Opinion of the European Economic and Social Committee on the "Communication from the Commission to the Council, the European Parliament, the European Economic and Social Committee and the Committee of the Regions - European Defence - Industrial and Market Issues - Towards an EU Defence Equipment Policy"

(COM(2003) 113 final)

(2004/C 10/01)

On 12 March 2003, the Commission decided to consult the European Economic and Social Committee, under Article 262 of the Treaty establishing the European Community, on the above-mentioned communication.

The Section for the Single Market, Production and Consumption, which was responsible for preparing the Committee's work on the subject, adopted its opinion on 3 September 2003. The rapporteur was Mr Wilkinson.

At its 402nd plenary session on 24 and 25 September 2003 (meeting of 24 September), the European Economic and Social Committee adopted the following opinion by 117 votes to 3, with 5 abstentions.

1. Introduction

1.1. In its Communication(1) the Commission suggests that the time is now right to start building a more coordinated policy for defence equipment to complement national policies in the area. This Communication follows on from two earlier Communications on defence related industries(2), which resulted in a very limited number of actions.

1.2. The Commission believes that it can make a key contribution by improving the quality of the EU regulatory framework governing the treatment of armaments in Europe thus helping to safeguard the survival of a viable EU defence industrial base.

1.3. Their comments and proposals are made on the basis of the European Security and Defence Policy (ESDP) and within the context of the developing Common Security and Foreign Policy (CSFP), but are not dependent on these policies.

1.4. The proposed measures are intended to encourage industrial restructuring and consolidation, to promote the establishment of a European defence equipment market and to enhance competitiveness of the European industry. This is an important challenge in the development of ESDP. They are also intended to achieve broader socio-economic objectives.

1.5. The Communication recognises that action is most likely to add value in the areas of the defence equipment market and of defence related research.

1.6. The General Affairs and External Relations Council, at its meeting in Luxembourg on 16 June, supported some of the activities included in the Communication.

2. General comments

2.1. The Committee welcomes the Communication as timely and can agree with most of the actions proposed in it. The key objective of any changes agreed must be the more efficient and cost effective delivery of the defence capabilities that Member States need within the resources made available.

2.2. Defence is a highly political matter and one where not all Member States are agreed on the EU's role. These proposals must be examined in this political context. However there is agreement that EU defence capabilities are not yet sufficient for all the tasks that are envisaged at present (the Petersberg tasks), let alone the tasks that could be agreed in the future. Clearly the EU must have available military capabilities to match the needs of its agreed external and defence policies if these are to have credibility. While there is as yet no general agreement among Member States on the need for the EU to develop its military capabilities, the Committee welcomes actions to this end as a key part of future viable ESDP.

2.3. Defence is also a very complex area; the range of possible tasks (national, NATO, EU, UN and other) and equipments for these, as well as the existing arrangements for them, which often overlap and can duplicate each other, make it impossible to rationalise fully. However, it would clearly be useful to reduce these differences.

2.4. To this end the EU must make the most of the resources already given to these capabilities. It is telling that while the combined EU spending on defence is about 40 % of that of the United States, the operational capabilities produced are only about 10 %. It is clear that EU countries are getting less value for money for the resources involved than they could.

2.5. Without real improvements in the development of the new technologies relevant to defence, EU industries will continue to lose ground in the production of operational capabilities; this is contrary to the Lisbon strategy and bad for employment prospects. The open method of coordination could play a useful role in the interaction of national industrial policies at EU level in this respect; further, the consultations, evaluation and benchmarking at EU level that this would allow could help towards the rationalisation of the industries involved.

2.6. It is always right to make the most of available resources, but there is limited value in doing this alone. The political will must exist to pay for what is needed to meet existing and expected tasks (paragraph 2.3 above). Moreover, in the most demanding tasks military forces that do not have equipment that is technologically advanced have no hope of success.

2.7. The Committee notes that little has been said about access to, and transfer of, technology and information between Member States in the defence sector. The Committee notes its importance for the most technologically advanced equipment.

2.8. The majority of current Member States and a significant number of Accession States are members of NATO. Further, the EU has negotiated assured access to some NATO assets for some EU operations. It is clearly therefore necessary to develop any EU systems and standards taking full account of existing NATO equivalents. Equally, for equipment, interoperability between EU and NATO forces will remain crucial and will continue to be more important than standardisation (although this should continue to be encouraged where possible).

2.9. Most importantly, since the current situations on defence industries and equipment(3) are so different in the various Member States, it must be accepted that a multi speed and flexible approach is essential; the Committee therefore welcomes the Commission's "when and where possible" approach and notes that overall progress, and the benefits coming from this, will be far slower than desirable. It also hopes that as changes are introduced, the disparities in defence equipment performance between larger and smaller Member States will be progressively reduced.

2.10. EU level procedures established to harmonise defence equipment policies could lead progressively, for those Member States wishing to participate, to more efficiency, better results, lower costs and a positive effect on RTD expenditure.

2.11. Turning to the proposals in the Communication, the Committee supports them except where indicated in the paragraphs that follow.

3. EU defence industry

3.1. The Committee strongly endorses the need to maintain a viable defence industrial base in the EU that is able of competing in the global market. Without this Member States would have to rely on third countries (notably on the United States) for much of their defence related equipment. It is important to develop an "EU defence market" to encourage more purchases from EU sources.

3.2. There has already been much consolidation in the EU's defence industries and, indeed, in defence industries worldwide. Because it is a worldwide market, most major EU companies already have connections (ownership, partnership, contractual or other) with non-EU companies to enable them to operate in the global market effectively. It is also a limited market, a fact that has led companies to rationalise and to cooperate in order to be able to continue to compete successfully. This trend continues and will be important in some of the Accession Countries, which have so far made little progress in this area.

3.3. As the Communication notes, a major contribution to security and defence systems now comes from companies developing their products and services also for civil applications. This trend is likely to increase.

3.4. State involvement in defence industries is unavoidable since States are the only legitimate customers for many of their products; but State ownership of such industries must be limited as much as possible if competition is to be meaningful. It is recognised that the State will remain involved in some fields of special sensitivity (for example, nuclear and cryptographic) and that State support for RTD is often necessary to keep armed forcers at the leading edge of technological advance.

3.5. The Committee agrees that restructuring must be primarily a matter for the industries concerned, taking account of market realities. It also notes that there are particular challenges facing many of the Accession Countries in the restructuring of their defence industries(4) which make it vital that they are fully involved in the whole of this subject as soon as possible.

3.6. Restructuring will inevitably mean accepting that Member States will lose some domestic defence industrial capabilities so that they can concentrate on others, a process that has already started. The aim should be to ensure that between them the EU Member States have a full range of industrial capabilities to match EU defence needs.

4. The market and its regulation

4.1. The Committee welcomes the review of the regulatory framework for the EU defence industry. However, it wishes to comment on three aspects of the proposals in this area.

4.2. Monitoring. The Communication suggests that there is a need to establish an then to monitor the economic situation in the EU defence industrial base including the ability to support the supply requirements for ESDP, levels of competitiveness and design expertise, R& D investment etc. In the Committee's opinion this level of monitoring is unrealistic (for example, because of the factors outlined in paragraphs 3.2 and 3.3 above) and unnecessary. Moreover, intellectual property rights and commercial confidentiality would be major problems in some cases. Member States should be asked to give relevant details as necessary, and should include an estimate of the numbers employed related to their skills.

4.3. Defence procurement. The Communication suggests that the EU should itself be directly involved in procuring defence equipment. While agreeing that there could be merit in centralising some aspects of the procurement of defence equipment, the Committee would like to see the added value that such a role for the EU would bring before it could agree this proposal. The Committee agrees that so far as possible a single set of rules for defence procurement should be the long term aim; but it will take a long time to achieve such uniformity, given the very different rules now used by Member States, and allowance will always have to be made for procurement from third countries, which will have different procedures and rules. It is expected that the future Agency (see paragraph 6.1 below) will have a major role in formulating these rules.

4.4. Competition policy. The Committee fully supports the Commission's general position, but notes that limiting the scope of Article 296 must not be allowed to reduce the ability of Member States to safeguard their national security interests. It also repeats that because of the involvement and the interests of States as the sole legitimate customers for much defence equipment, competition will continue to be harder to ensure than for other products.

5. A more coherent EU advanced security research effort

5.1. There is currently massive under investment in defence related research, technology and development (RTD) and the organisation charged with managing cooperative defence related research programmes (WEAO(5)) handles only 2,5 % of EU investment in the area. Where possible, it makes sense and adds value to coordinate appropriate national research activities at EU level, as shown by the results of the European Research Area. RTD will be a key area if the EU is to meet the desired objectives of the EU defence equipment policy.

5.2. There is a need to define "EU strategic technologies"(6) as a precursor to Member State agreement on the EU agenda for advanced research. Projects chosen must have the potential to impact directly on improved security capabilities in relevant areas. It will also be necessary to agree on how to find the necessary funding and how to apportion the resultant benefits, but it is clear that there is a need to raise defence expenditure in most Member States to achieve a meaningful improvement in RTD. The proposed Agency could be most useful as a centre for consultation, for holding and sharing information and, where appropriate, for promoting common projects and production.

5.3. More generally, it is necessary to identify and agree common requirements to the greatest extent possible. This would allow industry to recommend the most cost effective development and production (or procurement) routes, would aid interoperability and would lead to viable production runs. It will also be necessary to understand national RTD requirements and to coordinate better the evolution of technologies and the necessary funding.

6. Themes for further reflection

6.1. EU Defence Equipment Agency. In the past there have been many calls for the establishment of some sort of Agency; the Commission Communication refers to it as a defence equipment agency, in the EP report on security and defence architectures it is called an armaments and research agency and in a recent draft of the Convention on the Future of Europe, the European Armaments, Research and Military Capabilities Agency. The suggested roles for an Agency vary, more or less in accordance with the suggested names. However, a political decision was taken at the General Affairs and External Relations Council meeting on 16 June 2003 that an Agency in the field of defence capabilities should be set up. The details of its exact role are under discussion.

6.2. The Committee welcomes the Commission's understanding that any Agency must reflect the political choice of Member States that much RTD and procurement should be conducted outside the current EC Treaty and their wish to use existing agreements(7) as a basis for Agency work. Since not all Member States will necessarily take part in the Agency's work, there must be an agreed basis for contributions to financing it which will take into account the participation and contributions of those who do take part. The Committee looks forward to commenting in detail once it is clear exactly what the Agency's role will be and how it will add value.

6.3. Security of supply. Few, if any, Member States will restrict their procurement of defence equipment to the internal market, so there will continue to be bilateral arrangements both for supply and for security of supply. The Committee considers that the responsibility for security of supply in these circumstances must remain with Member States, who may then choose to use any EU arrangements (such as the proposed Agency) or to make their own arrangements bilaterally or multilaterally.

6.4. Trade issues. The Committee will comment on this important aspect when detailed proposals are put forward by the Commission, but agrees that it would now be helpful to monitor existing practices for dual use exports with the aim of ensuring fair competition.

7. Conclusions

7.1. The EESC welcomes the start of the process of establishing a better coordinated policy for defence equipment in the EU as a key part of a viable European Security and Defence Policy (ESDP), concentrating on achieving the capabilities needed to meet agreed EU requirements in the ESDP, within the context of the Common Security and Foreign Policy (CSFP). Agreed EU level procedures could lead to more efficiency and lower costs for participating Member States.

7.2. It recognises that the key element in this will be the necessary political will, notably in the area of increased funding.

7.3. It is in both the political and the economic interests of the EU to have a defence industry that is capable of competing globally and the Committee notes that restructuring is already happening largely because of market pressures.

7.4. Establishing and monitoring relevant data on the industries will best be done by Member States; the data should include employment figures related to skills.

7.5. The EESC doubts the added value of the EU's proposed direct role in procuring defence equipment.

7.6. A coherent EU advanced security research effort is vital to future progress, and defining the "EU strategic technologies" required for closing the capabilities gap is a key element in this.

7.7. The Committee looks forward to commenting in detail on the EU Agency in the field of defence capabilities once its role and other details have been agreed.

7.8. Security of supply must remain the responsibility of Member States for the foreseeable future, although the Agency could play a useful role.

Brussels, 24 September 2003.

The President

of the European Economic and Social Committee

Roger Briesch

(1) COM(2003) 113 final.

(2) COM(96) 10 final and COM(97) 583 final.

(3) The European Capability Action Plan (ECAP) has identified EU capability shortfalls which must be corrected if agreed EU tasks are to be undertaken.

(4) Many of these had armed forces and defence industries which were part of a system that did not match that of current Member States.

(5) Western Europe Armament Organisation

(6) This is defined here as technologies vital to the capabilities identified as necessary for the agreed EU tasks.

(7) Such as OCCAR (Organisme Conjoint de Coopération en matière d'Armement), and the Europa MoU (Memorandum of Understanding, within the WEAO framework)