Towards a European Defence Equipment Market?

Up until now, EU member states have excluded armaments from the European integration process and have cooperated in this field outside the EU framework. However, there is a fair chance today that this will change: both the work of the Convention on the Future of Europe and the debate on the recent Commission Communication on a common defence equipment policy indicate a greater readiness among national governments vis-à-vis a possible EU involvement in armaments.
These are positive developments for two reasons:<br />1. Far-reaching reforms of Europe's armaments sector are essential if member states want to maintain a competitive Defence Industrial and Technology Base and equip their armed forces adequately;<br />2. The EU could play a useful role in these reforms, because it could develop a more coherent institutional setting and bring in a broad set of relevant Community and CFSP instruments. Both could help implement a comprehensive strategy in the three areas where action is most needed: procurement, research, and the defence market.
It is almost certain now that a European Defence Agency, covering Armaments, Research and Capabilities, will be established in the course of 2004 and somehow anchored in the Constitutional Treaty. At the beginning, this Agency will be only a light structure with a limited mandate, but it can become a serious player if member states stick to their declared intentions and transfer progressively to the Agency the necessary prerogatives.
However, one should not forget that even a strong Agency will not be able to resolve by itself all the problems of Europe's armaments sector. The creation of a European defence equipment market (EDEM) will be at least as important.
An integrated EDEM would consist of a set of customers served by a set of suppliers trading without restrictions. The advantages of such an EDEM for both the supply and the demand side are generally acknowledged: European companies would get a much larger home market, could restructure across national boundaries to reduce duplication, create centres of excellence and take advantage of longer production runs. At the same time, competition would encourage suppliers to optimise production capacity and help lower costs, thus saving scarce public resources.
The objective is not new, but up until now, attempts to open up national markets have suffered decisively from a lack of binding commitments. Drawing on the experience of the single market, the EU could offer additional means to facilitate the realisation of an EDEM. The most efficient way to achieve this objective would be to:<br />· adapt existing Community law and policies to the specificities of the defence sector;<br />· analyse systematically which areas of the LoI Framework Agreement can be transformed into Community law.<br />· use first-pillar instruments wherever possible in order to get legally binding and rapidly applicable provisions;<br />The establishment of an EDEM is a highly complex endeavour that cannot be discussed in detail here.
However, the following points seem crucial.<br />· A common procurement law for defence should be introduced through the limitation of Article 296 to highly sensitive goods. It should apply only to national procurement decisions, whereas the ARCA would be free to set its own rules based on the existing OCCAR regulations. A community directive on defence procurement should be introduced progressively, starting with components and subsystems.<br />· Based on the provisions of the LoI Framework Agreement, a Community regime for transfers and exports should be established. This regime should cover all cooperative projects as well as components and subsystems integrated into national systems.
It goes without saying that an EDEM cannot be set up overnight. However, the current political climate is rather favourable for pushing the debate forward. Following its Communication of March 2003, the Commission has started to work on a Green Book on defence procurement law. This project is a good opportunity to establish, at last, a fruitful dialogue between the Commission and the member states on the issue. This implies, however, that both sides overcome their mutual mistrust and engage in a common learning process. The reform of Europe's armaments sector will only succeed if all relevant actors acknowledge that armament is a very specific sector, but that it is no longer a purely national one.