EN Official Journal of the European Union C 100/109

Opinion of the European Economic and Social Committee on the Proposal for a Directive of the European Parliament and of the Council on simplifying terms and conditions of transfers of defence-related products within the Community

COM(2007) 765 final — 2007/0279 (COD)

2009/C 100/17

On 29 January 2008 the Council decided to consult the European Economic and Social Committee, under Article 95 of the Treaty establishing the European Community, on the

Proposal for a Directive of the European Parliament and of the Council on simplifying terms and conditions of transfers of defence-related products within the Community.

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 1 October 2008. The rapporteur was Mr OPRAN.

At its 448th plenary session, held on 21, 22 and 23 October 2008 (meeting of 23 October), the European Economic and Social Committee adopted the following opinion by 39 votes to 1 with 16 abstentions.

1. Conclusions and recommendations

1.1. Ensuring security is one of the main obligations of any government. For the European space one can conclude that no individual Member State can be secure on its own and a concerted and common effort has to be made in order to ensure an appropriate control on the flow of war material or, more generally, defence equipment.

1.2. Therefore the solution considered by the Committee is a common European Security Framework, and not the keeping in place of intra-Community barriers with all its damageable consequences. Of course, we should take into consideration that the current Common Foreign and Security Policy (CFSP) and European Security and Defence Policy (ESDP — title V of the TEU) have an intergovernmental nature, whereas the Commission initiative to alleviate intra-Community transfers (ICT) is conducted under the Community first pillar (as a part of Internal Market legislation).

1.3. Perception of transfer burden

1.3.1. Industry considers the current legislative framework as ill-suited as well as inadequate, while producing a heavy administrative burden;

1.3.2. When arguing against transfer barriers, industry has an even more global vision than just the intra-Community transfer perspective. Globalisation is a reality in defence manufacturing, because few complex systems are still 100 % European, and all include at least some non-EU components;

1.3.3. However, even with the more global vision, the industry considers the initiative taken by the Commission as an important step forward and in general supports it.

1.4. The cost impact

1.4.1. Calculating intra-Community transfer barrier costs with precision is a very difficult process, because few of these costs are published and because most of them are the costs of ‘not doing things properly’ or ‘not doing things at all’ (1). For 2003 the total yearly cost of intra-Community transfer barriers was estimated to be in excess of EUR 3,16 bn, structured as follows (source: UNISYS study):

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1.4.2. The costs are generally classified as follows:

(a) direct costs — structural and procedural costs generated by the execution of the licensing processes itself;

(b) indirect costs (2) — These indirect costs are due in particular to the sub-optimal organisation of the industry (e.g. obstacles to subcontracting) and the Member States′ sub-optimal purchasing practices (e.g. excessive stock building to allow for lengthy authorisation procedures in the supplier Member State).

1.5. The Committee considers as a priority the adoption by Member States of a common set of tools to manage their intra-EU transfers. As regards the scope of application of the proposed Directive, the EU's Common Military List, which should be regularly updated, already provides a common language.

1.6. The Committee endorses the Commission proposal requesting Member States to introduce the option of issuing global and general licences and to publish at least two general licences:

1.6.1. A general license covering military equipment (and spare parts and related services pertaining to maintenance) for all the armed forces of the Member States.

1.6.2. A general license covering transfers of components to certified companies (3).

1.7. While maintaining the full discretion of Member States for the exports done outside the EU by companies located on their territories, complemented by coordination in the framework of the Council COARM forum, the Committee considers that the Directive should provide sufficient guarantees to increase mutual confidence between Member States regarding the effectiveness of export control.

1.8. The proposed Directive emphasises that a recipient company must not subsequently export the defence-related product to a third country in violation of possible export limitations attached by the originating Member State to the transfer licence.

1.9. However, after integration of components into a product in a way that guarantees that such an integrated component cannot be transferred as such at a later stage, Member States should refrain from maintaining separate export limitations.

1.10. The Committee considers that the Impact Assessment accompanying the actual proposal covers all 27 Member States and therefore usefully complements the UNISYS study of 2005.

1.11. The Committee considers that the proposal for a Directive will have substantial beneficial effects on industrial cooperation in Europe and the development of competitiveness of European defence industries and recommends its adoption subject to the remarks contained in this opinion.

2. Recommendations and proposals

2.1. The Committee strongly believes that the principles proposed by the Commission to simplify the transfer of defence–related products within the Community through common licensing tools, and to ensure mutual confidence between Member States regarding the effectiveness of their export control, will bring significant benefits and a major simplification to this complex sector.

2.2. The Committee strongly supports the exclusion from the Directive of export policy, which should remain the competence of Member States, and continues to be the subject of international cooperation, e.g. in the context of the Council Code of Conduct on Exports.

2.3. The Committee stresses that the proposed Directive will retain the company’s responsibility to respect possible export limitations issued in a transfer licence. In the case of export restrictions enacted in another Member State providing components, the responsibility to respect such restrictions lies with the company applying for the export licence. It is up to that company to guarantee its respect of the relevant export limitations, thus ensuring that export files are presented in compliance with any restriction to the national authority delivering the final export licence.

2.4. As an official position regarding the sensitive transfers from EU to third countries (4), the Committee considers that:

2.4.1. When a transfer licence concerns non-sensitive sub-systems or components to be integrated into larger systems in such a way that prevents them from being transferred or even exported to a third country at a later stage as such, it should be sufficient that Member States request declarations of incorporation from the recipient instead of issuing separate export limitations.

2.4.2. Re-export to a third country must not take place in cases where the originating Member State does not give its consent.

2.4.3. A recipient company must not subsequently export the defence-related product to a third country in violation of possible export limitations attached by the originating Member State in the transfer licence.

2.4.4. The Member States should not only prescribe but also regularly check whether the suppliers within Member States keep detailed records of their transfers.

2.4.5. Suppliers should accept responsibility for informing the respective Member State of the end-use destination where such end-use is known prior to the transfer.

2.4.6. The time that the certification period takes should be reduced, in order to reach a better accountability of the certification processes.

2.4.7. At the same time, the access to suppliers′ records by Member States′ authorities should be expanded to a longer period of time, providing for more transparency of the process, as well as more time for investigation of possible breaches of the transposed national law or regulation.

2.5. The Committee proposes in this context to use already existing resources at national level. National administrations in charge of the issuing and management of the certificates already monitor defence companies located on their territories and are thus able to conduct investigations and audits.

2.6. In order to derive the maximum benefits from industrial cooperation and the creation of the Internal Market, the Committee considers that a high level of harmonization should be achieved.

2.7. The Committee stresses in this context that the proposed Directive should establish a preference for general and global licensing and restrict individual licensing to the defined cases where it is still necessary.

2.8. For the moment the Committee considers the present EU Common Military List (EU-CML) to be the ‘common language’ which should still form the basis for the management of intra-EU transfers of defence-related products during the next period.

2.9. In order to avoid problems of interpretation and implementation, the Committee considers that the EU-CML should be used and continue to be regularly updated on an annual basis, using general definitions regarding the type of equipment to which the new rules will apply and in such a way recognise the EU-CML as a state-of-the-art list on arms, munitions and war materiel, as well as related services and works, including specific IT hardware and dedicated software applications.

2.10. At the same time the Committee underlines the fact that the Commission has proposed its initiatives while taking into consideration the effects of globalization on Europe, in particular on the defence industry, with the main purpose of strengthening Europe's defence capabilities.

2.11. The Committee strongly recommends the Commission to follow-up infringements according to the Treaty in the specific area covered by the proposed Directive, using the professional capabilities of a multi-national Board of Experts, to be formed inter alia for this purpose.

2.12. Regarding the Unisys — study's proposal to set up a central database of intra-Community transfers, the Committee considers that this idea is not in line with current practice and should be discarded.

2.13. The Committee considers that transparency among EU Member States should include also the exchange of information between the competent authorities on the sales of products or transferred technologies within the EU destinations, in order to eliminate any possible misconducts, discriminations and/or corruption.

3. Specific comments

3.1. National regulations and processes:

3.1.1. Member States legislation defines two types of goods: ‘military’ and ‘dual-use’, most often licensed by two different authorities; dual-use goods and military goods should not be considered together.

3.1.2. Dual-use goods have a civil end-use but are controlled insofar as they could also be used in some military applications, or in particular by sensitive non-military applications (i.e. security). Their control is governed by a commercial policy Community Regulation (1334/2000) which provides for exports to third countries to be subject to individual, global or general licences. Conversely, in accordance with the Internal Market principle of the free circulation of goods, intra-EU transfers of dual-use items are free of licensing except for the most sensitive ones, such as nuclear items.

3.1.3. Defence items have a military end-use. There is currently no Community framework for their circulation within the Internal Market and their transfers within the EU are impeded by heterogeneous national legislations and disproportionate licensing requirements. Only a few Member States have implemented global licensing and only one uses general licences as a matter of course. Most intra-EU transfers are still curtailed by individual licensing and companies with supply chains covering several Member States cannot optimise those supply chains because of the licensing heterogeneity in the supplier Member States.

3.1.4. All Member States share a common view operating the ‘dual-use’ Regulation which is legally binding and part of the EU's first pillar (5).

3.1.5. The Member States have adopted and refer to different ammunition lists for military goods as well as the Council's Common Military List used in the framework of the EU Code of Conduct on Arms Export. Many Member States refer to those lists in their national legislations, while others use their own lists. (6)

3.1.6. Through the creation of the Framework Agreement (also known as Letter of Intent, LoI), Europe's six largest arms producing countries (7) have established cooperation rules on transfers and exports for co-operative programmes, which are not part of the EU framework.

3.1.7. The Commission initiative is therefore limited to intra-Community transfers while exports to third countries will continue to be covered by existing export license systems.

4. Threats and obstacles

4.1. From the point of view of the applicable law, the following aspects will need to be addressed:

4.1.1. The variety of legislation;

4.1.2. Differences between laws at national level.

4.2. From the point of view of the authority in charge, the following elements require attention:

4.2.1. The large variety of authorities in charge of processing license requests in the case of intra-Community transfers (11 different types of administrations, depending on the country);

4.2.2. In some countries (HU, PL, IE, FR, CH, CZ, PT), the exporter is required to have additional licenses/permits in order to be able to apply for an export/import/transit license;

4.2.3. Regarding the frequently practised juste retour (or compensation) principle, the Member States are often pursuing this for industrial and employment reasons, but also because — partially as a consequence of the current intra-community transfer practices — they have no true security of supply from their EU partners (hence the preference for domestic products that are not conditional upon another Member State's transfer licences).

5. Actions to remove obstacles to intra-Community transfers

5.1. Regarding transfers, any improvement of the EU defence market must be organized according to a number of fundamental priorities:

5.1.1. Security: simplification of transfers and mutual confidence go hand in hand. The fact is that, in the current European situation, this confidence is unequal. The simplification of transfers needs to be accompanied by confidence-building measures. The fight against terrorism and the non-proliferation of Weapons of Mass Destruction (WMD) is a priority for all EU States. This includes strengthening the control of dissemination of weapons to third countries by ensuring respect for the export restrictions issued by Member States in accordance with such policies.

5.1.2. Simplified licensing: licences give tangible expression to the Member States′ responsibility in the arms trade. In addition, the licences also help to establish possible restrictions on the end-use and final destination of the products. As responsibility should continue to be borne by the Member States, national licences should remain. The simplification could therefore come from their simplification and harmonisation, bringing predictability for Industry. It should facilitate the consolidation of the European Defence Technological and Industrial Base, all using the same rules, and facilitating gaining access — especially for SMEs — to the pan-European market of opportunities and partnership.

5.1.3. Harmonisation of the legal obligations: should include legal obligations of companies of this sector in addition to the transfer procedures of defence related products. To this end, it is a must to continue harmonisation in the area of European Defence Equipment Market (i.e. to issue a common framework for the control of assets).

5.1.4. Peace building: all business activities in this sector must duly take into account the principle that the defence products and the dual-use cannot jeopardise nor contradict the promotion of the democratic values and the peace building that the EU is promoting.

5.2. The new intra-Community system could have two impacts on exports:

— It will provide Member States with an opportunity to be consulted in the event of exportation of their defence-related products, unless integrated as components in a more elaborated system.

— Certification will promote active participation of enterprises in respecting export policy decisions of Member States, which are already coordinated in the context of the Code of Conduct, and will therefore bring more security as regards risk prevention against illicit exportations.

6. Concluding remark

6.1. The Committee believes that with the Communication entitled A Strategy for a stronger and more competitive European Defence Industry and the proposed Directives on ‘Coordination of procedures for the award of certain public works contracts, public supply contracts and public service contracts in the fields of Defence and Security’ and ‘Simplifying terms and conditions of transfers of defence-related products within the Community’, the Commission has taken an important initiative to enable the strengthening of the European Defence and Security Market and calls on the Parliament and the Council to take this initiative further and include it in an overarching approach that will advance the European Security and Defence Policy.

Brussels, 23 October 2008. The President of the European Economic and Social Committee Mario SEPI

(1) In his study ‘A single European market for defence equipment: organisation and collaboration’ Professor Keith Hartley presents four ‘liberalisation scenarios’ ensuring much more important annual savings, ranging from EUR 3,8 bn to EUR 7,8 bn per annum.

(2) One crucial element explaining the indirect cost is the lack of any serious security of supply for Member States sourcing from a supplier located in another Member States.

(3) According to the Commission proposal, the Certification is linked to the reception of products under general licensing and not to global licensing. Of course, certified companies can also source some specific defence components under global licences (the components not eligible to the national general licences).

(4) ‘Third country’ means any country that is not a Member State of the European Union.

(5) Council Regulation (EC) No 1334/2000, of 22 June 2000 setting up a Community regime for the control of exports of dual-use items and technology.

(6) European Union 1998, ‘EU Code of Conduct on Arms Exports,’ 25 May - http://ue.eu.int/Newsroom/

(7) FR, UK, DE, ES, IT, SE.