# C_2005221EN.01005201.xml

| 8.9.2005 | EN | Official Journal of the European Union | C 221/52 |
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8.9.2005

EN

Official Journal of the European Union

C 221/52

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Opinion of the European Economic and Social Committee on the Green Paper — Defence procurement

(COM(2004) 608 final)

(2005/C 221/12)

On 23 September 2004 the Commission decided to consult the European Economic and Social Committee, under Article 262 of the Treaty establishing the European Community, on the Green paper — Defence procurement.

The European Economic and Social Committee instructed its Section for the Single Market, Production and Consumption to prepare its work on this subject.

In view of the urgent nature of the work, the EESC appointed Mr Wilkinson as rapporteur-general at its 414th plenary session (meeting of 9 February 2005). At this same meeting the EESC adopted the following opinion, by 96 votes with 9 abstentions:

Mr Wilkinson

th

1.   Introduction

| 1.1 | The Green Paper on Defence Procurement (COM(2004) 608 final) is one of the measures foreseen in the Communication ‘Towards a European Union defence equipment policy’ which was adopted in March 2003, and on which the Committee commented in September 2003 (1). |
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1.1

The Green Paper on Defence Procurement (COM(2004) 608 final) is one of the measures foreseen in the Communication ‘Towards a European Union defence equipment policy’ which was adopted in March 2003, and on which the Committee commented in September 2003 (1).

1

| 1.2 | ‘European Defence Equipment Market (EDEM)’, is in reality only a part of the internal market covering a specific sector. The Green Paper seeks to contribute towards the creation over time of an internal market for EU defence equipment that is more open and transparent, while respecting the specific nature of the sector. This should lead to a stronger and more competitive defence industry, increased cost effectiveness and support for the development of the military capabilities of the EU in the European Security and Defence Policy (ESDP) field, within the context of the Common Security and Foreign Policy (CSFP). |
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1.2

‘European Defence Equipment Market (EDEM)’, is in reality only a part of the internal market covering a specific sector. The Green Paper seeks to contribute towards the creation over time of an internal market for EU defence equipment that is more open and transparent, while respecting the specific nature of the sector. This should lead to a stronger and more competitive defence industry, increased cost effectiveness and support for the development of the military capabilities of the EU in the European Security and Defence Policy (ESDP) field, within the context of the Common Security and Foreign Policy (CSFP).

| 1.3 | On 12 July 2004 the Council agreed the establishment of the European Defence Agency (EDA) which is designed ‘to support the Member States (MS) in their effort to improve European defence capabilities in the field of crisis management and to sustain ESDP as it stands now and develops in the future’. This Agency has now started work. The EDA's functions (2) all relate to improving Europe's defence performance by promoting coherence in place of the current fragmentation. |
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1.3

On 12 July 2004 the Council agreed the establishment of the European Defence Agency (EDA) which is designed ‘to support the Member States (MS) in their effort to improve European defence capabilities in the field of crisis management and to sustain ESDP as it stands now and develops in the future’. This Agency has now started work. The EDA's functions (2) all relate to improving Europe's defence performance by promoting coherence in place of the current fragmentation.

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| 1.4 | ‘Defence performance’ involves ensuring the availability of the capabilities needed to match the tasks envisaged, and the doctrine to undertake these tasks, in a cost effective way. This will include ensuring the maximum possible interoperability. At present the 25 MS together spend about €160 billion each year on defence, with about 20 % of this used in the equipment procurement process (including research and development, acquisition and support) (3). |
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1.4

‘Defence performance’ involves ensuring the availability of the capabilities needed to match the tasks envisaged, and the doctrine to undertake these tasks, in a cost effective way. This will include ensuring the maximum possible interoperability. At present the 25 MS together spend about €160 billion each year on defence, with about 20 % of this used in the equipment procurement process (including research and development, acquisition and support) (3).

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2.   General comments

| 2.1 | The matters covered in this Green Paper relate to the way in which improvements may be made to the system of defence equipment procurement in the 25 Member States (MS). Significant progress will only be possible when the other elements of ‘defence performance’ (see paragraph 1.4 above) are clear (4). Of particular concern to industry is the need for very clear guidance, harmonised requirements and continuity. Nonetheless the initiative is welcomed by the Committee as it can be treated as a discrete part of the process of starting to establish a more viable ESDP in a transparent and competitive market. |
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2.1

The matters covered in this Green Paper relate to the way in which improvements may be made to the system of defence equipment procurement in the 25 Member States (MS). Significant progress will only be possible when the other elements of ‘defence performance’ (see paragraph 1.4 above) are clear (4). Of particular concern to industry is the need for very clear guidance, harmonised requirements and continuity. Nonetheless the initiative is welcomed by the Committee as it can be treated as a discrete part of the process of starting to establish a more viable ESDP in a transparent and competitive market.

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| 2.2 | The leading role foreseen by the EDA is welcomed. There will be a need for clear agreement on the respective roles of EDA and others at present involved in the defence equipment field (5) and EESC would expect a reduction in their separate roles as progress allows. However, the lessons learnt from the experience of OCCAR (6) (which handles actual project management, including the key question of contract law) should be studied before changes are made. |
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2.2

The leading role foreseen by the EDA is welcomed. There will be a need for clear agreement on the respective roles of EDA and others at present involved in the defence equipment field (5) and EESC would expect a reduction in their separate roles as progress allows. However, the lessons learnt from the experience of OCCAR (6) (which handles actual project management, including the key question of contract law) should be studied before changes are made.

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| 2.3 | We welcome the recognition that the starting points (and the procedures used) for each MS in the defence procurement process are very different and that changes are likely to be made at different speeds. We agree that it will be helpful to establish a more common basis for defence procurement and that this can be done relatively quickly given the agreement and the cooperation of all MS. |
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2.3

We welcome the recognition that the starting points (and the procedures used) for each MS in the defence procurement process are very different and that changes are likely to be made at different speeds. We agree that it will be helpful to establish a more common basis for defence procurement and that this can be done relatively quickly given the agreement and the cooperation of all MS.

| 2.4 | EESC agrees that there is a need to reduce fragmentation of the defence equipment market and to increase its competitiveness and transparency as prerequisites for maintaining and strengthening a viable EU defence industry and for contributing to more cost effectiveness in procuring and managing appropriate defence capabilities. |
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2.4

EESC agrees that there is a need to reduce fragmentation of the defence equipment market and to increase its competitiveness and transparency as prerequisites for maintaining and strengthening a viable EU defence industry and for contributing to more cost effectiveness in procuring and managing appropriate defence capabilities.

| 2.5 | The analysis of the specific features of defence equipment markets given in paragraph 2 of the Green Paper is a good basis for consideration of the market and indicates some of the difficulties faced. |
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2.5

The analysis of the specific features of defence equipment markets given in paragraph 2 of the Green Paper is a good basis for consideration of the market and indicates some of the difficulties faced.

| 2.6 | However, EESC would stress that any restructuring of defence industries must primarily be a matter for the industries concerned, taking account of market realities (7). A good reason for this is that most significant companies are trans national, even though their customers are national. Moreover, MS have different industrial strategies, of which the defence industries are only a part. |
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2.6

However, EESC would stress that any restructuring of defence industries must primarily be a matter for the industries concerned, taking account of market realities (7). A good reason for this is that most significant companies are trans national, even though their customers are national. Moreover, MS have different industrial strategies, of which the defence industries are only a part.

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| 2.7 | Industry (in the defence sector as elsewhere) has to avoid too many regulatory procedures if it is to function efficiently and to provide cost effective and economical results. |
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2.7

Industry (in the defence sector as elsewhere) has to avoid too many regulatory procedures if it is to function efficiently and to provide cost effective and economical results.

3.   Specific comments

| 3.1 | It is necessary to clarify exactly what parts of the defence equipment procurement process are expected to be covered by the rules agreed. As well as the acquisition of such equipment there will be research and development, maintenance, repair, modification and training aspects, which are included in the cost of ‘ownership’, to consider; these are normally far more costly over time than the acquisition. |
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3.1

It is necessary to clarify exactly what parts of the defence equipment procurement process are expected to be covered by the rules agreed. As well as the acquisition of such equipment there will be research and development, maintenance, repair, modification and training aspects, which are included in the cost of ‘ownership’, to consider; these are normally far more costly over time than the acquisition.

3.2   Article 296

| 3.2.1 | EESC agrees that exemptions to the EU rules on public procurement granted by virtue of Article 296 of the EU Treaty will continue to be needed to allow MS to derogate on the grounds of protecting their essential security interests. |
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3.2.1

EESC agrees that exemptions to the EU rules on public procurement granted by virtue of Article 296 of the EU Treaty will continue to be needed to allow MS to derogate on the grounds of protecting their essential security interests.

| 3.2.2 | The Commission should give an indication of the value of the equipments for which this derogation has been used over a period of, 5 years (and show it as a percentage of the total amount spent on defence equipment in the EU). They would then have a benchmark to help in measuring progress. |
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3.2.2

The Commission should give an indication of the value of the equipments for which this derogation has been used over a period of, 5 years (and show it as a percentage of the total amount spent on defence equipment in the EU). They would then have a benchmark to help in measuring progress.

| 3.2.3 | The problem is that the use of such derogation has, for some MS, become almost the rule rather than the exception and this is clearly not compatible with the single market. EESC supports the Commission's view that this should change. The challenge will be to use Article 296 in conformity with decisions in past cases (8) while retaining its possibility as a derogation from standard rules for public procurement. MS must be prepared to justify (legally if need be) derogations that they do make. The benefits of greater competition and greater transparency should be stressed in the discussion. |
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3.2.3

The problem is that the use of such derogation has, for some MS, become almost the rule rather than the exception and this is clearly not compatible with the single market. EESC supports the Commission's view that this should change. The challenge will be to use Article 296 in conformity with decisions in past cases (8) while retaining its possibility as a derogation from standard rules for public procurement. MS must be prepared to justify (legally if need be) derogations that they do make. The benefits of greater competition and greater transparency should be stressed in the discussion.

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| 3.2.4 | The list of products produced in 1958 under Article 296.2 which suggests the scope of Article 296.1 is not working and is likely to remain of no real value as a useful way of ensuring the proper use of the security derogation. Each case must continue to be treated on its merits since even basic equipment (9) will fall within the scope for derogations in some cases. Further, lists are not likely to keep pace with new developments. |
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3.2.4

The list of products produced in 1958 under Article 296.2 which suggests the scope of Article 296.1 is not working and is likely to remain of no real value as a useful way of ensuring the proper use of the security derogation. Each case must continue to be treated on its merits since even basic equipment (9) will fall within the scope for derogations in some cases. Further, lists are not likely to keep pace with new developments.

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| 3.2.5 | There is thus no easy solution to defining which equipments and which services related to them could be covered under Article 296. As a first step there is a need to clarify the EU's existing legal framework through an ‘interpretative communication’ to improve understanding and to facilitate better and more consistent application. |
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3.2.5

There is thus no easy solution to defining which equipments and which services related to them could be covered under Article 296. As a first step there is a need to clarify the EU's existing legal framework through an ‘interpretative communication’ to improve understanding and to facilitate better and more consistent application.

| 3.2.6 | As well as procurement any such communication will have implications for several other aspects; State aid and (possibly) services of general interest are among these and need to be taken into consideration. |
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3.2.6

As well as procurement any such communication will have implications for several other aspects; State aid and (possibly) services of general interest are among these and need to be taken into consideration.

| 3.2.7 | We believe that the ‘negociated procedure’ with prior notification should be suitable for the specific needs of defence equipment where the ‘open’ and the ‘restricted’ methods are not suitable. However, this view may need to be reconsidered after experience has been gained of working with the ‘interpretative communication’. |
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3.2.7

We believe that the ‘negociated procedure’ with prior notification should be suitable for the specific needs of defence equipment where the ‘open’ and the ‘restricted’ methods are not suitable. However, this view may need to be reconsidered after experience has been gained of working with the ‘interpretative communication’.

| 3.2.8 | There is a view that a communication can only be an interim measure until a specific directive (or other specific legal instrument) has been drawn up. EESC's view is that after such an ‘interpretative communication’ has been produced and agreed the need for a legislative instrument can be considered in the light of its effect. We would welcome early action to produce the communication. |
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3.2.8

There is a view that a communication can only be an interim measure until a specific directive (or other specific legal instrument) has been drawn up. EESC's view is that after such an ‘interpretative communication’ has been produced and agreed the need for a legislative instrument can be considered in the light of its effect. We would welcome early action to produce the communication.

| 3.2.9 | There is a further possibility, not mentioned in the Green Paper, of establishing a ‘code of conduct’ to be used by participating MS as another means of establishing an EDEM. Since the area is one within the responsibility of MS this could be considered, presumably using EDA as a facilitator. It might be difficult to monitor and enforce such a code and the Internal market aspects would still need to be included. |
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3.2.9

There is a further possibility, not mentioned in the Green Paper, of establishing a ‘code of conduct’ to be used by participating MS as another means of establishing an EDEM. Since the area is one within the responsibility of MS this could be considered, presumably using EDA as a facilitator. It might be difficult to monitor and enforce such a code and the Internal market aspects would still need to be included.

3.3   Publication of calls for tender

| 3.3.1 | The need to consider further the system and format for calls for tender is not convincing. If defence equipment is to be treated as just another part of the internal market in principle (although it has greater possibilities for derogations) it will presumably be dealt with in the same way as other tenders. This will entail different systems and problems, such as language, that are found elsewhere. The grounds for a centralised publication system are weak. |
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3.3.1

The need to consider further the system and format for calls for tender is not convincing. If defence equipment is to be treated as just another part of the internal market in principle (although it has greater possibilities for derogations) it will presumably be dealt with in the same way as other tenders. This will entail different systems and problems, such as language, that are found elsewhere. The grounds for a centralised publication system are weak.

| 3.3.2 | The potential problem areas are confidentiality and offset, which are more likely to arise for defence equipment than for other equipments and services, and security of supply, where it will be hard to change suppliers or contractors once a contract has been let. These are all areas where the MS concerned should be responsible, although some general guidance from the Commission may be helpful. |
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3.3.2

The potential problem areas are confidentiality and offset, which are more likely to arise for defence equipment than for other equipments and services, and security of supply, where it will be hard to change suppliers or contractors once a contract has been let. These are all areas where the MS concerned should be responsible, although some general guidance from the Commission may be helpful.

3.4   Dual use

| 3.4.1 | It is often difficult in today's industry to classify companies as being ‘defence equipment manufacturers’. Much equipment is now ‘dual use’ and the percentage is increasing. This is welcome from several points of view; for example, economies of scale can lead to more competitive pricing and security of supply can be easier to guarantee. |
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3.4.1

It is often difficult in today's industry to classify companies as being ‘defence equipment manufacturers’. Much equipment is now ‘dual use’ and the percentage is increasing. This is welcome from several points of view; for example, economies of scale can lead to more competitive pricing and security of supply can be easier to guarantee.

| 3.4.2 | Also the efforts put into RTD for such equipment has a value to other (civil) purposes. It is therefore important that resources put into defence RTD is not subject to a regime that is too inflexible. |
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3.4.2

Also the efforts put into RTD for such equipment has a value to other (civil) purposes. It is therefore important that resources put into defence RTD is not subject to a regime that is too inflexible.

| 3.4.3 | We remain concerned that there is much to be done to maximise the value of the coordination and focus that are needed in the defence equipment area, as we pointed out in our earlier paper on defence equipment (10). |
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3.4.3

We remain concerned that there is much to be done to maximise the value of the coordination and focus that are needed in the defence equipment area, as we pointed out in our earlier paper on defence equipment (10).

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3.5   European Defence Agency (EDA)

| 3.5.1 | We welcome the establishment of the EDA and recognise that it can play a leading role in the field of defence equipment. We note that it is still building up the resources required to fulfil its agreed roles. |
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3.5.1

We welcome the establishment of the EDA and recognise that it can play a leading role in the field of defence equipment. We note that it is still building up the resources required to fulfil its agreed roles.

| 3.5.2 | It will be important for EDA to ensure that EU doctrine and capabilities take NATO's role, doctrine and capabilities fully into account by maximising interoperability and by minimising any differences. It is not yet clear how EDA could add value by becoming directly involved in procurement but its expertise in the field of defence equipment should leave it in a good position to suggest how national rules can be better harmonised. |
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3.5.2

It will be important for EDA to ensure that EU doctrine and capabilities take NATO's role, doctrine and capabilities fully into account by maximising interoperability and by minimising any differences. It is not yet clear how EDA could add value by becoming directly involved in procurement but its expertise in the field of defence equipment should leave it in a good position to suggest how national rules can be better harmonised.

| 3.5.3 | It will also be valuable in getting agreement to the financial aspects of equipment cooperation where necessary. A significant area of potential difficulty is sharing the costs and benefits of RTD in defence related areas and in separating the defence and the general aspects in so doing. |
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3.5.3

It will also be valuable in getting agreement to the financial aspects of equipment cooperation where necessary. A significant area of potential difficulty is sharing the costs and benefits of RTD in defence related areas and in separating the defence and the general aspects in so doing.

| 3.5.4 | EDA should also be helpful in moving towards the approximation of national licencing systems when defence equipments are transferred between Member States. At present the national procedures are both varied and burdensome. It could also help in getting agreement to the way in which offset arrangements are handled since these will remain a feature of procurement in the future. |
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3.5.4

EDA should also be helpful in moving towards the approximation of national licencing systems when defence equipments are transferred between Member States. At present the national procedures are both varied and burdensome. It could also help in getting agreement to the way in which offset arrangements are handled since these will remain a feature of procurement in the future.

| 3.5.5 | EDA may find it possible to get some agreement on national industrial policies as far as defence equipment is concerned and to define the elements that constitute ‘strategic equipment’ whose provision the EU would wish to be capable of providing to reduce dependence on third countries; this would be most valuable. |
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3.5.5

EDA may find it possible to get some agreement on national industrial policies as far as defence equipment is concerned and to define the elements that constitute ‘strategic equipment’ whose provision the EU would wish to be capable of providing to reduce dependence on third countries; this would be most valuable.

| 3.5.6 | EDA may also be able to encourage MS to consider such innovative methods of acquisition as pooling, leasing and specialisation to meet capability needs. |
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3.5.6

EDA may also be able to encourage MS to consider such innovative methods of acquisition as pooling, leasing and specialisation to meet capability needs.

| 3.5.7 | Since ESDP will only become effective if the MS show the necessary strong political will to provide and to maintain the necessary capabilities to meet agreed EU tasks, EDA should also play a role in encouraging MS to do this. |
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3.5.7

Since ESDP will only become effective if the MS show the necessary strong political will to provide and to maintain the necessary capabilities to meet agreed EU tasks, EDA should also play a role in encouraging MS to do this.

4.   Conclusions

| 4.1 | Defence equipment is only one requirement for a viable ‘defence performance’. For industry to play its part fully it will need clear guidance, harmonised requirements and continuity. It must also have primary responsibility for necessary restructuring. Industry also needs to avoid over burdensome regulatory procedures. |
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4.1

Defence equipment is only one requirement for a viable ‘defence performance’. For industry to play its part fully it will need clear guidance, harmonised requirements and continuity. It must also have primary responsibility for necessary restructuring. Industry also needs to avoid over burdensome regulatory procedures.

| 4.2 | It must be made very clear what parts of the defence equipment procurement process will be covered by the rules agreed. |
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4.2

It must be made very clear what parts of the defence equipment procurement process will be covered by the rules agreed.

| 4.3 | Article 296 of the Treaty will continue to be required. To ensure that progress in avoiding its too frequent use the Commission needs to establish a benchmark though examining current performance. It is not practicable to maintain any list of equipments and procedures to which Article 296 can be applied. |
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4.3

Article 296 of the Treaty will continue to be required. To ensure that progress in avoiding its too frequent use the Commission needs to establish a benchmark though examining current performance. It is not practicable to maintain any list of equipments and procedures to which Article 296 can be applied.

| 4.4 | As a first step the Commission should produce as soon as possible an ‘interpretative communication’ on Article 296. Only after experience has been gained with this communication will it be possible to decide whether a legal instrument is also required. |
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4.4

As a first step the Commission should produce as soon as possible an ‘interpretative communication’ on Article 296. Only after experience has been gained with this communication will it be possible to decide whether a legal instrument is also required.

| 4.5 | ‘Dual use’ equipment is increasingly common and this trend is welcome, not least because of the potential for civil use of RTD which applies to military equipment. |
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4.5

‘Dual use’ equipment is increasingly common and this trend is welcome, not least because of the potential for civil use of RTD which applies to military equipment.

| 4.6 | The important role foreseen for the European Defence Agency (EDA) is welcome; it will need to be clear what part all the agencies now involved are to play. |
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4.6

The important role foreseen for the European Defence Agency (EDA) is welcome; it will need to be clear what part all the agencies now involved are to play.

| 4.7 | Among the important roles for EDA in this area are:






  — | Ensuring coordination with NATO requirements |
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4.7

Among the important roles for EDA in this area are:

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Ensuring coordination with NATO requirements

| — | Helping to negotiate all the necessary financial aspects |
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Helping to negotiate all the necessary financial aspects

| — | Helping to harmonise existing national procedures |
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Helping to harmonise existing national procedures

| — | Suggesting innovative ways of providing necessary capabilities |
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Suggesting innovative ways of providing necessary capabilities

| — | Encouraging the maintenance of the necessary political will. |
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Encouraging the maintenance of the necessary political will.

Brussels, 9 February 2005.

The President

of the European Economic and Social Committee

Anne-Marie SIGMUND

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(1)  OJEC C10/1 of 14.1.2004

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(2)  EDA has four agreed functions; defence capabilities development, armaments cooperation, the European defence technological and industrial base and defence equipment market and research and technology.

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(3)  As we commented in our opinion on COM(2003) 113 final, this combined EU spending is about 40 % that of the US, yet only produces about 10 % of the operational capabilities.

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(4)  For example, the Committee notes the recent (September 2004) statement by the head of the EDA that EU forces are not well adapted to the modern world and its conflicts and threats; he spoke of the need to acquire more high technology equipment.

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(5)  Such as OCCAR, Western European Armemnets group (WEAG) and Letter of Intent (LoI) countries.

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(6)  OCCAR is a joint organisation for armaments cooperation to which 5 MS currently belong.

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(7)  However, because of the specific nature of defence markets and because of the need to manage payments as part of national financial arrangements, MS will inevitably play a role in facilitating the development of defence equipment.

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(8)  The decisions in the ‘Bremen case’ (1999/763/63(OJ L 301/8 of 24 November 1999) and the ‘Koninklijke Schelde Groep’ (OJ L 14/56 of 21 January 2003) are examples of the current lack of clarity.

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(9)  We should note that even apparently simple equipment such as clothing can involve advanced technology.

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(10)  See paragraph 5 of the opinion refered to at footnote 1.

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