According to Eurostat total defence expenditure by the 25 EU Member States in 2003 represented 169 billion euro (1.7% GDP) which included € 82 billion on defence procurement (0.8% GDP), of which € 30 billion on defence equipment (0.3% GDP).
In September 2004 the Commission published a Green Paper setting out the overall guidelines for a stakeholder consultation. The aim was to open a debate on how to best overcome the present fragmentation of the European defence procurement market. A key conclusion of the Green Paper was that lack of transparency and competition in Member States' procurement practices hampered the competitiveness of European industry and increases the cost of military equipment.
The Green Paper spelled out two legislative options.
One in the shape of an interpretative Communication, which would clarify the existing legal framework without fundamentally changing the treaty's exemption of the defence sector from the EU rules on public procurement.
The other option is a new specific directive adapted to the defence market, which would cover 'non-essential' military equipment.
A Commission final consultation to clarify the above options was opened in April 2006, and will run until September 2006.
In parallel the European Defence Agency (EDA), which works under the Council of the EU, has taken the intergovernmental approach to improve efficiency of defence markets. In May 2006 the EDA got final backing from 22 member states on a voluntary code of conduct. It will allow the participating member states to circumvent the EC Treaty's article 296, which on the grounds of "essential security interests" has suspended the EU's internal market in defence procurement. By way of an Electronic Bulletin Board defence contracts are now being offered via public procurement tenders.
According to the Commission, the EU's defence equipment policy should rest on the following key considerations:
cost efficiency of defence spending
maintenance of a competitive defence and technological industrial base
better access for EU-manufactured goods to third country markets
ethics and fairness in the arms trade
security of supply
need to respect member states' prerogatives in this sensitive area.
The Commission believes that "Europe's military equipment policy is in no way intended to copy that of the United States". Europe must make more efficient use of its existing resources, and to this end it must seek to harmonise its equipment standards and create a European defence market.
Besides strengthening political and parliamentary controls over the related processes, the Commission also aims to boost military equipment-related research and development, as foreseen in the 7th Framework Programme.
To provide stakeholders with a clear picture of Europe's defence industry landscape, the Commission proposes launching the monitoring of defence-related industries.
Commission vice-president Günter Verheugen: "Opening the internal market for defence products would boost our economy and increase the competitiveness of the European defence-producing companies."
On the Code of conduct, European Defence Agency Chief Executive Nick Witney, said: "This regime will create new opportunities for companies across Europe, strengthen our defence technological and industrial base and offer better value for money to the armed forces and to taxpayers."
The European Defence Industries Group (EDIG) is advocating the creation of a European Defence Equipment Market (EDEM) - a more transparent and open market within Europe to fulfil military material requirements.
The Commission's stakeholder consultation on the paper on the Intra-Community circulation of defence related products will run until 15 September 2006. It could lead to a general communication on the defence industry before the end of 2006.