P8_TA(2018)0516

Establishing the European Defence Fund ***I

Amendments adopted by the European Parliament on 12 December 2018 on the proposal for a regulation of the European Parliament and of the Council establishing the European Defence Fund (COM(2018)0476 — C8-0268/2018 — 2018/0254(COD)) (1)

(Ordinary legislative procedure: first reading)

[Amendment 1, unless otherwise indicated]

(2020/C 388/41)

AMENDMENTS BY THE EUROPEAN PARLIAMENT (*1)

to the Commission proposal

Proposal for a REGULATION OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL establishing the European Defence Fund (Text with EEA relevance) THE EUROPEAN PARLIAMENT AND THE COUNCIL OF THE EUROPEAN UNION, Having regard to the Treaty on the Functioning of the European Union, and in particular Article 173(3), Article 182(4), Article 183 and the second paragraph of Article 188 thereof, Having regard to the proposal from the European Commission, After transmission of the draft legislative act to the national parliaments, Having regard to the opinion of the European Economic and Social Committee, Acting in accordance with the ordinary legislative procedure, Whereas: (-1a) Defence is considered to be a clear example of how a greater effectiveness could be achieved by transferring certain competences and actions currently performed by the Member States and the corresponding appropriations to the European level, resulting in a demonstration of the European added value and allowing a limitation of the overall burden of public expenditure in the Union. (-1b) The Union’s geopolitical context has changed dramatically in the last decade. The situation in Europe's neighbouring regions is unstable and the Union faces a complex and challenging environment combining the emergence of new threats like hybrid and cyber-attacks and the return of more conventional challenges. Faced with that context both European citizens and their political leaders share the view that more has to be done collectively in the area of defence. 75 % of Europeans support a common defence and security policy. The Rome Declaration of the leaders of 27 Member States and of the European Council, the European Parliament and the Commission of 25 March 2017 stated that the Union will strengthen its common security and defence and foster a more competitive and integrated defence industry. (1) In its Communication of 30 November 2016 on the European Defence Action Plan, adopted on 30 November 2016, the Commission committed to complement, leverage and consolidate collaborative efforts by Member States in developing defence technological and industrial capabilities to respond to security challenges, as well as to foster a competitive, innovative and efficient European defence industry and to create a more integrated defence market throughout the Union . It proposed in particular to launch a European Defence Fund (the ‘Fund’) to support investments in joint research and the joint development of defence products and technologies, thus fostering synergies and cost-effectiveness, and to promote the Member States’ joint purchase and maintenance of defence equipment. This Fund would complement national funding already used for this purpose and should act as an incentive for Member States to cooperate cross-border and invest more in defence. The Fund would support cooperation during the whole cycle of defence products and technologies. (1a) On 7 June 2017, the Commission adopted a Communication launching the European Defence Fund. A two-step approach was proposed: first, in order to test the approach, initial financing for both research and development has been made available under the 2014-2020 Multi-Annual Financial Framework (‘MFF’) by the adoption of Regulation (EU) 2018/1092 of the European Parliament and of the Council (2); second, a dedicated Fund would be established under the MFF 2021 to2027, scaling up the funding for collaborative research in innovative defence products and technologies and for subsequent stages of the development cycle, including the development of prototypes. There should be a consistent and coherent approach between those two steps. (1b) The defence sector is characterised by increasing costs of defence equipment and by high research and development (R&D) costs that limit the launch of new defence programmes and directly impact on the competitiveness and innovation capacity of the Union’s industry. In view of the cost escalation, of the magnitude of non-recurring R&D expenses and of the small series that can be procured nationally, the development of a new generation of major defence systems and of new defence technologies is increasingly beyond the reach of single Member State. (1c) In its resolution of 14 March 2018 on the next MFF: Preparing the Parliament’s position on the MFF post-2020, the European Parliament reiterated its support for the creation of a European Defence Union, with a specific research programme in the area of defence of the Union and an industrial development programme in which Member States invest, in order to eliminate duplication and increase the strategic autonomy and efficiency of the European defence industry. It also reiterated that the Union could be stronger and more ambitious only if additional financial means were made available to it and called, therefore, for ongoing support to be provided in the context of existing policies which increase resources for the Union’s flagship programmes, and for additional responsibilities to be matched with additional financial means. (1d) The situation of the defence sector has been further exacerbated by significant cuts in defence budgets across Europe in the last 10 years, affecting in particular R&D and equipment expenditures. Between 2006 and 2013 real defence expenditure levels in the EDA participating Member States were reduced by 12 %. Considering that defence R&D is the basis for the development of the future cutting-edge defence technologies, such trends are particularly worrying and pose a serious challenge to the capacity to maintain Union’s defence industry competitiveness in the long term. (1e) Despite the interplay between increasing costs and decreasing spending, defence planning and defence spending on R&D and procurement of equipment has remained largely at national level with very limited cooperation between Member States in defence equipment investments. Additionally, when implemented, only few programmes are also linked to Union capability priorities — in 2015 only 16 % of equipment was procured through European collaborative procurement, far below the agreed collective benchmark of 35 %. (2) The Fund would contribute to the establishment of a strong, competitive and innovative defence industrial and technological base and go hand in hand with the Union's initiatives towards a more integrated European Defence Market and in particular, the two Directives (3) on procurement and on EU transfers in the defence sector adopted in 2009. It is therefore of crucial importance that key regulatory preconditions are fulfilled, especially the full implementation of those Directives. The Fund is intended to form the cornerstone of a sound European defence industrial policy. (3) Following an integrated approach and in order to contribute to the enhancement of the competitiveness and innovation capacity of the Union's defence industry, a European Defence Fund should be established. The Fund should aim at enhancing the competitiveness, innovation, efficiency and technological and industrial autonomy of the Union's defence industry thereby contributing to the Union's strategic autonomy by supporting the cross border cooperation between Member States and between enterprises, research centres, national administrations, international organisations and universities throughout the Union , in the research phase and in the development phase of defence products and technologies. To achieve more innovative solutions and an open internal market, the Fund should support the cross-border participation of defence small and medium sized enterprises (SMEs) and middle capitalisation companies (mid-caps). In order to foster an open internal market, the Fund should facilitate the widening of cross-border cooperation between legal entities, in particular the cross-border participation of SMEs and mid-caps. (3a) European security is dependent on strong and robust relations with strategic partners around the world and the Programme should enhance the competitiveness of the European defence industrial market by further strengthening partnerships through R&D, thereby promoting European strategic capacity and capability. (4) The research phase is a crucial element as it conditions the capacity of the European industry and the autonomy of the European industry to develop products and the independence of Member States as defence end-users. The research phase linked to the development of defence capabilities may include significant risks, in particular related to the low level of maturity and the disruption of technologies. The development phase, which follows the research and technology phase, also entails significant risks and costs that hamper the further exploitation of the results of research and adversely impact the competitiveness and innovation of the Union's defence industry. The Fund should foster the link between the R&D phases of defence products and technologies in order to bridge the Valley of Death. (5) The Fund should not support pure basic research which should instead be supported through other schemes but may include defence oriented basic research likely to form the basis of the solution to recognised or expected problems or possibilities. (6) The Fund could support actions pertaining to both new and the upgrade of existing products and technologies, wherever the use of pre-existing information needed to perform the action for the upgrade is not subject to restriction by non-associated third countries or non-associated third country entities. When applying for the Union funding, legal entities should be required to provide the relevant information to establish the absence of restrictions. In the absence of such information, the Union funding should not be possible. (6a) The Fund should adequately support R&D actions in the area of disruptive technologies for defence. As disruptive technologies can be based on concepts or ideas originating from non-traditional defence R&D actors, the Fund should allow for sufficient flexibility in consulting stakeholders, as well as in funding and managing actions. (7) In order to ensure that the Union's and its Member States' international obligations are respected in the implementation of this Regulation, actions relating to products or technologies the use, development or production of which are prohibited by international law should not receive funding under the Fund. In this respect, the eligibility of actions related to new defence products or technologies, such as those that are specifically designed to carry out lethal strikes without any human control over the engagement decisions, should also be subject to developments in international law. (7a) Regarding exports of products which would be the result of R&D actions of the Programme, particular attention should be paid to Article 7(1) of the 2013 UN Arms Trade Treaty, which provides that even if the export is not prohibited, exporting State Parties are, in an objective and non-discriminatory manner and taking into account relevant factors, to assess the potential that the conventional arms or items: (a) would contribute to or undermine peace and security or (b) could be used to (i) commit or facilitate a serious violation of international humanitarian law, (ii) commit or facilitate a serious violation of international human rights law, (iii) commit or facilitate an act constituting an offence under international conventions or protocols relating to terrorism to which the exporting State is a Party, or (iv) commit or facilitate an act constituting an offence under international conventions or protocols relating to transnational organized crime to which the exporting State is a Party. (8) The difficulty to agree on consolidated defence capability requirements and common technical specifications or standards hampers cross-border collaboration between Member States and between legal entities based in different Member States. The absence of such requirements, specifications and standards has led to increased fragmentation of the defence sector, technical complexity, delays, ▌inflated costs , unnecessary duplication of capabilities as well as decreased interoperability. The agreement on common technical specifications should be a prerequisite for actions involving a higher level of technological readiness. Activities of Member States fostering interoperability, leading to common defence capability requirements and supporting studies as well as actions aiming at supporting the creation of a common definition of technical specifications or standards should also be eligible for support by the Fund in order to avoid competing specifications or standards from undermining interoperability . (9) As the objective of the Fund is to support the competitiveness , efficiency, industrial autonomy and innovation of the Union defence industry by leveraging and complementing collaborative defence research and technology activities and de-risking the development phase of cooperative projects, actions related to the R&D of a defence product or technology should be eligible to benefit from it. This will also apply to the upgrade, including the interoperability thereof, of existing defence products and technologies. (10) Given that the Fund aims particularly at enhancing cooperation between legal entities and Member States across Europe, an action should be eligible for funding only if it is undertaken by a cooperation within a consortium of at least three legal entities based in at least three different Member States. Any additional legal entity participating in the consortium should be permitted to be established in an associated country ▌. In every type of cooperation, legal entities established in Member States should be a majority within the consortium. At least three of these legal eligible entities established in at least two different Member States and/or associated countries should not be ▌controlled, directly or indirectly, by the same entity or should not control each other. In order to boost the cooperation between Member States the Fund may support joint pre-commercial procurement. (11) Pursuant to [reference to be updated as appropriate according to a new decision on OCTs: Article 94 of Council Decision 2013/755/EU (4)], entities established in overseas countries and Territories (OCTs) are to be eligible for funding subject to the rules and objectives of the Fund and possible arrangements applicable to the Member State to which the OCTs is linked. (12) As the Fund aims at enhancing the competitiveness, efficiency and autonomy of the Union's defence industry, only entities established in the Union or associated countries and not subject to control by non-associated third countries or non-associated third country entities should in principle be eligible for support. Additionally, in order to ensure the protection of essential security and defence interests of the Union and its Member States, the infrastructure, facilities, assets and resources used by the recipients and their subcontractors in actions supported by the Fund should ▌be located on the territory the Union or of associated third countries. (13) In certain circumstances, if this is necessary for achieving the objectives of the action, it should be possible to derogate from the principle that recipients and their subcontractors should not be subject to control by non-associated third countries or non-associated third country entities. In that perspective, legal entities established in the Union that are controlled by a non-associated third country or a non-associated third country entity can be eligible if relevant and strict conditions relating to the security and defence interests of the Union and its Member States are fulfilled. The participation of such entities should not contravene the objectives of the Fund. Applicants should provide all relevant information about the infrastructure, facilities, assets and resources to be used in the action. In any event, no derogation should be granted to applicants controlled by a non-associated third country subject to any Union restrictive measures or by a non-associated third-country entity subject to any Union restrictive measures. (14) If a consortium wishes to participate in an eligible action and the financial assistance of the Union is to take the form of a grant, the consortium should appoint one of its members as a coordinator who will be the principal point of contact. (15) In case a development action supported by the Fund is managed by a project manager appointed by Member States or associated countries, the Commission should consult the project manager prior to executing the payment to the recipient so that the project manager can ensure that the time-frames are respected by the recipients. ▌The project manager should provide the Commission with its observations on the progress of the action so that the Commission can validate whether the conditions to proceed to the payment are fulfilled. (16) In order to ensure that the funded actions are financially viable, it is necessary that the beneficiaries demonstrate that the costs of the action not covered by the Union's funding are covered by other means of financing. (17) Different types of financial arrangement should be at the disposal to Member States for the joint development and acquisition of defence capabilities. The Financial Toolbox developed by the Commission should provide different types of arrangements that Member States can use to address challenges for collaborative development and procurement from a financing perspective. The use of such financial arrangements could further foster the launch of collaborative and cross-border defence projects , contribute to avoiding duplications and increase the efficiency of defence spending, including for projects supported under the European Defence Fund. (18) Given the specificities of the defence industry where demand comes almost exclusively from Member States and associated countries, which also control all acquisition of defence-related products and technologies, including exports, the functioning of the defence sector is unique and does not follow the conventional rules and business models that govern more traditional markets. Industry therefore cannot undertake substantial self-funded defence R&D projects and Member States and associated countries normally fully fund all R&D cost. To achieve the objectives of the Fund, notably to incentivise cooperation between companies from different Member States and associated countries, and taking into account the specifics of the defence sector, the totality of the eligible costs should be covered for actions that take place ahead of the development of prototypes phase. (19) The prototype phase is a crucial phase where Member States or associated countries usually decide on their consolidated investment and start the acquisition process of their future defence products or technologies. This is the reason why, at this specific stage, Member States and associated countries agree on the necessary commitments including cost-sharing and ownership of the project. To ensure the credibility of their commitment, the financial assistance of the Union under the Fund should normally not exceed 20 % of the eligible costs. (20) For actions beyond the prototype phase, funding up to 80 % should be foreseen. These actions which are closer to product and technology finalisation may still involve substantial costs. (21) Stakeholders in the defence sector are facing specific indirect costs, such as costs for security. Furthermore, stakeholders are working in a specific market where they — without any demand on the buyers' side — cannot recover the R&D costs like in the civilian sector. Therefore, it is justified to allow a flat rate of 25 % as well as the possibility ▌to charge indirect costs calculated in accordance with the usual accounting practises of beneficiaries if these practises are accepted by their national authorities under comparable national funding schemes, which have been communicated to the Commission. ▌ (21a) Projects with participation of cross-border SMEs and mid-caps support the opening up of the supply chains and contribute to the objectives of the Fund. Such actions should therefore be eligible for an increased funding rate benefitting all entities participating in the consortium. (22) In order to ensure that the funded actions will contribute to the competitiveness and efficiency of the European defence industry, it is important that Member States already intend to jointly procure the final product or use the technology, notably through joint cross-border procurement, where Member States jointly organise their procurement procedures in particular with the use of a central purchasing body. As defence ministries of Member States are exclusive customers and defence industries are the sole providers of defence products, in order to facilitate procurement, ministries of defence of Member States should be involved in the project from the technical specification all the way until the project is finished. (22a) To respond to increased instability and conflicts in their neighbourhood and new security and geopolitical threats, Member States and the Union need to coordinate investment decisions, and thus require a common definition of threats, needs and priorities, including anticipated military capability needs, which could be identified via procedures such as the Capability Development Plan (CDP). (23) The promotion of innovation and technological development in the Union defence industry should take place in a manner coherent with the security and defence interests of the Union. Accordingly, the action's contribution to those interests and to the defence research and capability priorities commonly agreed by Member States should serve as an award criterion. Within the Union, common defence research and capability shortfalls are identified in the Common Security and Defence Policy (CSDP) framework notably through Overarching Strategic Research Agenda and the CDP, including the CDP Strategic Context Cases . Other Union processes such as the Coordinated Annual Review on Defence and the Permanent Structured Cooperation will support the implementation of relevant priorities through identifying and taking forward opportunities for enhanced cooperation with a view to fulfilling the EU level of ambition on security and defence. Where appropriate, regional and international priorities, including those in the North Atlantic Treaty Organisation context, should also be taken into account if they are in line with Union priorities and do not prevent any Member State or an associated country from participating, while also taking into account that unnecessary duplication should be avoided. (24) Eligible actions developed in the context of Permanent Structured Cooperation (PESCO) in the institutional framework of the Union should ensure enhanced cooperation between legal entities in the different Member States on a continuous basis and thus directly contribute to the aims of the Fund. If selected, such projects should thus be eligible for an increased funding rate. (24a) The Fund should take into account the Action Plan on Military Mobility as part of the next Connecting Europe Facility, European Peace Facility to support, and, inter alia, Common Foreign and Security Policy CFSP/CSDP Missions and efforts to counter Hybrid Threats, that together with CDP, CARD and PESCO help to coordinate capability planning, development, procurement and operations. (25) The Commission will take into account the other activities financed under the Horizon Europe Framework programme in order to avoid unnecessary duplication and ensure the cross-fertilisation and synergy between civil and defence research and ensure that Horizon Europe remains a purely civil research programme . (26) Cybersecurity and cyber defence are increasingly important challenges and the Commission and the High Representative recognised the need to establish synergies between cyber defence actions within the scope of the Fund and Union initiatives in the field of cybersecurity, such as those announced in the Joint Communication on cybersecurity. In particular, the European Cybersecurity Industrial, Technology and Research Competence Centre to be set up should seek synergies between the civilian and defence dimensions of cybersecurity. It could actively support Member States and other relevant actors by providing advice, sharing expertise and facilitating collaboration with regard to projects and actions as well as when requested by Member States acting as a project manager in relation to the European Defence Fund. (27) An integrated approach should be ensured by bringing together activities covered by the Preparatory Action on Defence Research launched by the Commission within the meaning of Article [58 (2) (b)] of Regulation (EU, Euratom) 2018/…of the European Parliament and of the Council (the ‘Financial Regulation’) and the European Defence Industrial Development Programme established by Regulation (EC) No … of the European Parliament and of the Council and to harmonise the conditions for participation, to create a more coherent set of instruments, to increase the innovative, collaborative and economic impact, while avoiding unnecessary duplication and fragmentation. With this integrated approach, the Fund would also contribute to a better exploitation of the results of defence research, covering the gap between R&D taking into account the specificities of the defence sector, and promoting all forms of innovation , and as positive spillover effects can be expected, where applicable, in the civil field , including disruptive innovation where possible failure should be accepted. (28) The policy objectives of this Fund will be also addressed through financial instruments and budgetary guarantees under the policy window(s) […] of the InvestEU Fund. (29) Financial support should be used to address market failures or sub-optimal investment situations, in a proportionate manner and actions should not duplicate or crowd out private financing or distort competition in the internal market. Actions should have a clear European added value. (30) The types of financing and the methods of implementation under this Regulation should be chosen on the basis of their ability to achieve the specific objectives of the actions and to deliver results, taking into account, in particular, the costs of controls, the administrative burden, and the expected risk of non-compliance. This should include consideration of the use of lump sums, flat rates and unit costs, as well as financing not linked to costs as referred to in Article [125(1)] of the Financial Regulation. (31) The Commission should establish annual or multiannual work programmes in line with the objectives of the Fund. The work programmes should take into account the initial lessons learned from of the European Defence Industrial Development Programme, the Pilot Project and the Preparatory Action on Defence Research . ▌ (32) In order to ensure uniform conditions for the implementation of this Regulation implementing powers should be conferred on the Commission as regards the adoption of the work programme and for awarding the funding to selected development actions. In particular, while implementing development actions, the specificities of the defence sector, notably the responsibility of Member States and/or associated countries for the planning and acquisition process, should be taken into account. These implementing powers should be exercised in accordance with Regulation (EU) [No 182/2011 of the European Parliament and of the Council] (5). (33) In order to support an open internal market, participation of cross-border SMEs and mid-caps, either as members of consortia or as subcontractors, should be encouraged. The work programme should ensure that a credible proportion of the overall budget benefits actions enabling the cross-border participation of SMEs and mid-caps. (34) The Commission should endeavour to maintain dialogue with the European Parliament, Member States and industry to ensure the success of the Fund through the impact it brings to the defence industry. (35) This Regulation lays down a financial envelope for the European Defence Fund which is to constitute the prime reference amount, within the meaning of [the new inter-institutional agreement] between the European Parliament, the Council and the Commission on budgetary discipline, on cooperation in budgetary matters and on sound financial management (6), for the European Parliament and the Council during the annual budgetary procedure. The Commission should ensure that administrative procedures are kept as simple as possible and incur a minimum amount of additional expenses. (36) The Financial Regulation applies to the Fund, unless otherwise specified. It lays down rules on the implementation of the Union budget, including the rules on grants, prizes, procurement, financial assistance, financial instruments and budgetary guarantees. (37) Horizontal financial rules adopted by the European Parliament and the Council on the basis of Article 322 of the Treaty on the Functioning of the European Union apply to this Regulation. These rules are laid down in the Financial Regulation and determine in particular the procedure for establishing and implementing the budget through grants, procurement, prizes, indirect implementation, and provide for checks on the responsibility of financial actors. Rules adopted on the basis of Article 322 TFEU also concern the protection of the Union's budget in case of generalised deficiencies as regards the rule of law in the Member States, as the respect for the rule of law is an essential precondition for sound financial management and effective EU funding. (38) In accordance with the Financial Regulation, Regulation (EU, Euratom) No 883/2013 of the European Parliament and of the Council (7), Council Regulation (Euratom, EC) No 2988/95 (8), Council Regulation (Euratom, EC) No 2185/96 (9) and Council Regulation (EU) 2017/1939 (10), the financial interests of the Union are to be protected through proportionate measures, including the prevention, detection, correction and investigation of irregularities and fraud, the recovery of funds lost, wrongly paid or incorrectly used and, where appropriate, the imposition of administrative sanctions. In particular, in accordance with Regulation (EU, Euratom) No 883/2013 and Regulation (Euratom, EC) No 2185/96 the European Anti-Fraud Office (OLAF) may carry out administrative investigations, including on-the-spot checks and inspections, with a view to establishing whether there has been fraud, corruption or any other illegal activity affecting the financial interests of the Union. In accordance with Regulation (EU) 2017/1939, the European Public Prosecutor's Office (EPPO) may investigate and prosecute fraud and other criminal offences affecting the financial interests of the Union as provided for in Directive (EU) 2017/1371 of the European Parliament and of the Council (11). In accordance with the Financial Regulation, any person or entity receiving Union funds is to fully cooperate in the protection of the Union’s financial interests, to grant the necessary rights and access to the Commission, OLAF, the EPPO and the European Court of Auditors (ECA) and to ensure that any third parties involved in the implementation of Union funds grant equivalent rights. (39) Third countries which are members of the European Economic Area (EEA) may participate in Union programmes in the framework of the cooperation established under the EEA agreement, which provides for the implementation of the programmes by a decision under that agreement. A specific provision should be introduced in this Regulation to grant the necessary rights for and access to the authorising officer responsible, the European Anti-Fraud Office (OLAF) as well as the European Court of Auditors to comprehensively exert their respective competences. (40) Pursuant to paragraph 22 and 23 of the Inter-institutional agreement for Better Law-Making of 13 April 2016, there is a need to evaluate this regulation on the basis of information collected through specific monitoring requirements, while avoiding overregulation and administrative burdens, in particular on Member States. These requirements, where appropriate, can include measurable indicators, as a basis for evaluating the effects of the regulation on the ground. The Commission should carry out an interim evaluation no later than four years after the start of the Fund implementation and a final evaluation at the end of the implementation period of the Fund, examining the financial activities in terms of financial implementation results and to the extent possible at that point in time, results and impact. Those reports should also analyse the cross-border participation of SMEs and mid-caps in projects supported by the Fund as well as the participation of SMEs and mid-caps to the global value chain and should also contain information on the countries of origin of the recipients, the number of countries involved in individual projects and, where possible, the distribution of the generated intellectual property rights . The Commission may also propose amendments to this Regulation to react on possible developments during the implementation of the Fund. (41) Reflecting the importance of tackling climate change in line with the Union's commitments to implement the Paris Agreement and the United Nations Sustainable Development Goals, this Fund ▌will contribute to mainstream climate action in the Union's policies and to the achievement of an overall target of 25 % of the EU budget expenditures supporting climate objectives. Relevant actions will be identified during the Fund's preparation and implementation, and reassessed in the context of its mid-term evaluation. (42) As the Fund supports only the R&D phases of defence products and technologies, ▌the Union should not have ownership or intellectual property rights (IPRs) over the products or technologies resulting from the funded actions unless the Union assistance is provided through procurement. However, for research actions, interested Member States and associated countries should have the possibility to use the results of funded actions and participate in follow-up cooperative development and therefore derogations to that principle should be allowed. (43) The Union financial support should be accompanied by the full and proper implementation of Directive 2009/43/ EC of the European Parliament and of the Council (12) on the transfer of defence-related products within the Union, and should not affect the export of products, equipment or technologies. (43a) Entities which have been found guilty in a court of law of a criminal offence such as, but not limited to, bribing an official or breaching EU restrictive measures, should not be eligible for funding. The Commission may decide that any such entity, or an entity where senior executives have been found guilty, shall be barred from applying for funding for a period of no less than 36 months following conviction. The Commission shall maintain a publicly accessible database of all barred undertakings. Where an entity is under a credible and relevant investigation for a criminal offence, the Commission should reserve the right to await the outcome of the investigation before awarding funding. [Am. 4] (43b) The Fund should support industry best practice in corporate governance and procurement practices. This should include the possibility for anonymous and confidential whistleblowing, through hotlines operated by third parties and with procedures in place to prevent retaliation. The award procedure should reflect those corporate governance standards with the goal of raising corporate accountability standards in the European defence sector. [Am. 5] (44) Use of sensitive background information or access by unauthorised individuals to sensitive results generated by research projects may have an adverse impact on the interests of the Union or of one or more of the Member States. Thus handling of confidential data and classified information should be governed by all relevant Union law, including the Institutions' internal rules, such as Commission Decision (EU, Euratom) 2015/444 (13). (45) In order to be able to supplement or amend this Regulation, the power to adopt acts in accordance with Article 290 of the Treaty on the Functioning of the European Union should be delegated to the Commission in respect of the award of funding for development actions, the adoption of the work programmes and the impact pathway indicators. It is of particular importance that the Commission carry out appropriate consultations during its preparatory work, including at expert level, and that those consultations be conducted in accordance with the principles laid down in the Interinstitutional Agreement on Better Law-Making of 13 April 2016. In particular, to ensure equal participation in the preparation of delegated acts, the European Parliament and the Council receive all documents at the same time as Member States' experts, and their experts systematically have access to meetings of Commission expert groups dealing with the preparation of delegated acts. (46) The Commission should manage the Fund having due regard to the requirements of confidentiality and security, in particular classified information and sensitive information. (46a) Undertakings, when proposing new defence products or technologies or proposing to re-purpose existing ones, are bound by the applicable legislation. Where no readily applicable legislation exists, they should commit themselves to respecting a body of universal ethical principles relating to the fundamental rights and the welfare of human beings, the protection of the human genome, the treatment of animals, the preservation of the natural environment, the protection of the cultural heritage, and the equitable access to global commons, including space and the cyberspace. The Commission should ensure that proposals are systematically screened to identify those actions raising serious ethics issues and submit them to an ethics assessment. Actions which are not ethically acceptable should not receive Union funding. (46b) The Council should endeavour to establish a decision on the use of armed unmanned aerial vehicles before [31 December 2020]. No funding should be made available for developing armed unmanned aerial vehicles before that decision has entered into force. HAVE ADOPTED THIS REGULATION: TITLE I COMMON PROVISIONS APPLICABLE FOR RESEARCH AND DEVELOPMENT CHAPTER I GENERAL PROVISIONS Article 1 Subject matter This Regulation establishes the European Defence Fund (‘the Fund’). It lays down the objectives of the Fund, the budget for the period 2021-2027, the forms of Union funding and the rules for providing such funding. Article 2 Definitions For the purposes of this Regulation, the following definitions apply: ▌ (2) ‘control’ means the ability to exercise a decisive influence on an legal entity directly or indirectly through one or more intermediate legal entities; (3) ‘development action’ means any action consisting primarily of defence-oriented activities in the development phase, covering new products or technologies or the upgrading of existing ones, excluding the production or use of weapons; (4) ‘disruptive technology for defence’ means a technology the application of which can radically change the concepts and conduct of defence affairs.; (5) ‘executive management structures’ means any body or bodies, appointed in accordance with national law, which are empowered to set the legal entity's strategy, objectives and overall direction, and which oversee and monitor management decision-making; (6) ‘legal entity’ means any natural or legal person created and recognised as such under national law, Union law or international law, which has legal personality and which may, acting in its own name, exercise rights and be subject to obligations, or an entity without a legal personality in accordance with Article [197(2)(c)] of the Financial Regulation; (7) ‘mid-cap’ means an enterprise that is not a micro-, small — and medium size enterprises (‘SME’), as defined in Commission recommendation 2003/361/EC (14) and that has a number of employees of up to 3 000 employees, where the staff headcount is calculated in accordance with Articles 3, 4, 5 and 6 of Title I of the Annex to that Recommendation; (8) ‘pre-commercial procurement’ means the procurement of research and development services involving risk-benefit sharing under market conditions, competitive development in phases, where there is a clear separation of the research and development services procured from the deployment of commercial volumes of end-products; (9) ‘project manager’ means any contracting authority established in a Member State or an associated country, set up by a Member State or an associated country or a group of Member States and/or associated countries to manage multinational armament projects permanently or on an ad-hoc basis; (10) ‘recipient’ means any legal entity receiving funding under this Fund; (11) ‘research action’ means any action consisting of research activities with an exclusive focus on defence applications; (12) ‘results’ means any tangible or intangible effect of the action, such as data, know-how or information, whatever its form or nature, whether or not it can be protected, as well as any rights attached to it, including intellectual property rights; (13) ‘special report’ means a specific deliverable of a research action summarising its results, providing extensive information on the basic principles, the aims, the actual outcomes, the basic properties, the performed tests, the potential benefits, the potential defence applications and the expected exploitation path of the research; (14) ‘system prototype’ means a model of a product or technology that can demonstrate performance in an operational environment; (15) ‘third country’ means a country that is not a member of the Union; (16) ‘non-associated third country’ means a third country that is not an associated country in accordance with Article 5; (17) ‘non-associated third country entity’ means a legal entity established in a non-associated third country or having its executive management structures in a non-associated third country; (17a) ‘qualification’ means the entire process of demonstrating that the design of a defence product, tangible or intangible component or technology meets the specified requirements. That process provides objective evidence by which particular requirements of a design are demonstrated to have been achieved; (17b) ‘consortium’ means a collaborative grouping of legal entities constituted to undertake an action under the Fund; (17c) ‘certification’ means the process according to which a national authority certifies that the defence product, tangible or intangible component or technology complies with the applicable regulations; (17d) ‘coordinator’ means a legal entity belonging to a consortium and appointed by all consortium members to be the principal point of contact with the Commission for the grant agreement. Article 3 Objectives of the Fund 1. The general objective of the Fund is to foster the competitiveness, efficiency and innovation capacity of the European defence industry, by supporting collaborative actions and cross-border cooperation between legal entities throughout the Union , including SMEs and mid-caps as well as strengthening and improving the agility of both defence supply and value chains, widening cross-border cooperation between legal entities and fostering the better exploitation of the industrial potential of innovation, research and technological development, at each stage of the ▌life cycle of defence products and technologies . ▌The Fund shall contribute to the freedom of action of the Union and its strategic autonomy , in particular in technological and industrial terms. 2. The Fund shall have the following specific objectives: (a) support highly efficient collaborative research projects that could significantly boost the performance of European future capabilities, aiming at maximising innovation and introducing new defence products and technologies, including disruptive ones; (b) support collaborative European development projects of defence products and technologies consistent with defence capability priorities commonly agreed by Member States within the framework of the Common Foreign and Security Policy , particularly in the context of the Capability Development Plan of the Common Security and Defence Policy , thus contributing to greater efficiency of defence spending within the Union, achieving greater economies of scale, reducing the risk of ▌duplication, reducing the over-dependence on imports from third countries thus increasing the acquisition of European equipment by Member States, and as such reducing the fragmentation of the market in defence products and technologies throughout the Union , as well as seeking to increase the standardisation of defence systems and the interoperability between Member States' capabilities. Article 4 Budget 1. The financial envelope for the implementation of the European Defence Fund for the period 2021 — 2027 shall be EUR 11 453 260 000 in 2018 prices (EUR 13 000 000 000 in current prices). 2. The ▌distribution of the amount referred to in paragraph 1 shall be: (a) ▌EUR 3 612 182 000 in 2018 prices ( EUR 4 100 000 000 for research actions in current prices) ; (b) ▌EUR 7 841 078 000 in 2018 prices ( EUR 8 900 000 000 in current prices) for development actions. 2a . In order to respond to unforeseen situations or to new developments and needs, the Commission may, within the annual budgetary procedure, deviate from the amounts referred to in paragraph 2 by a maximum of 10 %. 3. The amount referred to in paragraph 1 may be used for technical and administrative assistance for the implementation of the Fund, such as preparatory, monitoring, control, audit and evaluation activities including corporate information technology systems. That amount shall not exceed 5 % of the value of the financial envelope referred to in paragraph 1. 4. At least 5 % and up to 10 % of the financial envelope referred to in paragraph 1 shall be devoted to support disruptive technologies for defence. ▌ Article 5 Associated countries The Fund shall be open to the European Free Trade Association (EFTA) members which are members of the European Economic Area (EEA), in accordance with the conditions laid down in the EEA agreement. Any financial contribution to the Fund pursuant to this Article shall constitute assigned revenue in accordance with Article [21(5)] of the Financial Regulation. Article 6 Support to disruptive technologies for defence 1. The Commission shall award funding through open and public consultations on disruptive technologies with an exclusive focus on defence applications on the areas of intervention defined in the work programmes in accordance with the procedure provided for in Article 27. 2. The Commission shall , on a case by case basis, find the most appropriate form of funding to finance disruptive technologies . Article 7 Ethics 1. Actions carried out under the Fund shall comply with: — ethical principles and relevant national, Union and international legislation including the Charter of Fundamental Rights of the European Union and the European Convention for the Protection of Human Rights and the protocols thereto, and international humanitarian law; — anti-corruption and anti-money laundering rules and initiatives. [Ams 6/rev and 13] 2. Proposals shall be systematically , on an ex-ante basis, screened by the Commission to identify those actions raising complex or serious ethics issues and, where appropriate , submit them to an ethics assessment. Ethics screenings and assessments shall be carried out by the Commission with the support of independent experts with various backgrounds . The Commission shall ensure the transparency of the ethics procedures as much as possible and report on this in the framework of its reporting and evaluation obligations under Articles 31 and 32 . All experts shall be citizens of the Union and shall be nationals of as broad a range of Member States as possible. 3. Entities participating in the action shall obtain all approvals or other mandatory documents from the relevant national, local ethics committees or other bodies such as data protection authorities before the start of the relevant activities. Those documents shall be kept on file and provided to the Commission. ▌ 5. Actions which are not ethically acceptable shall be rejected ▌ CHAPTER II FINANCIAL PROVISIONS Article 8 Implementation and forms of EU funding 1. The Fund shall be implemented by the Commission in direct management in accordance with the Financial Regulation. 2. The Fund may provide funding in any of the forms laid down in the Financial Regulation, in particular grants, prizes and procurement. ▌ Article 9 Cumulative, complementary and combined funding 1. An action that has received a contribution from another Union programme may also receive a contribution under the Fund, provided that the contributions do not cover the same costs. The rules of each contributing Union programme/Fund shall apply to its respective contribution to the action. The cumulative funding shall not exceed the total eligible costs of the action and the support from the different Union programmes may be calculated on a pro-rata basis in accordance with the documents setting out the conditions for support. ▌ CHAPTER III ELIGIBILITY CONDITIONS, AWARD CRITERIA AND FINANCING Article 10 Eligible entities 1. Applicants and their subcontractors involved in the action shall be eligible for funding provided that they are established in the Union or in an associated country as referred to in Article 5 , have their executive management structures in the Union or in an associated country and are not controlled by a non-associated third country or by a non-associated third country entity. 2. By derogation from paragraph 1, an applicant or a subcontractor involved in the action established in the Union or in an associated country and controlled by a non-associated third country or a non-associated third country entity shall be capable of constituting an eligible entity for funding if this is necessary for achieving the objectives of the action and provided that its participation does not put at risk the security and defence interests of the Union and its Member States or the objectives set out in Article 3. In order to ensure protection of the security interests of the Union and its Member States, the call for proposals shall require the applicant to commit to implement appropriate measures before the beginning of the action, ensuring that: (a) ▌control over the applicant is not exercised in a manner that limits in any way its ability to carry out the action and to deliver results, that imposes restrictions concerning its infrastructure, facilities, assets, resources, intellectual property or know-how needed for the purpose of the action, or that undermines its capabilities and standards necessary for the execution of the action; (b) ▌access by non-associated third countries or by non-associated third country entities to classified and non-classified sensitive information relating to the action is prevented; and the employees or other persons involved in the action ▌have a national security clearance issued by a Member State or associated country; (c) ownership of the intellectual property arising from, and the results of the action shall remain within the beneficiary and are not subject to control or restrictions by non-associated third countries or other non-associated third country entities and are not exported to or given access to from a third country or a third-country entity without the approval of the Member States in which the beneficiary is established, and consistent with the objectives set out in Article 3, during the action and for a specified period after its completion, such a period being stipulated in the grant agreement. An applicant or a subcontractor involved in the action that has its executive management structure in the Union or in an associated country and that is controlled by a non-associated third country subject to any Union restrictive measures or by a non-associated third-country entity subject to any Union restrictive measures shall not be granted a derogation under this paragraph. 3. All infrastructure, facilities, assets and resources used in actions financed under the Fund shall be located on the territory of the Union or associated countries and shall not be subject to any control or restriction by a non-associated third country or by a non-associated third-country entity . Furthermore, when performing an eligible action, beneficiaries and their subcontractors involved in the action shall cooperate only with legal entities established in the Union or in an associated country and not controlled by non-associated third countries or non-associated third country entities. 4. By derogation from the paragraph 3 , if there are no competitive substitutes readily available in the Union, beneficiaries and subcontractors involved in the action may use their assets, infrastructure, facilities and resources located or held on the territory of a non-associated third country if this is necessary for achieving the objectives of an action and provided that this will not put at risk the security and defence interests of the Union and its Member States or the objectives set out in Article 3 . Under the same conditions, when performing an eligible action, beneficiaries and their subcontractors involved in the action may cooperate with an entity established in a non-associated third country. The costs related to the use of such infrastructure, facilities, assets or resources and to such cooperation shall not be eligible for funding under the Fund. In any event, such derogation shall not be granted if those assets, infrastructure, facilities and resources are located or held on the territory of a non-associated third country subject to any Union restrictive measures. 5. In order to ensure protection of the security interests of the Union and its Member States, the call for proposals or grant agreement shall specify all conditions , including those referred to in point 2 of this Article . These conditions shall relate, in particular to the provisions on ownership of results of the action and access to classified and non-classified sensitive information and to guarantees on security of supply. 6. Applicants shall provide all relevant information necessary for the assessment of the eligibility criteria and the conditions referred to in paragraphs 1 to 4. 7. Applications which require the verifications under paragraph 2 or paragraph 4 may only be submitted with the agreement of the Member State or associated country in which the applicant is established. 8. In the event of a change during the implementation of an action which might question the fulfilment of those criteria and conditions, the beneficiary shall inform the Commission, which shall assess whether those criteria and conditions are still met and address the potential impact (suspension, cancellation) on the funding of the action. 9. For the purpose of this Article, subcontractors means subcontractors with a direct contractual relationship to a beneficiary, other subcontractors to which at least 10 % of the total eligible costs of the action is allocated, and subcontractors which may require access to classified information according to Commission Decision (EU, Euratom) 2015/444 in order to carry out the action. Article 11 Eligible actions 1. Only actions implementing the objectives referred to in Article 3 shall be eligible for funding. 2. The Fund shall provide support for actions covering both new and upgrade of existing products and technologies where the use of pre-existing information needed to perform the upgrade is not subject, directly or indirectly to a restriction by non-associated third countries or non-associated third country entities. 3. An eligible action shall relate to one or more of the following items: (a) activities aiming to create, underpin and improve ▌knowledge and defence products or technologies, including disruptive defence technologies, which can achieve significant effects in the area of defence; (b) activities aiming to increase interoperability and resilience, including secured production and exchange of data, master critical defence technologies, strengthen the security of supply or enable effectively exploitation of results for defence products and technologies; (c) studies, such as feasibility studies to explore the feasibility of a new or improved technology, product, process, service, solution ▌; (d) the design of a defence product, tangible or intangible component or technology as well as the definition of the technical specifications on which such design has been developed which may include partial tests for risk reduction in an industrial or representative environment; (e) the development of a model of a defence product, tangible or intangible component or technology, which can demonstrate the element's performance in an operational environment (system prototype); (f) the testing of a defence product, tangible or intangible component or technology; (g) the qualification of a defence product, tangible or intangible component or technology ▌; (h) the certification of a defence product, tangible or intangible component or technology ▌; (i) the development of technologies or assets increasing efficiency across the life cycle of defence products and technologies; ▌ 4. ▌The action shall be undertaken in a cooperation within a consortium of at least three legal entities which are established in at least three different Member States Any additional legal entity participating in the consortium may be established in an associated country as referred to in Article 5 . At least three of these eligible entities established in at least two Member States and/or associated countries shall not, during the whole implementation of the action, be ▌controlled, directly or indirectly, by the same entity, and shall not control each other. 5. Paragraph 4 shall not apply to ▌actions referred to in points c) ▌of paragraph 3 and to actions referred to in Article 6. 6. Actions for the development of products and technologies the use, development or production of which is prohibited by applicable international law shall not be eligible for funding . In particular, the Programme shall not fund incendiary weapons including white phosphorus, depleted uranium ammunitions, lethal autonomous weapons, including unmanned aerial vehicles, without meaningful human control over the critical functions of selecting and attacking individual targets, small arms and light weapons mainly developed for export purposes, i.e. where no Member State has expressed a requirement for the action to be carried out.[Am 29/rev] 6a. Actions for the development of products and technologies which are capable of committing or facilitating the following shall not be eligible for funding under the Programme: (i) a serious violation of international humanitarian law; (ii) a serious violation of international human rights law; (iii) an act constituting an offence under international conventions or protocols relating to terrorism; (iv) an act constituting an offence under international conventions or protocols relating to transnational organized crime. 6b. Actions which contribute in parts or entirely, directly or indirectly to the development of weapons of mass destruction and related warhead and missile technology shall not be eligible. [Am. 21] Article 12 Selection and award procedure ▌ [Am. 30] 2. The Commission shall award the funding for selected actions after each call or after application of Article [195(e)] of the Financial Regulation. 3. For the award of funding for development actions, the Commission shall act by means of delegated acts adopted in accordance with the procedure referred to in Article 28 a . Article 13 Award criteria 1. Each proposal shall be assessed on the basis of the following criteria: (a) contribution to excellence or potential of disruption in the defence domain in particular by showing that the expected results of the proposed action present significant advantages over existing products or technologies; (b) contribution to the innovation and technological development of the European defence industry, in particular by showing that the proposed action includes ground-breaking or novel concepts and approaches, new promising future technological improvements or the application of technologies or concepts previously not applied in defence sector; (c) contribution to the competitiveness of the European defence industry, in particular by creating new market opportunities and accelerating the growth of companies throughout the Union; (ca) contribution to the industrial and technological autonomy of the Union by enhancing defence technologies or products in line with defence capability priorities agreed by Member States within the framework of the CFSP and in particular in the context of the CDP of the CSDP; (d) contribution to the security and defence interests of the Union in line with the priorities referred to in Article 3 paragraph 2 and, where appropriate, regional and international cooperative agreements; (e) contribution to the creation of new cross-border cooperation between legal entities, in particular for SMEs and mid-caps which are established in Member States and/or associated countries other than those where the entities in the consortium which are not SMEs and mid-caps are established; (f) quality and efficiency of the implementation of the action. 2. Under points (d) of paragraph 1, regional and international priorities may be taken into account, in particular to avoid unnecessary duplication, provided they serve the Union's security and defence interests and do not exclude the participation of any Member State. Article 14 Co-financing rate 1. The Fund shall finance ▌100 % of the eligible costs of an action without prejudice to the co-financing principle. 2. By derogation from paragraph 1: (a) for actions defined in Article 11(3)(e) the financial assistance of the Fund shall not exceed 20 % of the eligible costs of the action, (b) for actions defined in Article 11(3) f) to h) the financial assistance of the Fund shall not exceed 80 % of the eligible costs of the action. 3. For development actions the funding rate shall be increased , without being allowed to exceed the total eligible cost, in the following cases: (a) an action developed in the context of the Permanent Structured Cooperation as established by Council Decision (CFSP) 2017/2315 of 11 December 2017, it shall ▌benefit from a funding rate increased by an additional 10 percentage points; (b) an action shall benefit from a funding rate increased by the percentage points equivalent to the percentage of the total eligible costs allocated to SMEs established in a Member State or an associated country other than those in which the consortium members that are not SMEs or mid-caps are established in; (c) an action shall benefit from a funding rate increased by the percentage points equivalent to the quarter of the percentage of the total eligible costs allocated to mid-caps established in a Member State or an associated country other than those in which the other consortium members that are not SMEs or mid-caps are established in; (d) the overall increase in the funding rate of an action shall not exceed 30 percentage points. Article 15 Financial capacity By derogation from Article [198] of the Financial Regulation: (a) the financial capacity shall be verified only for the coordinator and only if the requested funding from the Union is equal to or greater than EUR 500 000. However, if there are grounds to doubt the financial capacity, the Commission shall verify also the financial capacity of other applicants or of coordinators below the threshold referred to in the first sentence; (b) the financial capacity shall not be verified in respect of legal entities whose viability is guaranteed by a Member State and in respect of universities and public research centres ; (c) if the financial capacity is structurally guaranteed by another legal entity, the financial capacity of the latter shall be verified. Article 16 Indirect costs 1. Indirect eligible costs shall be determined by applying a flat rate of 25 % of the total direct eligible costs, excluding direct eligible costs for subcontracting, financial support to third parties and any unit costs or lump sums which include indirect costs. 2. As an alternative , indirect eligible costs ▌may be determined in accordance with the beneficiary's usual cost accounting practices on the basis of actual indirect costs provided that these cost accounting practices are accepted by national authorities under comparable funding schemes in accordance with Article [185] of the Financial Regulation and communicated to the Commission. Article 17 Use of single lump sum or contribution not linked to costs 1. For grants awarded to actions referred to Article 11(3)(e) and other actions where Member States and/or associated countries finance more than 50 % of the budget, the Commission may use: (a) a contribution not linked to costs referred to in Article [180(3)] of the Financial Regulation and based on the achievement of results measured by reference to previous set milestones or through performance indicators; or (b) a single lump sum referred to in Article [182] of the Financial Regulation and based on the provisional budget of the action already endorsed by the national authorities of the co-financing Member States and associated countries. 2. Indirect costs shall be included in the lump sum. Article 18 Pre-commercial procurement 1. The Union may support pre-commercial procurement through awarding a grant to contracting authorities or contracting entities as defined in Directives 2014/24/EU (15), 2014/25/EU (16) and 2009/81/EC (17) of the European Parliament and of the Council, which are jointly procuring defence research and development of ▌services or coordinating their procurement procedures. 2. The procurement procedures: (a) shall be in line with the provisions of this Regulation; (b) may authorise the award of multiple contracts within the same procedure (multiple sourcing); (c) shall provide for the award of the contracts to the tender(s) offering best value for money. Article 19 Guarantee Fund Contributions to a mutual insurance mechanism may cover the risk associated with the recovery of funds due by recipients and shall be considered a sufficient guarantee under the Financial Regulation. The provisions laid down in [Article X of] Regulation XXX [successor of the Regulation on the Guarantee Fund] shall apply. ▌ Article 21 Access to financial instruments Beneficiaries of the Fund shall be eligible to access the dedicated financial products deployed under InvestEU in accordance with ▌Title X of the Financial Regulation. TITLE II SPECIFIC PROVISIONS APPLICABLE FOR RESEARCH Article 22 Ownership of results 1. The results of the actions shall be owned by the beneficiaries generating them. Where legal entities jointly generate results, and where their respective contribution cannot be ascertained, or where it is not possible to separate such joint results, the legal entities shall have joint ownership of the results. The joint owners shall conclude an agreement regarding the allocation and terms of exercise of that joint ownership in accordance with their obligations under the grant agreement. 2. If Union assistance is provided in the form of public procurement, results shall be owned by the Union. Member States and associated countries shall enjoy access rights to the results, free of charge, upon their written request. 3. ▌The results of actions receiving support from the Fund shall not be subject to any control or restriction, directly or indirectly through one or more intermediate legal entities, including in terms of technology transfer by a non-associated third country or by a non-associated third country entity. 4. The grant agreement shall, if justified, lay down the right of the Commission to be notified of and object to the transfer of ownership to results or to the granting of a license regarding results to a non-associated third country or a non-associated third country entity. Such transfers shall not contravene the defence and security interests of the Union and its Member States or the objectives of this Regulation as set out in Article 3. 5. The national authorities of Member States and associated countries shall enjoy access rights to the special report of an action that has received Union funding. Such access rights shall be granted on a royalty-free basis and transferred by the Commission to the Member States and associated countries after ensuring that appropriate confidentiality obligations are in place. In any event, participants shall not be required to provide any data or information that are part of intellectual property in the special report. 6. The national authorities of Member States and associated countries shall use the special report solely for purposes related to the use by or for their armed forces, or security or intelligence forces, including within the framework of their cooperative programmes. Such usage shall include, but not be limited to, the study, evaluation, assessment, research, design, development, manufacture, improvement, modification, maintenance, repair, refurbishment, and product acceptance and certification, operation, training, disposal and other design services and product deployment, as well as the assessment and drafting of technical requirements for procurement. 7. The beneficiaries shall grant access rights to their results on a royalty-free basis to the Union institutions, bodies or agencies, for duly justified purpose of developing, implementing and monitoring Union policies or programmes. Such access rights shall be limited to non-commercial and non-competitive use. 8. Specific provisions regarding ownership, access rights and licensing shall be laid down in the grant agreements and contracts regarding pre-commercial procurement to ensure maximum uptake of the results and to avoid any unfair advantage. ▌If a contractor fails to commercially exploit the results within a given period after the pre-commercial procurement as identified in the contract, it shall, where possible , transfer any ownership of the results to the contracting authorities. 8a. Any three or more Member States or associated countries that, multilaterally or within the frame of a Union organisation, jointly have concluded one or several contracts with one or more participants to further develop together results obtained within the frame of a specific action that has received funding under a grant agreement for a research action on defence, shall enjoy access rights to the results of the action that are owned by such participant and are necessary for the execution of the contract. Such access rights shall be granted on a royalty-free basis and under specific conditions aimed at ensuring that those rights are used only for the purpose of the contract and that appropriate confidentiality obligations are in place. TITLE III SPECIFIC PROVISIONS APPLICABLE FOR DEVELOPMENT Article 23 Additional eligibility criteria 1. Where applicable, the consortium shall demonstrate that the remaining costs of an eligible action which are not covered by the Union support will be covered by other means of financing such as Member States' and/or associated countries’ contributions or co-financing from legal entities. 2. When it relates to actions referred to in point d) of Article 11 paragraph 3, the action shall be based on harmonised capability requirements jointly agreed by the relevant Member States and/or associated countries. 3. For actions referred to in points e) to h) of Article 11 paragraph 3, the consortium shall demonstrate by means of documents issued by national authorities that: (a) at least two Member States ▌or at least one Member State with associated countries provide guarantees to procure the final product or use the technology in a coordinated way. This may include joint procurement; (b) the action is based on common technical specifications jointly agreed by the Member States and/or associated countries which co-finance the action. Article 24 Additional award criteria In addition to the award criteria referred to in Article 13, the work programme may also take into consideration: (a) the contribution to increasing efficiency across the life cycle of defence products and technologies, including cost-effectiveness and the potential for synergies in the procurement and maintenance process and disposal processes; (b) the level of cooperation between Members States involved in the eligible action. (ba) the intended procurement volume and the expected effect on Member States’ defence capabilities and expenditure, and the European Strategic Autonomy. Article 25 Ownership of results 1. The Union shall not own the products or technologies resulting from development actions, nor shall it have any intellectual property rights regarding the results of the actions. 1a. The results of the actions shall be owned by the beneficiaries which have generated them. Where legal entities jointly generate results, and where their respective contribution cannot be ascertained, or where it is not possible to separate such joint results, the legal entities shall have joint ownership of the results. The joint owners shall conclude an agreement regarding the allocation and terms of exercise of that joint ownership in accordance with their obligations under the grant agreement. 2. The results of actions receiving support from the Fund shall not be subject to any control or restriction by non-associated third countries or by non-associated third country entities, directly or indirectly through one or more intermediate legal entities, including in terms of technology transfer. 3. With regard to results generated by recipients under this Regulation, and without prejudice to paragraph 2 of this Article , the Commission shall be notified ex ante, at least six weeks before, of any transfer of ownership or grant of a licence to non-associated third countries or to non-associated third country entities . If s uch transfer of ownership or granting of a licence contravenes the defence and security interests of the Union and its Member States or the objectives of this Regulation as set out in Article 3, ▌the funding provided under the Fund shall be reimbursed. 4. By derogation from paragraph 1, where the Union assistance is provided in the form of public procurement, the Union shall own the results and Member States and/or associated countries shall have the right, free of charge, to a non-exclusive licence for the use of the results upon their written request. Article 26 Information of the project manager In case a project manager is appointed by Member States and associated countries, the Commission shall consult the project manager on progress made with regard to the action prior to executing the payment to the beneficiary of the eligible action. TITLE IV GOVERNANCE, MONITORING, EVALUATION AND CONTROL Article 27 Work programmes 1. The Fund shall be implemented by annual or multi annual work programmes established in accordance with Article [110] of the Financial Regulation. ▌ 1a. The work programmes may, in particular, take into account the strategies developed in the Overarching Strategic Research Agenda (OSRA) and in the CDP Strategic Context Cases (SCCs). 1b. The Commission shall ensure the coherence of the work programmes throughout the life-cycle management of defence products and technologies. 2. The Commission shall adopt the work programmes by means of delegated acts in accordance with the procedure referred to in Article 28a. 2a. The work programmes shall set out in detail the categories of projects to be funded under the Fund. Those work programmes shall be in line with the objectives set out in Article 3. 2b. Based on the work programmes’ elaboration process, the Commission shall carry out an upfront assessment of possible duplication cases with existing capabilities or already funded research or development projects within the Union. ▌ Article 28a Exercise of Delegation 1. The power to adopt delegated acts is conferred on the Commission subject to the conditions laid down in this Article. 2. The power to adopt delegated acts referred to in Article 27 shall be conferred on the Commission for a period of seven years from [date of entry into force]. 3. The delegation of power referred to in Article 27 may be revoked at any time by the European Parliament or by the Council. A decision to revoke shall put an end to the delegation of the power specified in that decision. It shall take effect the day following the publication of the decision in the Official Journal of the European Union or at a later date specified therein. It shall not affect the validity of any delegated acts already in force. 4. Before adopting a delegated act, the Commission shall consult experts designated by each Member State in accordance with the principles laid down in the Interinstitutional Agreement of 13 April 2016 on Better Law-Making (18). Article 29 Independent experts 1. The Commission shall appoint independent experts to assist in the evaluation of proposals pursuant to Article [237] of the Financial Regulation. ▌ 2. Independent experts shall be ▌citizens of the Union from as broad a range of Member States as possible identified and selected on the basis of calls for expressions of interest ▌with a view to establishing a list of experts. By derogation from Article [237] of the Financial Regulation, this list shall not be made public, in full or in part, where it is required on the grounds of the protection of public security . 3. Independent experts shall have the appropriate security clearance issued by a Member State. ▌ 5. Independent experts shall be chosen on the basis of their skills, experience and knowledge appropriate to carry out the tasks assigned to them. 5a. The Commission shall ensure that an expert faced with a conflict of interest in relation to a matter on which the expert is required to provide an opinion does not evaluate, advise or assist on the specific matter in question. Article 30 Application of the rules on classified information 1. Within the scope of this Regulation: (a) each Member State or associated country shall ensure that its national security regulations offer a degree of protection of European Union classified information equivalent to that provided by the rules on security as set out in Commission Decision (EU, Euratom) 2015/444 of 13 March 2015 on the security rules for protecting EU classified information (19) and by the security rules of the Council set out in the Annexes to Decision 2013/488/EU (20); (b) Member States and associated countries shall without delay inform the Commission of the national security regulations referred to in point (a); (c) natural persons resident in and legal persons established in non-associated third countries may deal with EU classified information regarding the Fund only where they are subject, in those countries, to security regulations ensuring a degree of protection at least equivalent to that provided by the Commission's rules on security set out in Commission Decision (EU, Euratom) 2015/444 and by the security rules of the Council set out in the Annexes to Decision 2013/488/EU. The equivalence of the security regulations applied in a third country or international organisation shall be defined in a security of information agreement, including industrial security matters if relevant, concluded between the Union and that third country or international organisation in accordance with the procedure provided for in Article 218 TFEU and taking into account Article 13 of Decision 2013/488/EU; (d) without prejudice to Article 13 of Decision 2013/488/EU and to the rules governing the field of industrial security as set out in Commission Decision (EU, Euratom) 2015/444, a natural person or legal person, third country or international organisation may be given access to European Union classified information where deemed necessary on a case-by-case basis, according to the nature and content of such information, the recipient's need-to-know and the degree of advantage to the Union. 2. When actions involve, require and/or contain classified information, the relevant funding body shall specify in the call for proposals/tenders documents the measures and requirements necessary to ensure the security of such information at the requisite level. 3. In order to facilitate exchange of sensitive information between the Commission, the recipients and, where applicable the Member states, the Commission shall set up a secure electronic exchange system. Article 31 Monitoring and reporting 1. Indicators to monitor implementation and progress of the Fund towards the achievement of the general and specific objectives set out in Article 3 are set out in Annex. 2. To ensure effective assessment of progress of the Fund towards the achievement of its objectives, the Commission is empowered to adopt delegated acts in accordance with Article 36 to amend the Annex to review or complement the indicators where considered necessary and to supplement this Regulation with provisions on the establishment of a monitoring and evaluation framework. 3. The Commission shall regularly monitor and evaluate the implementation of the Fund and annually report to the European Parliament and the Council on the progress made. That annual report shall contain a section on the implementation of Article 7. To this end, the Commission shall put in place necessary monitoring arrangements. 4. The performance reporting system shall ensure that data for monitoring the Fund implementation and results are collected efficiently, effectively and in a timely fashion. To that end, proportionate reporting requirements shall be imposed on recipients of Union funds. Article 32 Evaluation of the Fund 1. Evaluations shall be carried out in a timely manner to feed into the decision-making process. 2. The interim evaluation of the Fund shall be performed once there is sufficient information available about the implementation of the Fund, but no later than four years after the start of the Fund implementation. The interim evaluation report shall include notably, an assessment of the governance of the Fund, the lessons learned from the European Defence Industrial Development Programme and Preparatory Action on Defence Research, an assessment of the implementation of the ethics procedures as referred to in Article 7, implementation rates, project award results including SMEs and mid-caps involvement and the degree of their cross-border participation, the distribution of funding among different categories of subcontractors according to the definition referred to in point 9 of Article 10, the budget allocated to disruptive technologies and funding granted in accordance with Article [195] of the Financial Regulation by 31 July 2024. The interim evaluation shall also contain information on the countries of origin of the recipients, the number of countries involved in individual projects, and, where possible, the distribution of the generated intellectual property rights. The Commission may submit proposals for any appropriate amendments to the present regulation. 3. At the end of the implementation period but no later than four years after ▌31 December 2027 , a final evaluation of the Fund implementation shall be carried out by the Commission. The final evaluation report shall include the results of the implementation and to the extent possible given timing the impact of the Fund. The report — building on relevant consultations of Member States and associated countries and key stakeholders — shall notably assess the progress made towards the achievement of objectives set out in Article 3. It shall also analyse cross border participation, including of SMEs and mid-caps in projects implemented under the Fund as well as the integration of SMEs and Mid-caps in the global value chain. The evaluation shall also contain information on the countries of origin of the recipients and, where possible, the distribution of the generated intellectual property rights. 4. The Commission shall communicate the conclusions of the evaluations accompanied by its observations, to the European Parliament, the Council, the European Economic and Social Committee and the Committee of the Regions. Article 33 Audits Audits on the use of the Union contribution carried out by persons or entities, including by other than those mandated by the Union Institutions or bodies, shall form the basis of the overall assurance pursuant to Article [127] of the Financial Regulation. The European Court of Auditors shall examine the accounts of all revenue and expenditure of the Union according to Article 287 TFEU. Article 34 Protection of the financial interests of the Union Where a third country participates in the Fund by a decision under an international agreement or by virtue of any other legal instrument, the third country shall grant the necessary rights and access required for the authorising officer responsible, the European Anti-Fraud Office (OLAF), the European Court of Auditors to comprehensively exert their respective competences. In the case of OLAF, such rights shall include the right to carry out investigations, including on-the-spot checks and inspections, provided for in Regulation (EU, Euratom) No 883/2013 of the European Parliament and of the Council concerning investigations conducted by the European Anti-Fraud Office (OLAF). Article 35 Information, communication and publicity 1. The recipients of Union funding shall acknowledge the origin and ensure the visibility of the Union funding (in particular when promoting the actions and their results) by providing coherent, effective and proportionate targeted information to multiple audiences, including, the media and the public. 2. The Commission shall implement information and communication actions relating to the Fund, and its actions and results. Financial resources allocated to the Fund shall also contribute to the Commission’s communication of the political priorities of the Union, as far as they are related to the objectives referred to in Article 3 . Those financial resources may be used for projects on statistics on the defence industry and projects to pilot the collection of data . TITLE V DELEGATED ACTS, TRANSITIONAL AND FINAL PROVISIONS Article 36 Delegated acts 1. The power to adopt delegated acts referred to in Article 31 shall be conferred on the Commission for an indeterminate period of time from the date of entry into force of this Regulation. 2. The delegation of power referred to in Article 31 may be revoked at any time by the European Parliament or by the Council. A decision to revoke shall put an end to the delegation of the power specified in that decision. It shall take effect the day following the publication of the decision in the Official Journal of the European Union or at a later date specified therein. It shall not affect the validity of any delegated acts already in force. 3. Before adopting a delegated act, the Commission shall consult experts designated by each Member State in accordance with the principles laid down in the Interinstitutional Agreement on Better Law-Making of 13 April 2016. 4. As soon as it adopts a delegated act, the Commission shall notify it simultaneously to the European Parliament and to the Council. 5. A delegated act adopted pursuant to Article 31 shall enter into force only if no objection has been expressed either by the European Parliament or by the Council within a period of two months of notification of that act to the European Parliament and the Council or if, before the expiry of that period, the European Parliament and the Council have both informed the Commission that they will not object. That period shall be extended by two months at the initiative of the European Parliament or of the Council. Article 37 Repeal Regulation (EU) No …/…. (European Defence Industrial Development Programme) is repealed with effect from 1 January 2021. Article 38 Transitional provisions 1. This Regulation shall not affect the continuation or modification of the actions concerned, until their closure, under [European Defence Industrial Development Programme Regulation] as well as the Preparatory Action for Defence Research, which shall continue to apply to the actions concerned until their closure. 2. The financial envelope of the Fund may also cover technical and administrative assistance expenses necessary to ensure the transition between the Fund and the measures adopted under its predecessors, the [European Defence Industrial Development Programme Regulation] as well as the Preparatory Action for Defence Research. 3. If necessary, appropriations may be entered in the budget beyond 2027 to cover the expenses provided for in Article 4 paragraph 4, to enable the management of actions not completed by 31 December 2027. Article 39 Entry into force This Regulation shall enter into force on the third day following that of its publication in the Official Journal of the European Union. It shall be applicable as from 1st January 2021. This Regulation shall be binding in its entirety and directly applicable in all Member States. Done at … For the European Parliament The President For the Council The President

(1) The matter was referred back for interinstitutional negotiations to the committee responsible pursuant to Rule 59(4), fourth subparagraph (A8-0412/2018).

(*1) Amendments: new or amended text is highlighted in bold italics; deletions are indicated by the symbol ▌.

(2) Regulation (EU) 2018/1092 of the European Parliament and of the Council of 18 July 2018 establishing the European Defence Industrial Development Programme aiming at supporting the competitiveness and innovation capacity of the Union's defence industry (OJ L 200, 7.8.2018, p. 30).

(3) Directive 2009/43/EC of the European Parliament and of the Council of 6 May 2009, simplifying terms and conditions of transfers of defence-related products within the Community (OJ L 146, 10.6.2009, p. 1); Directive 2009/81/EC of the European Parliament and of the Council of 13 July 2009 on the coordination of procedures for the award of certain works contracts, supply contracts and service contracts by contracting authorities or entities in the fields of defence and security, and amending Directives 2004/17/EC and 2004/18/EC (OJ L 216, 20.8.2009, p. 76).

(4) Council Decision 2013/755/EU of 25 November 2013 on the association of the overseas countries and territories with the European Union (Overseas Association Decision) (OJ L 344, 19.12.2013, p. 1)

(5) Regulation (EU) No 182/2011 of the European Parliament and of the Council of 16 February 2011 laying down the rules and general principles concerning mechanisms for control by Member States of the Commission’s exercise of implementing powers (OJ L 55, 28.2.2011, p. 13).

(6) Reference to be updated: OJ C 373, 20.12.2013, p. 1. The agreement is available at: http://eur-lex.europa.eu/legal-content/EN/TXT/?uri=uriserv:OJ.C_.2013.373.01.0001.01.ENG&toc=OJ:C:2013:373:TOC

(7) Regulation (EU, Euratom) No 883/2013 of the European Parliament and of the Council of 11 September 2013 concerning investigations conducted by the European Anti-Fraud Office (OLAF) and repealing Regulation (EC) No 1073/1999 of the European Parliament and of the Council and Council Regulation (Euratom) No 1074/1999,(OJ L 248, 18.9.2013, p. 1.

(8) Council Regulation (EC, Euratom) No 2988/95 of 18 December 1995 on the protection of the European Communities financial interests (OJ L 312, 23.12.1995, p. 1).

(9) Council Regulation (Euratom, EC) No 2185/96 of 11 November 1996 concerning on-the-spot checks and inspections carried out by the Commission in order to protect the European Communities' financial interests against fraud and other irregularities (OJ L 292, 15.11.1996, p. 2).

(10) Council Regulation (EU) 2017/1939 of 12 October 2017 implementing enhanced cooperation on the establishment of the European Public Prosecutor’s Office (‘the EPPO’) (OJ L 283, 31.10.2017, p. 1).

(11) Directive (EU) 2017/1371 of the European Parliament and of the Council of 5 July 2017 on the fight against fraud to the Union's financial interests by means of criminal law (OJ L 198, 28.7.2017, p. 29).

(12) Directive 2009/43/EC of the European Parliament and the Council of 6 May 2009 simplifying terms and conditions of transfers of defence-related products within the Community (OJ L 146, 10.6.2009, p. 1).

(13) Commission Decision (EU, Euratom) 2015/444 of 13 March 2015 on the security rules for protecting EU classified information (OJ L 72, 17.3.2015, p. 53)

(14) Commission Recommendation 2003/361/EC of 6 May 2003 concerning the definition of micro, small and medium-sized enterprises (OJ L 124, 20.5.2003, p. 36).

(15) Directive 2014/24/EU of the European Parliament and of the Council of 26 February 2014 on public procurement and repealing Directive 2004/18/EC. (OJ L 94, 28.03.2014, p. 65).

(16) Directive 2014/25/EU of the European Parliament and of the Council of 26 February 2014 on procurement by entities operating in the water, energy, transport and postal services sectors and repealing Directive 2004/17/EC (OJ L 94, 28.03.2014, p. 243).

(17) Directive 2009/81/EC of the European Parliament and of the Council of 13 July 2009 on the coordination of procedures for the award of certain works contracts, supply contracts and service contracts by contracting authorities or entities in the fields of defence and security, and amending Directives 2004/17/EC and 2004/18/EC (OJ L 216, 20.08.2009, p. 76).

(18) OJ L 123, 12.5.2016, p. 1.

(19) OJ L 72, 17.3.2015, p. 53.

(20) OJ L 274, 15.10.2013, p. 1.