Almost 30 companies refine concept of European defence industry, without the French

Close to 30 EU defence companies participated in defining who could access EU funds under the European Defence Programme (EDIP), excluding the French industry's push for stricter criteria.

In a position paper sent this week to member states and signed by several members of the European Association for Defence Industries (ASD), companies such as Leonardo, Saab, PGZ, Rheinmetall, Kongsberg, and Patria believe EU funds must go to companies who have control over the equipment produced, but left space for funds to go to products that contain non-EU components.

The two criteria will be complementary.

No French-only companies are part of the signatories, as MBDA, KNDS, and Airbus are European companies.

French companies - such as Arquus, Safran, Thalès, and Dassault - did not sign as they would have preferred to push for stricter eligibility criteria on the share of non-EU content in subsidised products' manufacturing or procurement, according to several people involved in drafting the common position.

The outcome of those lengthy negotiations between industries across the continent indicates the struggle for member states to agree on the details of the scheme months after its presentation in March.

It also reflects the delicate division between EU countries undergoing tough negotiations.

65% EU components

One of the two eligibility criteria for any company to receive EU funding should be the share of EU content or third-country components features in the product, whether the funds are aimed at supporting joint procurement or production capacity, the authors write.

For instance, they argued that 80% of the equipment funded by EU subsidies should be "EU content," pressing for a high ceiling. They argued that it was necessary to raise the ambition level to the highest, although they knew it was unlikely to be supported by a majority of EU countries or the EU Parliament in the course of the negotiations.

The final position paper sets that ceiling at 65%, similar to the one the member states seem to agree to (except the French). It also features in the final version of EDIRPA, the fund to support the joint procurement of critical defence products for EU countries.

"At the same time, the possibility of bonuses for EU content rates above the threshold or incentives to reach it should not be excluded," they write. This option does not feature in the Commission's draft text.

They however do not define what "EU content" means. In the EDIRPA regulation - the text of reference for the EDIP's joint procurement scheme - the ceiling refers to the "value" of the components, with no methodology to calculate that value.

For lack of more clarity, the signatories of the position paper write that "a sound, transparent and binding common methodology to calculate the EU content rate of defence products is crucial for ensuring a level playing field."

Right to modify equipment and use in Europe

The industry also mentions a second eligibility criteria: the novel concept of "Design Authority," which would give a first definition of a European or EU company.

They define it as "an eligible entity has the full ability to decide, without restrictions, on the definition, adaptation, integration, and evolution of the product" (such as tanks, ammunition, air defence systems).

It "should be in the Union or an associated country" (i.e. Norway, Ukraine), they write, and "should not be subject to restrictions by non-associated third countries or third-country entities that would limit the ability of any Member State or associated country to use it.

This criterion is seen as especially important by almost all of the industry and EU countries - including the French.

The war in Ukraine has highlighted how crucial it is for companies to be able to apply modifications to the equipment to align with the users' needs fast and easily. It also showcased that each government's right to use weapons is a highly political affair.

Eligibility criteria are traditionally a difficult part of the discussions, as each country has a different culture when purchasing intra- or outside the EU.

On Friday (27 September), experts from member states are to continue negotiations on the draft text, with ambassadors set to review the outcome of the experts' negotiations on Wednesday (October 2).

Despite negotiations finished on the first two chapters of the regulation, including on the eligibility criteria, there is a general understanding that no deal is final until the whole text has been reviewed, as Euractiv reported.

[Edited by Alice Taylor-Braçe]