MEPs yesterday (14 January) approved new EU rules to open up national defence procurement to all European suppliers, raising hopes that more transparency and competition will be introduced to this sensitive market. But industry fears the move will damage R&D investment.
The European Parliament yesterday (14 January) adopted new legislation establishing a co-ordinated EU procedure for public procurement of defence and security goods. The directive also includes non-military goods.
It covers all public service contracts concluded between EU operators, with a minimum threshold of €412,000 for supply and service contracts and €5.15m for works contracts. It does not apply to intelligence-related or extra-EU contracts.
According to MEP Alexander Graf Lambsdorff (ALDE/DE), the Parliament's rapporteur on the dossier, the directive is "overdue". "The European market for defence goods is split" to 89 different armament programmes, with member states buying preferably from their national suppliers and companies producing series that are too small at costs that are too high," he said. "This results in a shortage of equipment and a Europe-wide waste of taxpayers' money."
"There will of course remain security measures whenever highly sensitive information, materials or services are at stake, in order to prevent them getting into the wrong hands," Lambsdorff underlined, insisting that the directive would still lead to more transparency and more competition, as well as make "an important contribution to the strengthening of the European security and defence policy".
British Conservatives believe many aspects of the directive "have less of an internal market motivation than the creation of a European Security and Defence Policy, which we have consistently opposed. We have strongly criticised the political skew toward EU defence".
"In addition, those that have carried out expensive research will see development and production contracts open to tender and have no guarantee that they will get a return on their investment. There will be no means of protecting intellectual property, jobs or export opportunities," said MEP Geoffrey Van Orden.
While encouraging cross-border competition and trade, as well as transparency in defence and security markets, the Aerospace and Defence Industries Association of Europe (ASD) argues that the new law "could be damaging to R&D investment and hence to the defence and technology base in Europe".
According to ASD Secretary General François Gayet "to apply the logic of EU internal market rules which rigidly divide R&D and production phases is to reduce the incentives for defence capability investment by both the public and private sectors". He fears that companies will no longer invest in R&D if they cannot be confident of winning the resultant production, while governments could cut back investment if the resultant production for their armed forces could be conducted elsewhere.
Article 296 of the EC Treaty exempts defence procurement from normal internal market rules, leading to a situation whereby most defence contracts are awarded to national suppliers, allowing governments to protect their domestic markets.
In December 2007, the European Commission adopted a package of defence-related proposals (see EurActiv 06/12/07), the aim of which is to help create a single European defence market for military equipment. This, according to the Commission, "without sacrificing member states' control over their essential defence and security interests".
One of the initiatives in the package was a proposal for a directive on public procurement in the fields of defence and security.
France, the UK, Germany, Italy and Sweden alone share 90% of the EU defence equipment market, which is worth €90 billion.
