objectives of the Programme and possible arrangements applicable to the Member State to which the relevant OCT is linked.

(45)

The Union should identify European Defence Projects of Common Interest (EDPCIs) on which to focus efforts and resources, which should consist of collaborative industrial projects aimed at reinforcing the competitiveness of the EDTIB throughout the Union while contributing to the development of Member States’ military capabilities critical for the security and defence interests of the Union, including those securing access to all operational domains. Due to the sensitive nature of the decision to identify an EDPCI in light of its potential impact on national security interests, and the importance of ensuring the contribution of such projects to the defence readiness of all Member States, the power to adopt implementing acts to identify EDPCIs should be conferred on the Council, upon a proposal from the Commission. Before proposing such implementing acts, the Commission should take into account the views of all Member States and the project proposals they have for possible EDPCIs. When preparing such project proposals, Member States should coordinate in an inclusive manner, using for that purpose the support of the EDA where necessary. In that context, Member States may identify dual-use capabilities of common interest. In so far as those project proposals turn into EDPCIs, the dual-use capabilities identified by Member States could be developed for the Union, its institutions, bodies and agencies in the context of the EDPCIs concerned. In addition to being consistent with the capability priorities identified in the context of the CFSP, including the Capability Development Plan (CDP), the objectives of the Strategic Compass for Security and Defence and the collaborative opportunities identified in the context of the Coordinated Annual Review on Defence (CARD), EDPCIs should take into account the projects agreed in the context of PESCO, EDA initiatives and the relevant activities carried out by NATO, such as the NATO Defence Planning Process. Before submitting a proposal for an implementing act, the Commission should invite the High Representative and the EDA, as necessary, to provide input with a view to ensuring consistency with those priorities and objectives. That input will complement the information provided by Member States regarding project proposals. The Council should be able to add or remove projects or make other amendments to the Commission proposal for an implementing act. The maturity of a project, its foreseen contribution to defence readiness and the number of participating Member States should be taken into consideration by the Council when assessing a proposal for an implementing act.

(46)

In the context of Russia’s war of aggression against Ukraine, Ukraine and the Ukrainian DTIB have developed specific expertise on defence industrial projects, including in cooperation with Member States and with the EDTIB. That expertise may be critical for and facilitate the development of EDPCIs, thereby contributing to reinforcing the competitiveness of the EDTIB while contributing to the development of Member States’ military capabilities critical for the security and defence interests of the Union. It is therefore appropriate to allow, in such cases, for the participation of Ukraine in EDPCIs. The Commission should verify that all Member States, associated countries and Ukraine were informed of the emergence of a project and were given the opportunity to participate. As the Commission might have expertise appropriate to support the implementation of EDPCIs for the benefit of the competitiveness of the EDTIB throughout the Union, it is appropriate to allow its participation in EDPCIs to share such expertise, if so requested by the participating Member States.

(47)

Given the potentially significant impact of the EDPCIs for the competitiveness and the industrial readiness of the EDTIB, the Programme should support the consortia of participating Member States and associated countries in their deployment. Such financial support from the Programme should be limited to activities undertaken by those consortia which are related to the common procurement of defence products, accelerating the adjustment to structural changes of the production capacity of defence products as well as related supporting activities, the industrial development of new defence products or the upgrading of existing ones, and the development and procurement of necessary infrastructure. Given the particular scale of those projects, which requires an unprecedented level of cooperation and coordination among Member States and industry, and taking into account the financial risks for the participating Member States and associated countries, Union funding should be able to cover, by derogation from Article 193(1) of the Financial Regulation, up to 100 % of the eligible costs. That is without prejudice to the possibility of certain EDPCI activities to be financially supported under other actions, provided they meet the conditions set for those actions and have not received funding under other Union programmes, in line with the Financial Regulation. Participating Member States should ensure that EDPCI activities comply with the objectives of the Programme, including where there is no Union financial support. To facilitate the monitoring of compliance with those objectives, Member States participating in an EDPCI should transmit to the Commission, on an annual basis, a joint report on the implementation of the EDPCI activities. The Council, upon a proposal from the Commission, should be able to amend the implementing acts identifying EDPCIs, including by removing EDPCIs from the list. Member States participating in an EDPCI will be able, for the purposes of carrying out activities necessary to its implementation, to rely on the expertise and the administrative capacity of the EDA or international organisations such as the Organisation for Joint Armament Cooperation (OCCAR) and the NATO Support and Procurement Agency (NSPA).

(48)

The ability of the EDTIB to ensure the availability of defence products in time and in volume is essential to its competitiveness, especially during periods of heightened security tensions. During such periods, the EDTIB might lack the production capacity necessary to meet Member States’ urgent needs and its products might be less visible to Member States than products offered by third countries or third-country entities. This Regulation should therefore provide a European military sales mechanism, including measures to increase the speed to market of defence products from the EDTIB by facilitating procedures for the common procurement of defence products and leveraging the use of contracts awarded by a government to another government.

(49)

Member States, associated countries and Ukraine, or a SEAP, should be able to establish, manage and maintain defence industrial readiness pools made up of defence products which Member States, associated countries and Ukraine could easily purchase or use, for the purpose of strengthening the competitiveness of the EDTIB and the reconstruction, recovery and modernisation of the Ukrainian DTIB. Such pools, consisting of stocks of defence products procured from the EDTIB or the Ukrainian DTIB, would attract demand and increase predictability for the defence sector. They would give positive signals to the Union and the Ukrainian industry, incentivising them to produce defence products and to invest for the purpose of strengthening industrial capacities in that sector. Furthermore, defence industrial readiness pools would improve the security of supply of defence products for Member States by improving product availability and reducing delivery lead times, including in supply-crisis situations. Where such pools are established in the context of a SEAP, the Programme and the Ukraine Support Instrument should be able to support the common procurement of additional quantities of defence products through common procurement actions carried out by the SEAP, as well as the establishment and the functioning of the SEAP for the purpose of managing and maintaining those pools.

(50)

To improve Member States’ awareness of the availability of EDTIB and Ukrainian DTIB products, the Programme should be able to support the establishment, by the Commission, of a single, centralised and up-to-date catalogue of defence products developed by the EDTIB and the Ukrainian DTIB, based on voluntary contributions by Member States, Ukraine and economic operators (European Military Sales Catalogue). For that purpose, the products present in the catalogue should be manufactured by economic operators that are established and have their executive management structures in the Union, an associated country or Ukraine, and the infrastructure, facilities, assets and resources used for the purpose of manufacturing those products should be located in the Union, an associated country or Ukraine. When establishing that catalogue, the Commission should consult the EDA and take into account its expertise.

(51)

Building inter alia on the experience of the Defence Equity Facility, established in the context of the European Defence Fund as an InvestEU blending operation, the Commission should endeavour to set up a dedicated facility as part of the Programme to be referred to as the Fund Accelerating Defence Supply Chains Transformation (FAST). FAST should be implemented under indirect management. FAST will leverage, de-risk and speed-up investments needed to increase the defence manufacturing capacities on the territory of the Union of Union-based SMEs and small middle-capitalisation companies (‘small mid-caps’), in the form of a blending operation offering support in the form of debt or equity. As the application for support in the form of debt under FAST might include information relating to the infrastructure, facilities, assets or resources used by the SME or the small mid-cap for the purpose of industrialising or manufacturing of defence products, it is appropriate to subject such support to rules requiring that such infrastructure, facilities, assets and resources are located on the territory of a Member State or of an associated country, with some targeted exceptions. FAST should be established as a blending operation, including under the InvestEU Programme established by Regulation (EU) 2021/523 of the European Parliament and Council (26), in close cooperation with its implementing partners.

(52)

FAST should achieve a satisfactory multiplier effect in line with the debt and equity mix and contribute to attracting both public and private-sector financing. In order to contribute to the overall objective of enhancing the EDTIB’s competitiveness, FAST should also provide support to SMEs, including start-ups and scale-ups, and small mid-caps across the Union which are part of the Union’s defence supply chains or have imminent plans to become part of it, in industrialising or manufacturing of defence products or having imminent plans to do so, facing difficulties in accessing finance. FAST should also accelerate investment in the field of manufacturing defence technologies and products, and therefore strengthen the security of supply of the Union’s defence industry value chains.

(53)

Increasing the number and magnitude of common procurement of defence products from the EDTIB and the Ukrainian DTIB is necessary to achieve the objectives of the Programme and of the Ukraine Support Instrument. In accordance with Article 168(2) and (3) of the Financial Regulation, Member States are able to request the Commission to engage in joint procurement with them, including through advance purchasing agreements, or as a central purchasing body. Associated countries should be able to request the Commission to engage in joint procurement, by way of derogation from Article 168(2), second subparagraph, of the Financial Regulation, because such a possibility is not provided for in a bilateral or multilateral treaty with those countries. Together with at least one Member State, associated countries should also be able to request the Commission to act as central purchasing body, by way of derogation from Article 168(3) of the Financial Regulation, because the Financial Regulation does not provide for the participation of third countries in such actions.

Similarly, for the purposes of the Ukraine Support Instrument, Ukraine should be able to participate in such actions. Together with at least one Member State, Ukraine should be able to request the Commission to engage in joint procurement, by way of derogation from Article 168(2), second subparagraph, of the Financial Regulation, because such a possibility is not provided for in a bilateral or multilateral treaty with Ukraine. For the same reason, Ukraine, together with at least one Member State, should also be able to request the Commission to act as a central purchasing body, by way of derogation from Article 168(3) of the Financial Regulation. To foster the aggregation of demand in the case of joint procurement, the Commission should ensure that such procurement procedure is open to all Member States and, where relevant, associated countries. With a view to fostering the industrial ramp-up of manufacturing capacities of the EDTIB and the Ukrainian DTIB, the Commission should furthermore facilitate the conclusion of off-take agreements in compliance with Union competition and procurement rules. For the purpose of joint procurement with support of the Commission, the use of the Union budget will be in line with the objectives and the applicable eligibility criteria of the Programme or the Ukraine Support Instrument and will be aimed at supporting the adaptation of the manufacturing capacity of defence industrial supply chains. The support by the Union budget could, in particular, serve to de-risk the industrial investments such as the increase in manufacturing capacities or the acquisition of the requisite machine tools to ensure the performance of a contract and should, in any case, be strictly limited to cover the non-recurrent costs incurred in the context of the purchase or of the maintenance of defence products. The budgetary allocation should be included in the work programmes of the Programme and of the Ukraine Support Instrument.

(54)

In the cases covered by this Regulation, the immediate award and performance of a contract prior to its signature resulting from procurement procedures carried out with the support of the Commission for the purposes of this Regulation could be justified given the existing geopolitical situation, especially where the seriousness of the circumstances and of their implications for the security of the Union citizens require that the deliveries of the defence product concerned be effectively performed without any delay. For that specific purpose and by way of derogation from Article 175(1) of the Financial Regulation, it should be possible to allow the performance of the contract to begin before the contract is signed, where the need for such a measure is duly documented by the contracting authority.

(55)

Cooperative armament programmes in the Union face significant challenges, being mostly set up on an ad hoc basis and being plagued by complexity, delays and cost overruns. To remedy that situation and ensure the continuous commitment of Member States until the end of the life cycle of defence products, a more structured approach is required at Union level. To achieve such an approach, Member States’ efforts should be supported by making available a new legal framework, namely the SEAP, to underpin and strengthen their cooperation. To reach its objective of fostering the competitiveness of the EDTIB and, where relevant, of the Ukrainian DTIB, a SEAP should be able to conduct the common development, procurement, life cycle management or dynamic availability management of defence products. SEAPs should be able to carry out additional activities necessary for the achievement of their objectives, such as activities related to infrastructure directly related to defence products. Actions undertaken in the framework of a SEAP should be mutually reinforcing with those carried out under the CFSP, in particular in the context of the CDP. Such actions should also not contravene the security and defence interests of the Union and its Member States, including respect for the principle of good neighbourly relations.

(56)

Within the SEAPs, Member States should benefit from standardised procedures that might be provided by the Commission for initiating and managing cooperative armament programmes, including guidelines on project management, procurement, financial management and reporting. Cooperation under the framework of a SEAP should also allow, under the conditions set out in Council Directives 2006/112/EC (27) and (EU) 2020/262 (28), for a VAT or excise duty exemption, where the SEAP owns the procured equipment. Beyond contributions from the Programme and the Ukraine Support Instrument, SEAPs should also be able to receive contributions from other Union programmes, provided that the contributions do not cover the same cost. The rules of the relevant Union programme should apply to the corresponding contribution to the action concerned.

(57)

If their members unanimously wish to do so, SEAPs should be able to issue securities in accordance with the law of the Member State where they have their statutory seat to ensure the long-term financing plan of armament programmes and compliance with the economic governance framework. The Union should not be liable for securities issued by SEAPs. Union financial contributions might improve the conditions for financing by the Member States of the armament programmes.

(58)

To achieve its objectives, a SEAP should be able to entrust, through a delegation agreement, one or more of the entities eligible for funding under common procurement actions under the Programme with one or more of its tasks. In particular, international organisations such as the OCCAR and NSPA, as well as the EDA have resources, competences and skills in the management of defence cooperation which could offer added value to SEAPs. Where a SEAP entrusts another entity with the performance of its tasks, it should remain responsible for the compliance with its obligations under Union law, in particular this Regulation. It should therefore ensure that the delegation agreement includes such obligations and take any appropriate measure to ensure they are met.

(59)

In order to allow for an efficient procedure for the establishment of a SEAP, it is necessary for the Member States, associated countries or Ukraine willing to establish a SEAP to submit an application to the Commission which should assess whether the proposed statutes of the SEAP are in conformity with this Regulation. Such an application should contain a declaration of the Member State where the SEAP is foreseen to have its statutory seat recognising the SEAP as an international body or organisation for the purpose of the application of Directives 2006/112/EC and (EU) 2020/262 as of its establishment. The Commission should assess the application without undue delay, ideally within two months of the receipt of the complete application. The Commission should be able, for this purpose, to invite the EDA to provide its expertise.

(60)

For reasons of transparency, the implementing acts establishing SEAPs, and the notices of the decisions to wind up a SEAP and of their closure, as well as any notices in the event that a SEAP is unable to pay its debts, should be published in the Official Journal of the European Union.

(61)

In order to carry out its tasks in the most efficient way, a SEAP should have legal personality as from the day on which the implementing act establishing the SEAP takes effect and should benefit from the most extensive legal capacity in each Member State. A SEAP should also benefit from the most extensive legal capacity in associated countries and Ukraine in cases where they are members of the SEAP. It should have a statutory seat within the territory of a Member State.

(62)

Member States, associated countries and Ukraine may be members of a SEAP. Membership of a SEAP should comprise at least three countries, of which at least two should be Member States.

(63)

For the implementation of the SEAP, more detailed provisions should be laid down in its statutes, on the basis of which the Commission should examine the compliance of an application with the rules of this Regulation. It is important that the statutes clarify what administrative capacities are foreseen to ensure compliance with Union and national rules applicable to the handling of defence products. Without prejudice to existing Union and national rules on the export of defence products, SEAP members should be able to unanimously agree on an approach to such exports.

(64)

It is necessary to ensure that, on the one hand, a SEAP has the necessary flexibility to amend its statutes and, on the other hand, that certain essential elements, in particular those which were necessary for the granting of the SEAP status, are preserved through a necessary control at Union level. If an amendment concerns an essential element of the statutes, such amendment should be approved by the Commission, prior to taking effect, Any other amendment should be notified to the Commission. With the exception of amendments relating to a possible approach to the export of defence products, the Commission should have an opportunity to object to such amendments if it considers them contrary to this Regulation.

(65)

A SEAP should be able to procure defence products on its own behalf or in the name of, or on behalf of, its members. For those purposes, SEAPs should be considered as international organisations within the meaning of Article 12, point (c), of Directive 2009/81/EC of the European Parliament and of the Council (29). Therefore, Directive 2009/81/EC should not apply to such procurement. Where a SEAP procures on behalf of its members which are Member States or, where relevant, associated countries, Directive 2009/81/EC should not apply in such cases when the procurement procedure complies with the objectives of the SEAP to foster the competitiveness of the EDTIB and, where relevant, of the Ukrainian DTIB. Directive 2009/81/EC should also not apply to the procurement procedures conducted by Member States when procuring on behalf of, or in the name of, a SEAP, as such contracts should be awarded in accordance with the procurement rules of the SEAP. Where Member States or, where applicable, associated countries procure defence products from a SEAP, the procurement should be considered as a contract awarded by a government to another government as referred to in Article 13, point (f), of Directive 2009/81/EC. SEAPs should define their own procurement rules, in compliance with Union primary law principles applicable to procurement, in particular those of equality of treatment, transparency, non-discrimination and proportionality, and with the rules set out in this Regulation. Where a SEAP entrusts procurement tasks to one or more entities, it should ensure that the procurement rules to be applied comply with those principles.

(66)

Member States participating in a SEAP should ensure that the procurement policy of the SEAP complies with the objectives of fostering the competitiveness of the EDTIB or of the Ukrainian DTIB, including when there is no Union financial support. That is without prejudice to the specific conditions that apply in the event a SEAP receives Union funding under a relevant programme.

(67)

In order to carry out its tasks in the most efficient way and as a logical consequence of its legal personality, a SEAP should be liable for its debts. In order to allow the members of a SEAP to find appropriate solutions regarding their liability, the option should be given to provide in the statutes for different liability regimes going above the liability limited to the contributions of the members.

(68)

In order to ensure sufficient control of compliance with this Regulation, a SEAP should transmit to the Commission its annual report and any information about circumstances threatening to seriously jeopardise the achievement of its tasks. If the Commission obtains indications, through the annual report or otherwise, that the SEAP is acting in serious breach of this Regulation or other applicable law, it should request explanations or actions from the SEAP or its members. In extreme cases and if no remedial action is taken, the Commission should be able to repeal the implementing act establishing the SEAP, thus triggering the winding-up of the SEAP. The Commission should provide the European Parliament and the Council with an aggregated annual report about the activities of all active SEAPs.

(69)

Following Russia’s unprovoked and unjustified war of aggression against Ukraine, security of supply has become an increasingly important factor in Member States’ procurement decisions regarding defence products. As a consequence, the ability of cross-border supply chains of the Union to ensure an undisturbed supply of defence products has become a determining factor for their competitiveness. The introduction of a Union-wide security of supply regime could therefore result in positive effects on the competitiveness of the EDTIB.

(70)

Upon the adoption of Regulation (EU) 2023/1525, the European Parliament and the Council called on the Commission to consider putting forward a legal framework aimed at ensuring the security of supply, in their Joint Statement of 11 July 2023. That Joint Statement echoed the conclusions of the European Council in December 2013 calling for a comprehensive Union-wide security of supply regime and the recommendation of the European Parliament of 8 June 2022 urging the Commission to present, without delay, such a regime.

(71)

Recent crises, such as the COVID-19 pandemic and the sharp increase in demand for certain defence products, in particular ammunition, have exposed vulnerabilities of the Union’s supply chains. Those crises have also revealed how disruptions in the supply of those products, or of components or raw materials critical to their production, can hinder the functioning of the internal market. Those crises have highlighted the likely risk of emergence of diverging measures at national level, including for the preservation of stocks as a matter of national security and the certification of defence products, and the lack of coordination at Union level to address the shortages of products of critical importance for responding to the emerging crises, as well as of components and raw materials indispensable to their production, resulting in difficulties accessing or acquiring the products, components and raw materials needed to manufacture the relevant products, with the concrete risk of thereby hampering entire production chains. It is crucial to prevent the emergence of obstacles to cross-border trade between Member States due to divergences in national law, as such divergences would restrict the free movement of critical products and of the related components and raw materials in the internal market and disrupt the functioning of supply chains. Those difficulties along the supply chains also revealed a lack of crisis management tools and coordination mechanisms, insufficient information sharing, and an insufficient overview of manufacturing capacities across the Union, in particular for defence products.

(72)

The constant degradation of the security context, characterised by rising long-term threats, acceleration in the development of defence technology and innovation, and the likely increase in defence spending, is likely to trigger surges in demand for defence products and to exacerbate future supply crises in relation to such products. It is likely that such heightened demand will intensify pressure on the Union’s supply chains for defence products and, if no framework is adopted at Union level, that it will result in the emergence or resurgence of diverging national measures to tackle shortages, thereby leading to the emergence of obstacles to the proper functioning of the internal market, undermining as a result the defence and security interests of the Union and its Member States.

(73)

Moreover, the rapidly evolving security environment could contribute to other crises taking a variety of forms, such as cyber-attacks on defence industries or large-scale disruptions to critical infrastructure, which would require swift and decisive coordinated responses to prevent severe disruptions to the related defence supply chains. In anticipation of heightened demand in defence products and intensified pressure on the related supply chains, the reliable functioning of those supply chains is therefore essential to ensure the proper functioning of the internal market for defence products.

(74)

As illustrated by the lessons learned from the work of the Defence Joint Procurement Task Force on coordinating very short-term defence procurement needs and from the implementation of Regulation (EU) 2023/1525, the Union’s defence supply chains often have a cross-border dimension, in particular in lower tiers. It is essential to avoid the growing complexity of Union-wide supply chains for defence products resulting in the lack of visibility on overall production capacities and supply chains of the EDTIB and in the inability of Member States to make informed decisions, in particular to address shortages or to mitigate a risk thereof.

(75)

There is a concrete risk that security of supply measures adopted at national level are not sufficient to tackle effectively challenges in the future and that the cross-border effects on the Union-wide defence supply chains cannot sufficiently be taken into account nor be appropriately addressed by individual Member States. In addition, uncoordinated approaches at national level, in particular concerning the certification and intra-EU transfer of defence products and the prioritisation of orders with a military purpose, can have a severe negative impact on the functioning of the internal market for defence products, in particular by creating obstacles to cross-border trade, and exacerbate the overall shortages and disruptions in the supply chains.

(76)

In light of those challenges, it appears necessary and appropriate to establish a Union-wide security of supply regime aimed at increasing the security of supply of defence products in order to ensure the proper functioning of the internal market and make it resilient to any shock. In that context, it is essential to: provide for coordination measures and prepare for and respond to the impact of future supply crises on the internal market for defence products; ensure security of supply of defence products, components and raw materials thereof, and of any products and services critical to their production, whose availability is indispensable to ensure the proper functioning of the internal market and its supply chains and which must be guaranteed in order to respond to a supply crisis (‘crisis-relevant products’); and ensure the proper functioning of the internal market for defence products, including by preventing the emergence of obstacles to it. Those measures should be based on Article 114 TFEU.

(77)

Directive 2009/81/EC concerns, amongst other things, the establishment of an appropriate legislative framework, which is a prerequisite for the creation of a European defence equipment market, on the coordination of procurement procedures for the award of contracts to meet the security requirements of Member States and the obligations arising from the TFEU. To achieve that aim, Directive 2009/81/EC caters, in particular, for addressing crisis situations, in particular by providing specific provisions applicable in cases of urgency resulting from a crisis, such as shortening periods for the receipt of tenders and the possibility to use the negotiated procedure without prior publication of a contract notice. However, in certain cases of urgency, those rules might be insufficient, especially where the urgency resulting from the crisis can be addressed only by having two or more Member States engaging in a common procurement. In those cases, often the only solution that ensures the security interests of those Member States is to open an existing framework agreement to contracting authorities of Member States that were not originally party to it, even though that possibility had not been provided for in the original framework agreement. As those possibilities are not foreseen in Directive 2009/81/EC at the moment of entry into force of this Regulation, this Regulation provides for the possibility to complement or derogate from the provisions of that Directive in cases of urgency resulting from a crisis, provided that the agreement of the undertaking which concluded the framework agreement is obtained.

(78)

In accordance with the case law of the Court of Justice of the European Union, modifications to a public contract are to be strictly limited to what is absolutely necessary in the circumstances, while complying to the maximum extent possible with the principles of non-discrimination, transparency and proportionality. In that regard, it should be possible to derogate from Directive 2009/81/EC by increasing the quantities provided for in a framework agreement by up to 100 % of the value of that framework agreement when opening it to contracting authorities of other Member States, in so far as such increase is strictly necessary for the opening of the framework agreement to those contracting authorities. With respect to those additional quantities, those contracting authorities should enjoy the same conditions as the original contracting authority that concluded the original framework agreement. In addition, appropriate transparency measures should be taken to ensure that all potentially interested parties are informed.

(79)

Over recent years, Member States have increasingly engaged in defence cooperation, in particular with a view to making their military capabilities converge. Union processes such as CARD and PESCO have, in particular, the purpose of supporting the implementation of relevant priorities by identifying and taking up opportunities for enhanced defence cooperation with a view to fulfilling the Union’s level of ambition in the area of security and defence. The constant deterioration of the geopolitical environment and the extreme volatility of the international environment make the development of operational cooperation even more necessary. To be effective, it might be necessary for a defence cooperation to require that the armed forces of cooperating Member States use the exact same defence product, or at least products so close that they are interchangeable. In such cases, a Member State participating in the establishment of or joining such a cooperation initiative, which goes beyond a mere cooperative procurement of defence products, should be allowed to derogate from the principles of transparency and competition and to directly award a contract without prior competition or publication of a contract notice to the undertaking from the EDTIB which produces that product, provided that this is necessary for the implementation of the defence cooperation concerned.

(80)

Given the security context and the existing and foreseeable tensions and bottlenecks in the internal market for defence products and its supply chains, arising in particular from the mismatch between limited manufacturing capacities in the Union and the surge in demand since the beginning of Russia’s war of aggression against Ukraine, it is necessary to provide for a set of measures enabling the Union to anticipate, prepare for and mitigate risks of serious disruptions in the supply of defence products that would result or would likely result in the adoption of divergent national measures leading to a severe negative impact on the proper functioning of the internal market.

(81)

The ability of the Union to anticipate and address crises in the supply of defence products affecting the proper functioning of the internal market depends on the knowledge and surveillance, at Union level, of the structure, strengths and weaknesses of the Union’s supply chains of such products. In light of the complexities of defence supply chains and of the existing tensions and risk of shortages along those supply chains, it is necessary to provide instruments for a continued coordinated approach to mapping and monitoring of the Union’s supply chains of crisis-relevant products. The results of such mapping will also provide relevant information for the development of Union measures aimed at strengthening the competitiveness of the EDTIB and for assessing the Union’s position in global defence supply chains. Mapping and monitoring should, in that perspective, focus on products whose serious disruption, or imminent risk of such disruption, would result or likely result in divergent national measures leading to a severe negative impact on the proper functioning of the internal market, in particular obstacles to cross-border trade.

(82)

For the purposes of mapping, the Commission should identify and regularly update a list of crisis-relevant products, focusing on possible disruptions or bottlenecks affecting the security of supply of such products. The identification of those products by the Commission should be based on data provided by Member States and stemming from the identification of the relevant manufacturing capacities and supply chains. In order to ensure the exhaustiveness of aggregated data, the Commission should cross-check those data, using, for that purpose, available data as well as, if necessary, data obtained through voluntary information requests of undertakings.

(83)

The Commission should provide for a framework and a methodology to identify crisis-relevant products. In order to ensure the efficiency of the mapping, that framework and that methodology should be defined in a way that avoid an unnecessary administrative burden on Member States. Hence, they should build upon existing national frameworks and methodologies that Member States would share with the Commission. That framework and that methodology should, in the first place, focus on existing bottlenecks along defence supply-chains and lead to the identification of the manufacturing capacities and supply chains thereof.

(84)

As part of the mapping, the Commission should also identify and develop a list of early-warning indicators aimed at identifying factors that might disrupt, compromise or negatively affect the supply of such products. Such indicators could include: atypical increases in lead time; the availability of raw materials, intermediate products and human capital needed for manufacturing crisis-relevant products or of appropriate manufacturing equipment; forecasted demand; price surges exceeding normal price fluctuation; accidents, attacks, natural disasters or other serious events; the effect of trade policies, tariffs, export restrictions, trade barriers and other trade-related measures; and the effect of business closures, offshoring or acquisitions of main suppliers of crisis-relevant products. Monitoring activities of the Commission should focus on those early-warning indicators, which may involve, if necessary, requests for voluntary information to relevant actors.

(85)

In order to minimise the burden for undertakings responding to the monitoring and to ensure that the acquired information can be compiled in a meaningful way, the Commission should provide for standardised and secure means for any information collection. Those means should ensure that any collected information is treated confidentially, ensuring business secrecy and cybersecurity. Similarly, in order to limit the administrative burden for national administrations, Member States should be allowed to request the Commission to perform the tasks they have been entrusted with for the purpose of the mapping of supply chains of defence products.

(86)

On the basis of the list of crisis-relevant products identified by the Commission, Member States should identify on their territory the main suppliers of such products. The list of such suppliers should be transmitted to the Commission to ensure an efficient coordinated approach at Union level. In order to be able to identify and report on any event that may cause negative and lasting consequences on the timely availability and supply of those products, Member States should monitor the ability of such suppliers to carry out their activities, in light of the early-warning indicators identified by the Commission. For that same purpose, the main suppliers of crisis-relevant products should also inform the Member State on whose territory they are established if they detect disruptions of supply which may significantly affect their activities related to the production of crisis-relevant products.

(87)

As part of the crisis preparedness framework, the Commission should carry out and coordinate stress tests and simulations, building in particular on the advice of the Defence Security of Supply Board (the ‘Board’) concerning critically important topics for defence supply chains. In that context, the Commission could develop scenarios and parameters that capture the particular risks associated with a crisis in the supply of crisis-relevant products. In order to ensure the crisis preparedness of all relevant actors, it is necessary that all Member States and, where relevant, the High Representative, the EDA and other relevant actors are invited to take part, on a voluntary basis, in those stress tests. In that context, the Commission could facilitate and encourage the development of strategies for emergency preparedness, including strategies for crisis communication and exchanging information about applicable restrictions in challenging circumstances. Given the sensitivity of information related to supply-chains bottlenecks for the defence and security interests of the Union and its Member States, the results of those stress tests should constitute classified information.

(88)

The lack of transparency on the identity of certification authorities and certification procedures of defence products within the Union results in a limited cross-certification of defence products, thereby leading to the further fragmentation of the internal market for defence products, in particular in times of supply crises, as illustrated by the 2023 ammunition supply crisis. As part of the preparedness framework, it is therefore necessary to increase transparency on national certification processes and facilitate information sharing between certification authorities, with a view to facilitating cross-certification of defence products and fostering the movement of such products in the internal market. For that purpose, the Commission should draw up and keep updated a list of national certification authorities.

(89)

In order to reduce the risk of shortages in the supply of crisis-relevant products, it is necessary to accelerate the ramp-up of production facilities related to the production of those products, in particular by ensuring an efficient and timely administrative treatment of any application related to the planning, construction and operation of such facilities. For that reason, Member States authorities should ensure that the most rapid treatment legally possible is given to such applications.

(90)

To enable the Union to mitigate the risk of a supply crisis breaking out, competent authorities of Member States should alert the Board where they become aware of a risk of serious disruption in the supply of crisis-relevant products or have concrete and reliable information of any other relevant risk factor or event materialising. In order to ensure a coordinated approach for the purpose of mitigating such risk, the Commission should, when it becomes aware of such risk, carry out preventive actions, such as convening an extraordinary meeting of the Board to discuss the severity of the possible disruptions as well as possible responses and, where relevant, consulting relevant third countries and international organisations with a view to seeking cooperative solutions to avoid or address disruptions in the supply chains, in compliance with international obligations.

(91)

This Regulation should also provide for instruments to address, in an efficient and coordinated manner, a supply crisis that is imminent or that has arisen. Due to the need to provide for targeted measures depending on whether a severe negative impact on the functioning of the internal market, or an imminent risk thereof, concerns crisis-relevant products which are not defence products or crisis-relevant defence products, this Regulation should therefore provide for two different supply-crisis states.

(92)

The supply-crisis state should be activated on the basis of concrete and reliable evidence in the event of serious disruptions or an imminent risk of such disruptions in the provision of crisis-relevant products, and where such serious disruptions or the imminent risk thereof are resulting or are likely to result in the adoption of divergent national measures related to crisis-relevant products which are not defence products, leading to a severe negative impact on the proper functioning of the internal market, in particular obstacles to cross-border trade in such crisis-relevant products.

(93)

The security-related supply-crisis state should be activated in the event of serious disruptions or an imminent risk of such disruptions in the provision of defence products, and where such serious disruptions or the imminent risk thereof are resulting or are likely to result in the adoption of divergent national measures related to crisis-relevant defence products, leading to a severe negative impact on the proper functioning of the internal market, in particular obstacles to cross-border trade in such crisis-relevant defence products. When the Commission assesses whether the conditions for activating the security-related supply-crisis state are fulfilled, it should take into account whether a crisis affecting the security and defence interests of the Union and its Member States has been identified within the area of the CFSP, such as whether a Member State has activated the mutual assistance clause pursuant to Article 42(7) TEU. In that context, the Commission could take into account whether such crisis has also been identified in NATO.

(94)

Due to the sensitive nature of the decision to activate the supply-crisis state or the security-related supply-crisis state, stemming in particular from the potential consequences of the measures that might be taken in response thereto, including the significant impact which such measures might have on private undertakings in the Union, the power to adopt an implementing act as regards activating, prolonging and terminating the supply-crisis states should be conferred on the Council. To ensure that the response at Union level is adapted to the nature of the supply crisis, the Council should also determine which of the measures provided for by this Regulation should be activated for the purpose of addressing the ongoing supply crisis, and should be able to identify for which crisis-relevant products those measures should be activated.

(95)

In order to enable precise and near real time assessments of the nature and severity of the supply crisis and of whether the deployment of prioritisation measures is necessary, the Commission should be able, where a Council implementing act so provides under the supply-crisis state or the security-related supply-crisis state, to address information requests to economic operators contributing to the production of the crisis-relevant products concerned. Such information requests should only be addressed where the available information is not sufficient and should be limited to information on production capabilities, production capacities or possible primary disruptions. In view of the sensitive nature of the information that might be requested, the Commission should receive the prior agreement of the Member State in which the production site of the relevant economic operator is located, and the requested information should be channelled through that Member State. Where the Member State concerned agrees to the launch of such information request, it should be able to decide to address that request directly to the relevant economic operator and inform the Commission thereof. It is also important for the Commission to be aware of information requests from third countries related to activities of economic operators established in the Union on the supply of crisis-relevant products, as such information requests could result in prioritisation measures from those third countries that might have a significant impact on the supply of such products in the Union and on the proper functioning of the internal market. Hence, the economic operator concerned should inform in due time the Member State on whose territory its production site is located which should, in turn, inform the Commission, so as to enable the Member State concerned and the Commission to request the economic operator concerned to provide information similar to that requested by the third country.

(96)

In cases of severe and persistent shortages of, or an exceptionally high demand for, crisis-relevant products carrying an imminent risk of or materialising in a severe negative impact on the proper functioning of the internal market, prioritisation measures at Union level that aim to ensure the availability of crisis-relevant products could prove to be indispensable in ensuring the proper functioning of the internal market for defence products and its supply chains. The Commission should be able to use in this respect, upon a request of a Member State, priority-rated requests for facilitating the supply of both crisis-relevant defence products and crisis-relevant products which are not defence products, and priority-rated orders for ensuring the supply of crisis-relevant products which are not defence products. Those prioritisation measures should be activated by the Council.

(97)

Priority-rated requests should consist of requests by the Commission, upon an initiative of a Member State, to relevant economic operators established in the Union to accept or to prioritise orders of crisis-relevant products. As an instrument of last resort to ensure that defence supply chains can continue to operate in a time of supply crisis, and only to be used when necessary and proportionate for that purpose, those priority-rated requests should be aimed at supporting a Member State which faces severe difficulties either in the placing of an order or in the execution of a contract for the supply of crisis-relevant products. Economic operators should have the possibility to refuse to be subject to a priority-rated request. When issuing a priority-rated request, the Commission should take into account the possible negative impact on competition in the internal market and the risk of exacerbating market distortions. Furthermore, the choice of the recipients and beneficiaries of the priority-rated requests should not be discriminatory.

(98)

In light of the increased deterioration in the Union’s security context, linked to Russia’s persistent and intensified threat in the context of its war of aggression against Ukraine, it is crucial to address the difficulties that Member States might face in the placing of an order or in the execution of a contract related to the supply of defence products, in particular where such difficulties result from disruptions in the provision of crisis-relevant products which are not defence products. Indeed, where crisis-relevant products are dual-use or civilian products, defence supply chains can face competition from non-defence supply chains with a significantly stronger buying power when trying to access those crisis-relevant products. It is therefore necessary to provide for an additional instrument of last resort, in cases where the production or supply of such crisis-relevant products which are not defence products cannot be achieved by any other measure, including a priority-rated request. Therefore, priority-rated orders should enable the Commission to oblige economic operators established in the Union to produce or supply certain crisis-relevant products which are not defence products after receiving the prior agreement of the Member State on whose territory the production site of the economic operator concerned is located and of the Member State on whose territory the executive management structure of the economic operator is located. The Commission should not issue priority-rated orders where the economic operator is unable to fulfil the order even if prioritised, be it due to insufficient production capability or production capacity or on technical grounds, or because it would place an unreasonable economic burden on and entail particular hardship for the economic operator, including substantial risk relating to business continuity. Where such reasons arise after the Commission has adopted an implementing act subjecting an economic operator to any priority-rated order or request, that economic operator should be able to request the Commission to modify the implementing act concerned.

(99)

A priority-rated order or a priority-rated request should be taken based on objective, factual, measurable and substantiated data. It should have regard for the legitimate interests of the undertakings and the cost and effort required for any change in production sequence. When accepted or imposed, the obligation to perform the priority-rated request or the priority-rated order should take precedence over performance obligations under private or public law. Where the object of a priority-rated request concerns a defence product, the request should specify the scope of contractual obligations over which it should have precedence. Each priority-rated request or order should be placed at a fair and reasonable price. It should be possible to carry out the calculation of such price on the basis of applicable prices over recent years, subject to reasons being given for any increase or decrease, for example taking into account inflation or input costs. In light of the importance of ensuring the supply of crisis-relevant products, which are indispensable to the correct functioning of the internal market and its supply chains, compliance with the obligation to perform a priority-rated request or order should not entail liability to third parties for damages that might result from any breach of contractual obligations governed by the law of a Member State, to the extent that the breach of contractual obligations was necessary for compliance with the mandated prioritisation. Economic operators potentially within the scope of a priority-rated request should be allowed to provide, in the conditions of their commercial contracts, for the possible consequences of a priority-rated request.

(100)

Where the economic operator has expressly accepted a priority-rated request and the Commission has adopted an implementing act following such an acceptance, or where a priority-rated order has been imposed on the economic operator by an implementing act adopted by the Commission, the economic operator should comply with all the conditions of that implementing act. Non-compliance by the economic operator with the conditions laid down in the implementing act should result in a loss of the benefit of a waiver of contractual liability. Where the non-compliance is intentional or attributable to gross negligence, the Commission should be able to impose on the economic operator a fine or a periodic penalty payment, subject to the proportionality principle. The Commission should take into account any duly reasoned justification presented by the economic operator for the purpose of determining whether fines or periodic penalty payments are deemed necessary and proportionate.

(101)

Under the exceptional circumstance that an economic operator established in the Union is subject to a measure entailing a priority-rated order or a priority-rated request of a crisis-relevant product from a third country, it should notify the Commission, so as to inform an assessment of whether such measure will have a significant impact on the security of supply of crisis-relevant products and the proper functioning of the internal market, as well as of any appropriate step that might need to be taken in response to that measure.

(102)

The request or obligation to prioritise the production or supply of certain products does not disproportionately affect the freedom to conduct a business and the freedom of contract, which are protected by Article 16 of the Charter of Fundamental Rights of the European Union (the ‘Charter’), and the right to property laid down in Article 17 thereof. In accordance with Article 52(1) of the Charter, any limitation on the exercise of those rights and freedoms must be provided for by law and respect the essence of those rights and freedoms, and be subject to the principle of proportionality.

(103)

Where the security-related supply-crisis state is activated, the measures available under the supply-crisis state should also be available if deemed appropriate by the Council and specified in the implementing act activating the security-related supply-crisis state.

(104)

Intra-EU transfers of defence products are regulated by Directive 2009/43/EC of the European Parliament and of the Council (30), which aims to simplify those transfers in order to ensure the proper functioning of the internal market for defence products. As documented by past evaluations of that Directive, the granting of a priori global and individual transfer licences remains largely the norm for the movement of defence products within the internal market and the average time to process applications varies, sometimes significantly, from one Member State to another. During a security-related supply crisis, and where the Council considers it necessary, it should be possible for the Council to adopt an implementing act activating the security-related supply-crisis state to determine a timeframe, which should be no longer than two weeks, within which the national authorities concerned should treat the applications once entirely received in order to further facilitate the movement of those products in the internal market. Additionally, this Regulation aims to facilitate the intra-EU transfers of crisis-relevant products in the context of a supply crisis. Therefore, it should be clarified that a Member State which imposes export limitations to components which are crisis-relevant products and which it considers sensitive in the meaning of Directive 2009/43/EC should not require further authorisations for the intra-EU transfer of the components concerned where the recipient provides a declaration of use in which it declares that the components subject to that transfer licence are integrated or are to be integrated into a defence product and cannot be transferred or exported as such. Such measure should not affect existing Union and national rules governing the transfer and export of defence products.

(105)

As the certification of defence products is key to ensuring the proper functioning of the internal market for defence products, in particular during a security-related supply crisis, this Regulation should enable, in addition to the acceleration of existing national processes, the mandatory mutual recognition of a crisis-relevant defence product lawfully certified in a Member State.

(106)

In addition to other measures provided for by this Regulation for the purpose of addressing a security-related supply-crisis state, Member States should, where the Council activates those measures, consider, on a case-by-case basis, using defence-related exemptions or derogations under national and applicable Union law for the purpose of the granting of permits relating to the planning, construction and operation of production facilities of crisis-relevant defence products or with a view to ensuring the continuity of production of such products, if they deem that the use of such exemptions or derogations would facilitate the security of supply of crisis-relevant defence products. That could in particular apply to Union law concerning environmental, health and safety issues, which is indispensable to improving the protection of human health and the environment, as well as to achieving sustainable and safe development. Since a security-related supply crisis is characterised by obstacles to the movement of crisis-relevant defence products on the internal market, it is appropriate to allow, in such circumstances, for the financial support under the Programme of innovation actions, thus enabling a particularly rapid availability of defence products on the market. Support to such actions would indeed contribute to addressing the obstacles concerned, in particular by enabling a significant shortening of the delivery lead time of defence products or a mass production of such products. It should therefore be possible for the Council, when it activates the security-related supply crisis state, to make such innovation actions eligible under the Programme.

(107)

Compliance with the obligations imposed under this Regulation should be enforceable by means of fines and periodic penalty payments. To that end, appropriate levels of fines for non-compliance with information requests, the obligations stemming from a priority-rated request and the notification obligation applying where an economic operator established in the Union is subject to a prioritisation measure of a third country should be laid down, taking into account the different levels of gravity of the non-compliance between both obligations, and with different ceilings for SMEs. Furthermore, periodic penalty payments should be laid down for non-compliance with the obligation to accept and perform priority-rated orders, and should be proportionate, with different ceilings for SMEs. Limitation periods should apply for the impositions of fines and periodic penalty payments, in addition to limitation periods for the enforcement of penalties. In addition, the Commission should give the economic operators concerned the right to be heard.

(108)

One of the challenges identified during the COVID-19 crisis was the lack of a network for ensuring preparedness, as well as insufficient information sharing and coordination for response measures between the Member States, on the one hand, and between the Member States and the Commission, on the other hand. Therefore, the achievement of the objective pursued by this Regulation to prepare for and respond to the impact of future supply crises on the internal market for defence products should be supported by a governance mechanism. This Regulation should establish a Board, to facilitate cooperation, exchange of information and the smooth, effective and harmonised implementation of the measures provided for in this Regulation aimed at ensuring the security of supply of defence products. The Board should be composed of representatives of the Member States and the Commission. As ensuring the proper functioning of the internal market for defence products in times of supply crisis, or preparing for such supply crises, requires taking account of the ability of Member States to develop, acquire and manage their defence capabilities and to enhance their defence readiness, it is appropriate that the Commission and the Member State holding the rotating presidency of the Council co-chair the Board. In addition, given the contribution of the security of supply regime to the Union’s ability to defend its security and defence interests, the High Representative and the EDA should also be members of the Board. In particular, the EDA’s ongoing work strands on security of supply of defence products could be useful for the implementation of this Regulation. The EDA facilitates the sharing of best practices and reinforces cooperation between Member States on defence-related security of supply. It also generates insights on bottlenecks affecting the supply chains of defence products. Hence, the EDA should be able to share its views and expertise inter alia in the Board, which will contribute to preparing for and responding to the impact of supply crises on the internal market for defence products. Associated countries should have the right to become members, without voting rights, of the Board in accordance with the conditions set out under the Agreement on the European Economic Area. Representatives of the European Parliament should be invited as observers to the meetings of the Board. The Board should facilitate coordination among Member States and provide recommendations to and assist the Commission in the implementation of the mechanisms established by this Regulation aimed at ensuring security of supply, in particular by anticipating, preparing, preventing and addressing crises in the supply of crisis-relevant products.

(109)

In order to ensure uniform conditions for the implementation of this Regulation, implementing powers should be conferred on the Commission with respect to the adoption of work programmes to set out the funding priorities and the applicable funding conditions, the award of funding for specific actions, the establishment of SEAPs, the identification and update of crisis-relevant products, the establishment and maintenance of a list of national certification authorities, prioritisation measures, and the imposition of penalties. The specificities of the defence sector, in particular the responsibility of Member States, associated countries or Ukraine for the planning and acquisition process, should be taken into account. Those powers should be exercised in accordance with Regulation (EU) No 182/2011 of the European Parliament and of the Council (31).

(110)

It should be possible to invite representatives of Ukraine to meetings of the committee where their input is necessary in connection with implementing measures which concern Ukraine, such as the implementing acts relating to the Ukraine Support Instrument. That would allow such representatives to share their views and respond to questions from Member States. However, they should not be allowed to be present during deliberations, nor to participate in votes of the committee.

(111)

This Regulation should apply without prejudice to Union competition rules, in particular Articles 101 to 109 TFEU and the legal acts that give effect to those Articles.

(112)

Union funding under this Regulation should only cover the costs necessary for pursuing the objectives of the Programme and the Ukraine Support Instrument and it cannot cover the costs arising from the CFSP. As a consequence, Union funding under the Programme and the Ukraine Support Instrument should not cover the costs of the purchase and of the maintenance of defence products for military or defence purposes, including in the context of establishing, managing and maintaining defence industrial readiness pools. It should be possible however for Union funding under the Programme and the Ukraine Support Instrument to cover the costs incurred in the context of the purchase or of the maintenance of such products where those costs are necessary for strengthening the competitiveness of the EDTIB or the recovery, reconstruction and modernisation of the Ukrainian DTIB, in particular non-recurrent costs.

(113)

In accordance with Article 241 TFEU, the Council is able to request the Commission to undertake any studies the Council considers desirable for the attainment of the common objectives, and to submit to it any appropriate proposals. The Commission will give prompt and detailed consideration to any such requests for proposals.

(114)

This Regulation should apply without prejudice to the specific character of the security and defence policy of certain Member States.

(115)

This Regulation is without prejudice to existing Union and national rules on the export of defence products and to the obligations provided for by Directive 2009/43/EC.

(116)

Since the objectives of this Regulation, namely to enhance the technological leadership, innovation, readiness, long-term competitiveness, resilience, integration and preparedness of the EDTIB, ensuring the timely availability and supply of defence products and contributing to the recovery, reconstruction and modernisation of the Ukrainian DTIB, cannot be sufficiently achieved by the Member States but can rather, by reason of the scale or effects of the action, be better achieved at Union level, the Union may adopt measures in accordance with the principle of subsidiarity as set out in Article 5 of the TEU. In accordance with the principle of proportionality as set out in that Article, this Regulation does not go beyond what is necessary in order to achieve those objectives.

(117)

In order to allow for the implementation of this Regulation to start as soon as possible, with a view to reaching its objectives, it should enter into force as a matter of urgency,