Strategy for a more competitive European defence industry

The Member States have control over their essential defence and security interests. However, to ensure the survival of the sector it is essential to have a strategy at European level. Here the Commission presents a series of recommendations with a view to making the European defence industry more competitive.

ACT

Communication from the Commission to the European Parliament, the Council, the European Economic and Social Committee and the Committee of the Regions of 5 December 2007 – A strategy for a stronger and more competitive European defence industry [COM(2007) 764 final – Not published in the Official Journal].

SUMMARY

The European security and defence policy (ESDP) needs a strong European defence industry. However, this sector's performance and competitiveness are being held back by an inadequate policy and legal framework, resulting in red tape and duplication, hampering innovation and increasing prices. For example, the co-existence of different national regulations on procurement, slow licensing procedures for the free movement of defence components and goods within the EU, lack of information sharing, etc. are obstacles to this sector's competitiveness. With a view to improving the situation in the European defence industry, the Commission puts forward several recommendations.

Improving the functioning of the internal market for defence products

In order to improve the functioning of the internal market in defence, the Commission proposes that Member States adopt two directives. The first is designed to facilitate intra-EU transfers of defence products by eliminating unnecessary paperwork. It will thus reduce obstacles to trade in these products in the EU, for example by significantly simplifying national licensing procedures and costly and lengthy administrative formalities which could act as a deterrent to some companies. The second directive is designed to enhance the openness and competitiveness of defence procurement. Member States too often use Article 296 of the Treaty establishing the European Community, which allows them to be exempt from Community rules if their essential security interests are threatened. This directive will therefore effectively introduce intra-EU competition in the Member States' defence markets.

In addition to these legislative initiatives, the Commission is considering a whole series of measures, including:

• the use of a handbook of common standards to facilitate the opening of defence markets;
• examination of the current regime on security of information for the exchange of sensitive information between Member States and European companies in order to determine whether it would be useful to introduce a European system;
• a study on control of strategic defence assets;
• the use of legal instruments at the Commission's disposal to ensure fair competition in defence markets.

Improving overall coordination

Together with the European Defence Agency (EDA), the Commission wishes to encourage better overall coordination with the Member States and among Member States, so that the weapons systems needed by European armed forces can be produced cost-effectively and with the highest level of performance. Coordination between Member States can be improved in three areas: pooling of demand for military equipment, research and technological development, and strengthening the position of small and medium-sized enterprises (SMEs).

It is in Member States' interest to coordinate their investments and pool demand in order to create synergies. This can be done by adjusting the timetables of their development and procurement programmes and by collecting information on Member States' investments.

Defence is a technology-intensive sector. Yet, in Europe, investment in research is fragmented, leading to duplication and a waste of scarce resources. It therefore makes sense to find ways to pool research and network resources at all levels. Defence-related research creates a spillover in many other areas and creates growth in civil sectors, which in turn contribute a great deal to defence. The Commission therefore recommends pooling the resources of civil and military programmes at both national and European levels. The Commission is also conducting a specific security research programme.

The position of SMEs in the sector needs to be strengthened. They will be able to benefit from the two directives mentioned above but also from other initiatives, including the 7th Framework Programme for Research, or for example the Code of Best Practice and the e-portal developed by the EDA.

Supporting the adjustment and modernisation process in Europe by means of accompanying policies

The defence sector can be stimulated not only by industrial policy but also by other policies. The opening of foreign markets is thus essential to the competitiveness of the European industry. For Europe to improve its access to the US market, which is practically non-existent, it is important to ensure that the European defence industry can match its competitors in the US in terms of innovation and quality. It is also important not to lose sight of other stakeholders from the emerging economies for which it is necessary to analyse the competition challenges and the conditions of access to their markets.

Further market integration in the defence sector could lead to structural changes and restructuring, and it is necessary to anticipate and address any such structural changes, for example by means of an active social dialogue. These changes can be managed financially with the help of the Structural Funds and the European Social Fund in particular.

Finally, it is necessary to improve European defence industry market governance. In order to fully exploit the measures to increase competition which are set out in this Communication, a structured dialogue with all interested parties is essential, in particular with the competent bodies of the Member States and the EDA. The EU should also set up a European think-tank to reflect on the challenges and key issues in the defence sector.

Last updated: 14.03.2008