COMMUNICATION FROM THE COMMISSION - THE CHALLENGES FACING THE EUROPEAN DEFENCE - RELATED INDUSTRY, A CONTRIBUTION FOR ACTION AT EUROPEAN LEVEL
Date: 1996-01-24
Institutions: European Commission
Subjects: EU industrial policy, arms industry, competition, industrial conversion, industrial cooperation

COMMISSION  OF THE  EUROPEAN  COMMUNITIES 

•it 

£ 

à 

-ft 

Brussels,  24.1.1996 
COM(96)  10 final 

COMMUNICATION  FROM  THE  COMMISSION 

THE CHALLENGES  FACING  THE EUROPEAN  DEFENCE-RELATED 
INDUSTRY,  A CONTRIBUTION  FOR  ACTION 
AT EUROPEAN  LEVEL 

1. 

Introduction 

2. 

The  challenges 

Contents 

2.1.  Economie  and  industrial  challenges 
Industrial  structure and  trends 

2.1.1. 
2.1.2.  Restructuring  and  competitiveness 
2.1.3.  Market  fragmentation  and  barriers to cross-border  industrial 

integration 

2.1.4.  Technological  synergies  between  civil  and defence  activities 

2.2.  Political  and  security  challenges 

2.2.1.  The  European  security  and  defence  identity 
2.2.2.  The  Intergovernmental  Conference 

3. 

The  players  and  means  of  action 

3.1.  The  European  Union: promoting  the synergies  between  its various  means 

of  action 

3.1.1  Instruments  available  within  the  EC  framework 
3.1.2  Instruments  available  under the common  foreign  and  security  policy 

3.2.  Closer cooperation  between  the WEU  and  EU 
3.2.1  Relations  between  the  EU and  WEU 
3.2.2  European  Armaments  Agency 

4. 

Contribution  of the Community  instruments  and  activities 

4.1.  Internal  market and  technological  base 

4.1.1  Public  procurement 
4.1.2  Intra-Community  trade 
4.1.3 Research and  technological  development  activities 
4.1.4 Standardization  and technical  harmonization 
4.1.5  Competition  policy 
4.1.6  Structural  Funds 

4.2.  The  external  dimension 
4.2.1  Export  policy 
4.2.2  Export controls  on dual-use  goods and  technologies 
4.2.3  Import duties on military  equipment 
4.2.4  Commercial  relations with third  countries 

Conclusions 

5. 
Annex 

Statistical  tables 
List of European  mergers  in defence-related  industry 

1. 

Introduction 

The  defence-related  industries  are  facing  an  economic  and  political  context  which  is 
changing  completely  and  calls  for  responses  going  beyond  the national  level. 

The  end  of  the  cold  war,  considerably  reducing  the  security  risk  to  Europe,  has  made  it 
possible  to  cut  military  budgets  and  step  up  the  moves  to  convert  the  industries 
concerned.  The  need  for  the  defence-related  industries  to  scale  down  their  activities 
substantially  has  had  a signilicant  direct  impact,  both  on employment  in  this  sector  which 
has  fallen  by  37%  from  1.6 million  to  I  million  since  19X4,  particularly  hitting  certain 
regions,  and  also  on  the  manufacturing  base  and  innovation  capacity  of  European 
industry  as  a  whole.  Over  this  period  the  economic  problems  have  persisted,  if  not 
worsened;  they  stem  not  only  from  the  cuts  in  military  expenditure  but  also  from  the 
fiercer  international  competition  and,  above all,  from  the anachronic  fragmentation  of  the 
defence  markets  in  Europe. 

A  change  of  attitude  in  favour  of  action  by the  Union  is therefore  emerging.  On  the  one 
hand,  the  crisis  in the  industry  has  prompted  industrialists  and  industrial  policymakers  in 
the  Member  States  to  encourage  the  Union,  particularly  the  Commission,  to  assume  its 
responsibilities.  On  the  other,  the  measures  taken  on  the  Western  European  Union 
(WEU)  and  on  the  second  pillar  of  the  Maastricht  Treaty  have  opened  up  paths  for 
establishing  a  European  armaments  policy.  In  particular,  on  30 June  1995  an  informal 
group  of  EU/WEU  experts  produced  a  report  setting  out  options,  suggestions  and 
recommendations  for  such  a European  armaments  policy.  In July  1995,  Coreper  set  up an 
ad  hoc  interdisciplinary  working  party  to  identify  areas  for  action  by  the  Union.  To  this 
end,  it  will  have  to  make  recommendations  on  the  follow-up  within  the  Community 
framework  or  under  the common  foreign  and  security  policy  (CFSP) and,  should  the  need 
arise,  suggest  specific  measures  without  prejudice  to  the  Commission's  powers  under  the 
Treaty  establishing  the  European  Community.  This  communication  is  a  contribution  to 
this  work. 

The  causes  of  the  difficulties  facing  the  defence-related  industries  are  partly  economic 
and  partly  political.  Consequently,  both  these  aspects  must  be  taken  into  account  when 
analysing  the  problems  specific  to  these  industries  and  when  formulating  possible 
European  action. 

is  clearly 

important, 

this  subject 

However,  although  a  global  approach 
the 
to 
establishment  of  a  European  security  and  defence  identity  is  nevertheless  a  long-term 
process.  On  the  other  hand,  the  state  of  health  of  the  defence-related  industries  is  such 
that  unless  action  is  taken  in  time,  there  is  a  danger  that  whole  sectors  of  the  economy 
involved  in  defence-related  activities  could  disappear,  with  further  massive  job  losses, 
particularly  considering  the fiercer  international  competition. 
This  urgently  calls for  an appropriate  European  response. 
Moreover,  the  introduction  of  mechanisms  based  on  economic  efficiency,  particularly  in 
procurement  policies,  will  allow  more  rational  use  of  budgetary  resources,  yielding  very 
substantial  savings.This  will  entail  significant  savings  for  the  tax  payer.According  to  a 
study  these  savings cm\d  vary  between 5 to 11 billio» ECUS a year. 

Setting  out  from  this  need  for  action,  this  communication  places  the  emphasis  on  action 
based  on  the  existing  Community  instruments  and,  hence,  concerning  fields  in  which  the 
European  Community  has  powers  and  experience  of  its  own.  These  means  of  action 
could  possibly  be  used  in  combination  with  the  CFSP.  Consequently,  they  could  be 
implemented  in  the  short  term  as  an  initial  response  to  the  problems  facing  the  defence-
related  industries  and  as  a  first  contribution  towards  the  process  of  building  a  European 
security  and  defence  identity. 

The  approach  followed  by  the  Commission  is  based  on  the  principles  set  out  in  its 
communication  on  "An  industrial  competitiveness  policy  for  the  European  Union"  (COM 
(94)319,  14 September  1994). 

2. The  challenges 

In  the  years  ahead  the  European  Union  must  meet  a  series  of  challenges  with  a  view  to 
establishing  a  European  security  and  defence  identity  and  maintaining  a  competitive 
technology  and  industrial  base.  The  survival  of these  industries  depends  on this  capacity 
to put  in place a consistent  strategy  to respond  to these  challenges. 

2.1. 

Economic  and  industrial  challenges 

2.1.1. 

Industrial  structure  and  trends 

The  annual  output  of  defence  equipment  in  the  European  Union  is  currently  worth  an 
estimated  ECU  50  billion  which  is  about  3  percent  of  total  industrial  output.  It  is 
somewhat  less than  half the  US defence  industrial  output.  A growing  number  of  defence-
related 
technologies,  components  and  services  have  both  civilian  and  military 
applications.  This development  has  made  it  increasingly  difficult  to define  the  boundaries 
of  "defence-related  industry"  and  has  made  the  isolation  of  defence  from  civil  industry 
increasingly  untenable.  The  mix  between  civilian  and  defence-oriented  activities  varies 
from  company  to  company  and  from  industry  to  industry.  In  the  European  aerospace 
industry,  for  instance, defence  activities  account  for  about 40 percent  of  turnover. 

The  development  and  production  of  defence  equipment  currently  directly  occupy  about 
600  000  people  in the  EU.  Another  400  000 jobs  are  generated  indirectly  in  supplier  and 
service  industries. 

About  70  percent  of  defence  sales  come  from  the  aerospace  and  electronics  industries. 
However,  much  of  the  value-added  behind  the  weapon  systems  and  other  defence 
equipment  originates  in  companies  which  supply  components  and  subsystems  and  which 
are  in many  cases  SMEs. 

About  90%  of  the  EU  total  production  of  defence  equipment  is  concentrated  in  some 
Member  States:  France, the  United  Kingdom,  Germany,  Italy  and  Sweden. 

A  substantial  part  of  the  European  defence  industry  is  public  or  quasi-public,  most 
notably  in  France,  Italy and  Spain  (although  the degree of state control  varies). 

The  domestic  demand  for  European  defence  equipment  has  been  falling  since  1987  when 
most  EU  Member  States  started  to  reduce  their  defence  budgets.  Total  military 
expenditure  fell  by  5.3  percent  in real  terms between  1985 and  1994 as  indicated  in  Table 
1  in  the  annex,  whereas  the  procurement  of  major  weapons  fell  by  28.5  percent  in  real 
terms  in  the  same  period  as  indicated  by  Chart  1 in  the  annex.  However,  EU  imports  of 
major  conventional  weapons  from  third  countries have not declined  correspondingly. 

I he  declining  demand,  particularly  from  developing  countries,  has  practically  halved  the 
global  arms  market  over  the  last decade  according  to SIPR1 statistics.'  European  industry 
has  maintained  a  share  of  one  fifth  of  the  world  export  market  of  major  conventional 
weapons  between  the  1984-1988  period  and  1993,  but  the  absolute  amount  has  been 
halved  in  real  terms  as  indicated  by Chart  2 in the annex.  Compared  to the  United  States, 
however,  the  European  Union  has been  losing  ground. 

2.1.2. 

Restructuring  and  competitiveness 

Industrial  restructuring  is  expected  to  continue  with  significant  capacity  reductions 
though  many  companies  have already  taken  far-reaching  steps. 

Restructuring 

into  civilian-oriented  production  "at  factory 

Conversion  of  military 
is  not 
considered  a  feasible  strategy  by  most  companies.  Apart  from  the  huge  investment  costs 
and  difficulties  of  access  for  newcomers  to  established  civilian  markets,  conversion  is 
hindered  by  the  difference  between,  on  the  one  side,  production  of  defence  goods  which 
is  driven  by  technology  and  government  specifications  and,  on  the  other  side,  civilian 
markets  which  are  mainly  driven  by price  with  marketing  playing  a major  role.  However, 
conversion  in  the  sense  of  redeploying  a  company's  R&D  base  from  defence-oriented 
work  to a technically  related  field  has proved  practicable  for  a number  of companies  with 
established  non-defence  activities. 

level" 

Some  of  the  overall  capacity  reduction  has  occurred  through  outright  liquidation  of 
defence-oriented  activities  in companies  which  have  chosen  either  to concentrate  on  what 
they  define  as their  core activities  or to expand  the civilian  sides of their  businesses. 

More  often,  however,  the  rationalization  of  the  European  defence  industrial  base  has 
involved  some  form  of  inter-company  arrangement.  Mergers  and  take-overs  have  so  far 
mainly 
to  cross-border 
acquisitions  in  the  field  of  defence  are  still  considerable.  In the  EU  examples  of  national 

taken  place  within  national  borders  since 

the  obstacles 

Th«  arms  trade  statistics  compiled  and  published  by  SIPRI  (Stockholm  International  Peace 
Research  Institute)  are  partly  estimated  since  the  official  data  do  not  provide  a  comprehensive 
picture. 

consolidation  of  defence-related  industries  through  mergers  are  numerous.2  Cross-border 
acquisitions,  like  GIAT  Industrie's  take-over  of  the  Belgian  small-arms  producer  FN 
Herstal  in  1991, remain  exceptional. 

In recent  years the consolidation  of the defence-related  industry  has advanced  much  faster 
in  the  United  States  than  in  Europe,  following  some  "mega  mergers"  and  take-overs,  the 
average  size,  as  measured  by  arms  sales, of  the  ten  largest  US defence-related  companies 
is now  twice  that  of the  ten  largest  El J  defence-related  companies.1 

Most  of  the  consolidation  which  has  reduced  overheads  costs,  excess  manufacturing  and 
engineering  capacity  has  taken  place  within  national  borders.  The  economic  gains  from 
further  national  consolidation  are  diminishing  and  appear  now  to  be  much  smaller  than 
the potential  gains  from  cross-border  industrial  integration. 

Competitiveness 

In  assessing  the  overall  international  competitiveness  of  the  European  defence-related 
industry,  export  performance,  company  profitability  and  technological  capabilities  might 
its 
provide  some 
constituent  parts,  but  it  only  makes  sense  to  speak  about  competitiveness  for  those 
companies  and products  which  are actually  exposed  to international  competition. 

the  competitive  position  of  the 

indications  about 

industry  and 

Compared  to  the  US  industry,  the  EU  industry  has  lost  ground  and  is  now  exporting  less 
than  half  as  much  as  the  US  industry.  Many  of  the  shifts  in  relative  export  performances 
are  linked  to  international  political  events,  like  the  end  of  East-West  confrontation,  the 
Gulf  War  of  1990/91  and  the  break-up  of  the  Soviet  Union.  Changes  in  national  arms 
export  policies,  including  export  subsidies,  have  undoubtedly  also  played  a  role.  In  this 
context,  the  US  industry  had,  thanks  also  to  the  political  influence  exercised  to  benefit  it, 
started  to  improve  its  export  performance  vis-à-vis  the  EU  industry  under  the  relatively 
stable  international  political  conditions  of the  1980s. 

The  abovementioned  factors  also  suggest  that  part  of  the  shift  is  due  to  changes  in  the 
underlying  competitive  positions,  including  the  significant  depreciation  of  the  US  dollar 
against  European  currencies  since  1985, that  put  a  heavy  burden  on  the  competitiveness 

-  In the  UK, a  large part  of the  industry  is now  grouped  around  British  Aerospace  and  GEC  and 
further  concentration  has  taken  place  (the  take-over  of  VSEL  -  a  Barrow-based  submarine 
maker/shipbuilding company - by GEC). 
-  In Germany  Daimler  Benz Aerospace plays a key role. 
- In Italy the scene is dominated  by Finmeccanica. 

- In France the national consolidation  is more evenly spread between the companies 

Illustrative examples of the US restructuring and consolidation  process are : 

- Lockheed's acquisition  of General  Dynamics' fighter aircraft  division  in 1993 
- Northrop's takeover of Grumman  in 1994 
- the agreed  merger between  Lockheed and Martin  Marietta in  1994, followed  by the acquisition  of Loral 
in  1996 
- the recent talks between  Boeing and McDonnel  Douglas on a possible merger of their civil and  defence 
activities (1995). 

of  European  defence-related  companies.  The  (i7  summit  in  Halifax  pointed  out  the  risks 
that  such  fluctuations  pose  to  sustainable,  non-inflationary  growth  and  the  continued 
expansion  of  international  trade,  fhe  EU  and  US  are  therefore  encouraged  to  work  more 
actively  and  address  the  imbalance  of  the  US  dollar  versus  EU  currencies.  The 
conclusions  of  the  recent  transatlantic  business  dialogue  held  in  Seville  stressed  the 
importance  of  fostering  better  monetary  stability. 

fhe  strong  competitive  position  of  US  industry  vis-à-vis  European  industry  is  best 
illustrated  with  figures  on  defence  equipment  imports  by  individual  EU  Member  States, 
i.e.  inclusive  of  intra-EU  trade:  75% of  imported  major  conventional  weapons  came  from 
the  United  States  in the  1988-92 period.  The  worsening  in the  competitive  position  of  the 
European  defence-related  industry  results  also  from  the bilateral  EU-US  trade  balance  for 
major  conventional  weapons  that  was  10/1  in  favour  of  the  United  States  in  the  1988-92 
period  (see  Table 4  in the  annex). 

international 
But  export  performance 
competitiveness,  particularly  in  a  field  where  trade  and  procurement  decisions  are  rarely 
taken  on  commercial  and  economic  grounds  alone.  From  a  company  perspective  the 
important  test of competitiveness  is  profitability. 

cannot  provide  a  complete  picture  of 

For  the  European  defence-related  companies  the  picture  is  mixed  in  this  respect.  Quite  a 
few  of  the  large  arms-producing  companies  have  lost  money  in  recent  years  on  their 
defence-oriented  activities,  some  of  them  over  a  considerable  number  of  years.  Other 
companies  have  continued  to  operate  profitably  in  the  defence  field  and  have  been  rather 
successful  on export  markets. 

to  compare  US  and  European  capabilities 

Assessing  European  industry's  technological  strengths  and  weaknesses  in  the  field  of 
defence  is  also  difficult  and  somewhat  subjective.  The  US  Department  of  Defence  has 
tried 
regarding  20  so-called  critical 
technologies.  The  DoD  believes  that  European  industry  does  not  "significantly  lead"  the 
United  States  in  any  of  the  sectors  but  is  "capable  of  making  major  contributions"  in 
seven  sectors.4 

On  an  overall  industry  level  the aforementioned  trade  figures  give  a strong  indication  that 
the  European  defence-related  industry  has  experienced  a  worsening  of  its  competitive 
position  vis-à-vis  the  US  industry  since  the  1980s.  For  comparable  equipment,  produced 
with  economies  of  scale,  the  US  industry  tends  to  have  better  price  competitiveness  than 
the  European  industry  due to a domestic  market  more than  twice  the combined  size of  the 
markets  in  the  EU  Member  States  and  about  seven  times  the  largest  national  European 
market.  This  structural  advantage  of  the  US  industry  increases  with  reductions  in  overall 
demand  and  with 
the 
fragmentation  of the EU  market. 

technological  advances  and  also  with 

the  persistence 

in 

Machine  intelligence  and  robotics,  skmjIat>o«  and  modelling,  wtapon  system  environment,  air-
breathing  propulsion,  high-energy  density  materials,  composite  materofe,  a*4  bioEfctaofegy. 
T%e 2Qo tots* tecJittofogws are listed in Tatte 5mA< AMMX. 

2.1.3.  Market  fragmentation  and  barriers  to cross-border  integration 

Market 

fragmentation 

Since  competitive  strength  is  related  to  the  ability  to  exploit  economies  of  scale,  the 
competitive  position  of  the  European  defence-related  industry,  as  described  above,  can 
partly  be  explained  by  the  fragmented  stale  of  the  European  market  for  defence 
equipment.  This  fragmentation  reflects  the  widespread  and  long-standing  practice  of 
Member  States  to  favour  national  suppliers  or,  should  these  be  lacking,  suppliers  from 
NATO  countries,  in their procurement  of defence  equipment. 

A  real  European  market  for  defence  equipment  hardly  exists  as  intra-European  trade 
amounted  only  to  3-4%  of  total  procurement  of  major  conventional  weapons  by  EU 
Member  States  in  the  1988-92  period.  However,  for  components  and  sub-systems  the 
market  is more  international. 

Market  fragmentation  has  generated  a  number  of  competitive  disadvantages  for  the 
defence-related  industry  in the  European  Union: 

•  It  has  prevented  the  full  exploitation  of  economics  of  scale  in  the  production  of 
armaments.  The  limited  size of  national  orders  has  made  the  economic  viability 
of many  projects  dependent  on  uncertain  export  contracts. 

•  The  lack  of  serious  competition  for  many  domestic  defence  contracts  has  given  rise  to 
inefficiencies  in  the  development  and  production  of  weapon  systems.  This  is 
particularly  the  case  when  contracts  are  awarded  on  a  cost-plus  basis  -  a 
contract  form  which, however,  is increasingly  being  phased  out. 

•  In  international  cooperative  programmes,  which  are  more  and  more  necessary  for 
technological  and  economic  reasons,  inefficient  work-sharing  and  "juste  retour" 
between  countries  and  their  respective  "domestic  suppliers"  have  contributed  to 
overcapacities  and  caused  additional  costs  and  have  not  allowed  the  integration 
of national  industries  on the basis of comparative  advantage. 

Cross-border  industrial 

integration 

Various  forms  of  cross-border  industrial  cooperation  have  existed  for  decades  in  the 
defence  field:  companies  from  different  countries  engage  in  project-specific  collaboration 
and  cooperative  joint-ventures  and,  to  a  lesser  extent,  strategic  alliances  (including 
full-function  joint  subsidiaries).  Collaborative  armaments  programmes  are  now  the  most 
common  way  of  addressing  the  prohibitive  costs  of  purely  national  approaches  to  the 
development  and  production  of  large  complex  weapon  systems  in  Europe.  The  largest 
European  collaborative  armaments  project  is  the  Eurofighter  2000  in  which  the  major 
aerospace  companies  from  the  UK,  Germany,  Italy  and  Spain  participate.  Another  key 
cooperative  venture  is  developing  a  new-technology  European  military  transport  aircraft 
for  the  21st  century  within  the  EUROFLAG  consortium.  Five  countries  are  currently 
participating  in the  Future  Large  Aircraft  programme. 

Cross-border joint  ventures  are  another  form  of  industrial  cooperation  which  has  become 
industry  since  the  1980s.  Notable 
more  common  in  the  European  defence-related 
examples  of  strategic  alliances  are 
relationship  between  Aérospatiale  and 
Daimler-Benz  Aerospace  for  the  development,  production  and  marketing  of  helicopters 
(Eurocopter)5  and  the  planned  establishment  of  ESI  (European  Satellites  Industry)  and 
EMI  (European  Missiles  Industry)  in  the  field  of  missiles  and  satellites  or  the  recent 
acquisition  by  Thomson  of  a  25%  stake  in  the  Spanish  manufacturer  of  defence-related 
electronics  Indra. 

the 

Joint  ventures  are  typically 
industry-led,  but  established  with  the  consent  of  the 
governments  of the  home countries  of the companies  involved.  They  may  be an  effective 
mechanism  for  combining  the  diverse  technological  capabilities  of  different  companies, 
but  they  are  less  efficient  in  bringing  down  development  and  production  costs  and  in 
enhancing 
International 
collaboration  with  the  United  States  or  other  third  countries  is  usually  a  consequence  of 
"off-set"  agreements  in purchasing  contracts  with  non-producer  countries. 

the  overall  operational  performance  of 

the  products. 

Fhe  ability  of  defence-related  companies  in  the  EU  to  rationalize  and  consolidate  their 
businesses  through  mergers or sales across  borders  is restricted  by at  least  five  factors: 

•  Cross-border  restructuring  of  the  defence-related  industry  requires,  in  most  cases,  the 
consent  of  governments.  This  is  unlikely  to  be  obtained  when  it  is  perceived 
that  the  national  security  of  supply  for  crucial  defence  equipment  would  be 
compromised  by  cross-border  rationalization  which  would  reduce  the  national 
defence  industrial  base  significantly  or make  it very  specialized. 

•  The 

relations  between 

the  government  and  defence-related  companies  differ 
considerably  between  Member  States.  In some countries  a significant  part  of  the 
industry  is  owned  or  controlled  by  the  state,  in  others  there  is  more  distance 
between  them.  This  disparity  is  a  barrier  to  cross-border  industrial  integration 
than  joint  ventures.  This  situation  not  only  creates 
which  goes  further 
distortions  at  the  export  level  but  also  affects 
the  development  of  intra-
European  policies, particularly  industrial  cooperation. 

•  The  arms  export  policies,  including  arms  export  control  policies,  of  Member  States 
differ  considerably.  The  attractiveness  of  a  company  as  cooperation  partner 
depends,  among  other  things,  on  its  ability  to  gain  export  licences  from  its 
home  government. 

•  Another  obstacle 

is  the  difference 

in  national  requirements  regarding  defence 
equipment,  including  the  timing  of  orders  and  the  strategic  concepts  for  which 
the  equipment  is  required.  Only  a joint  definition  of  operational  requirements 
would  completely  abolish this hindrance  to defence  industrial  integration. 

Euromissile  was the  first  significant  joint-venture-like  cooperative  arrangement  in this  field.  It was set 

up in  1972 by Aérospatiale a»d MBB (now part of Deutsche Aerospace). 

•  finally,  there  is a  lack  of  transnational  legal  structures  (such  as the  European  Company 
Statute)  and  of  recognition  of  transnational  partnerships  as  eligible  for  funding 
under  national  research  budgets. 

2.E4. 

Technological  synergies  between  civil  and  defence  activities 

The  action  by  the  European  Union  to  facilitate  integration  of  defence-related  industrial 
activities  will  have  to take account  not  only  of  the  specific  nature  of  the armaments  sector 
but  also  of  its  essential  and  ever  closer  links  with  the  civil  sector  (dual-use  technologies, 
components,  products  and  production 
the 
development  of  technological  and  industrial  synergies  between  these  two  sectors  at 
European  level. 

to  encourage 

installations) 

in  order 

industry 

the  defence-related 

Traditionally  it  has  been  argued  that  defence  R&D  generates  externalities  in  the  form  of 
innovations  for  the  benefit  of  the  civilian  side  of  the  economy  (the  "spin-off  effect). 
Since  the  1960s,  however,  the  relationship  between  defence  and  civil  activities  has 
changed: 
technological 
dynamism  of  the  civil  sector  by  making  more  use  of  the  technologies,  components  and 
products  of  civil  origin  (the  "spin-in"  effect).  With  defence  R&D  and  production  making 
up  a  smaller  and  smaller  part  of  high  technology  activity,  technological  performance  is 
coming  to  depend  increasingly  on  firms'  success  in  managing  the  interface  between  civil 
and  defence  technology.  They  have  to  become  more  adept  at  assimilating  civil  hardware 
and  software  into  defence  equipment,  at  organizing  R&D  programmes  around  dual-use 
technologies  and  at transmitting  knowledge  and  expertise  across  the civil-defence  divide. 

is  increasingly  relying  on  the 

Defence-related  companies  which  operate  in  both  civil  and  defence  markets  have  an 
interest  and  important  role  to  play  in  exploiting  civil-defence  synergies.  A  growing 
number  of  them  are  doing  so, overcoming  the  separation  between  their  civil  and  defence 
activities;  but  still  too  often,  such  separation  remains  an  impediment  to  synergies  in 
companies  which  have  entered  into  European  strategic  alliances  for  their  civilian 
activities  but not yet  for  their  defence-related  activities.  Furthermore,  inter-firm  synergies 
need  also to be encouraged  within  and  across  borders. 

The  promotion  of  a  dual-use  approach  has  been,  for  several  years,  a  major  objective  of 
US  research  and  defence  procurement  policies,  and  is  leading  to  a  more  integrated 
defence-civil  technology  and  industrial  base.  The  overall  European  defence  R&D  effort, 
which  accounts  for  only one  third  of that  in the  US, is decreasing  and  comparatively  more 
It  is  therefore  essential,  if  Europe  is  to  preserve  a  technology  base  and  a 
fragmented. 
research  capability  (particularly  its  teams  of  researchers)  which  are  competitive  and 
sufficiently  autonomous,  that  not  only  the  efficiency  of  its  defence  R&D  efforts  is 
improved  through  more  systematic  cooperation  and  greater  interdependency,  but  also  that 
it  derives  maximum  benefits  from  its  civil  R&D  efforts  through  increased  civil-defence 
synergies. 

Action  is  being  taken,  to  different  extents  in  different  Member  States,  to  promote 
technological  synergies  between  civil  and  defence  activities.  This  needs  to  be  pursued 
and  strengthened,  including  at  the  European  level,  to  optimize  the  overall  use  of  R&D 

to  facilitate 

resources  and 
the  restructuring  or  diversification  of  defence-related 
industries.  One  good  example  of  such  convergence  is  space-related  activities.  One  good 
example  of  such  convergence  are  space-related  activities.  The  space  industry  displays  a 
great  degree  of  common  ground  between  military  and  civil  applications.  In  that  respect, 
the  US  industry  has  long  benefited  from  defence  programmes  as  a  springboard  into 
commercial  applications  in  space.  The desirable  synergies,  which  are  of  great  importance 
to  Europe,  will  be  identified  in a  forthcoming  communication  on  space. 

2. 2. 

Political  and  security  challenges 

2.2.1. 

The  European  security  and  defence  identity 

* 

The  changes  in the  international  context  and  the  strategic  prospects  opened  up  by the  end 
of the  cold  war  call  for  a review  of  all  the  leading  players'  security  policies.  A  process  of 
restructuring  defence  has  started  at both  national  and  multilateral  levels. In the  long  term, 
this  process  should  ensure  better  use  of  security  resources  and  a  parallel  massive 
reduction  in defence  budgets. 

Europe's  security  depends  on  western  European  countries'  capacity  to  form  a  centre  of 
stability  and  integration.  On  the  one  hand,  the  spread  of  economic  well-being  and  the 
gradual  admission  into  the  European  Union  of  all  European  countries  which  wish  to join 
are  key  ingredients  of stability  through  integration.  On  the other,  the progress  made  by the 
Union  towards  establishing  a  fully  Hedged  common  foreign  and  security  policy  is  the 
second  keystone  for  such  a  centre  of  stability.  Deepening  of  the  European  Union,  to 
include  a  defence  policy  in  the  long  term,  is  therefore  a  priority.  Close  cooperation  on 
armaments  is  a  key  factor  in  defence  policy.  The  Union  must  not  only  implement  a 
common  foreign  and  security  policy  but  also  develop  an  armaments  policy,  all  the  more 
so  since  some  of  the  Member  States  are  amongst  the  largest  producers,  exporters  and 
buyers of defence-related  products. 

In  this  context,  Community  instruments,  adjusted  if  need  be,  could  be  used  in  respect  of 
the  defence-related  industries.  These  instruments  could,  in  particular,  be  adapted  in  the 
light  of  the  security  needs  and  of  the  political  guidelines  to  be  defined  within  the 
framework  of the  CFSP. 
One  positive  development  is  that  the  end  of  the  cold  war  has  made  it  possible  to  cut 
defence  budgets.  However,  in  the  long  run  the  need  for  the  defence-related  industries 
substantially  to  scale  down  their  activities,  though  the  efforts  for  reconversion  toward 
in  some 
civil  activities,  had  directs  effects  on  unemployment 
regions.And  if  the  required  adjustments  for  the  restructuring  are  not  put  in  place,  other 
consequences  could  manifest  themselves  in  the  long  run  in  the  form  of  impowerishment 
of the  production  base  and  the  innovation  capability  of the european  industry. 

losses  especially 

Maintenance  and  reinforcement  of  the  sufficiently  autonomous,  competitive  industrial 
and  technology  base  which  Europe  needs  in  order  to  implement  its  common  defence 
policy  inevitably  entails  integration  of  the  defence-related  industries.  This  rationalization 
will  allow  more  efficient  cooperation 
for  both  the  development  and  the  production  of 
military  hardware.  European  undertakings  will  become  all  the  more  efficient  and 

11 

competitive  il  they  develop  synergies,  cooperation  and  even  restructuring  on  the  single 
market. 

The  EU  must  foster  the  development  of  its  own  base  for  the  technologies  and  products 
essential  for  defence  in  Europe.  Consequently,  it  must  endeavour  to  secure  comparable, 
effective  access  to  markets 
in  third  countries,  which  would  reduce  the  one-way 
dependence  on the third  countries. 

Completion  of  a  European  market  in  defence-related  products  should  improve  the 
efficiency  of  this  sector  and,  consequently,  cut  costs  for  purchasers.  Defence  authorities' 
budgets  will  therefore  benefit.  However,  they  must  ensure  that  the  market  offers  them 
products  in  line  with  the duties assigned  to their armed  forces. 

Increasingly,  Europe  will  have  to  develop  its operational  capacity  to  prevent  and  manage 
conflicts.  As  provided  for  in  the  WEU's  June  1992  Petersberg  Declaration,  in  addition  to 
its contribution  to common  defence  in accordance  with  the  NATO  and  WEU  Treaties  the 
WEU's  tasks  consist  of  keeping  and  restoring  the  peace,  evacuations  and  humanitarian 
aid  operations.  These  call  on  the  European  and  national  organizations  concerned  to  plan 
and  develop the appropriate  equipment. 

The  long  process  of building  a European  security  and  defence  identity  has  already  begun. 
The  Treaty  on  European  Union  and  its annexed  Declaration  on  Western  European  Union 
provide  a  means  of  taking  account,  at  European  level,  of  the  political  and  security 
constraints  which  must  shape  all  action  on  the defence-related  industries.  To this end,  one 
important  point  to  note  is  that  the  CFSP  already  provides  a  framework  and  instruments 
which  could  contribute  to defining  the context  and  priorities  for  such  action.  The  WEU  is 
developing  its  own  resources  with  the  objective  of  giving  Europe's  defence  effective 
operational  capacity.  It is therefore  essential  to ensure  a degree  of parallelism  between  the 
EU's and  the  WEU's  work. 

2.2.2 

The  Intergovernmental  Conference 

The  Intergovernmental  Conference  starting  at  the  end  of  March  1996  will  discuss,  inter 
alia,  developments  concerning  common  security  and  defence  policies,  including  the 
armaments  aspects.  Certainly,  this  does  not  necessarily  mean  waiting  to  implement  the 
conclusions  of  the  IGC  before  taking  European  action  on  the  defence  industry.  On  the 
contrary,  it  will  be  easier  for  the  IGC  to  take  decisions  if  the  parties  involved  in  the 
industry  are  cooperating  already  and  the  public  authorities  have  already  taken  specific 
action  for  this  sector  at  European  level.  In  particular,  it  will  be  easier  for  the  IGC  to 
provide  the  means  for  a  European  armaments  policy  if  an  efficient  industry  meeting 
Europe's  security  needs  has  been  maintained  in  the  meantime.  The  Westendorp  report 
which  has  received  strong  support  among  Member  States,  asserts  that  the  Conference 
should  consider  how  to  encourage  the  development  of  European  operational  capabilities, 
how  to promote  closer  European  cooperation  in the field  of armaments  and  how  to  ensure 
in  the  military  field  with  the  political,  economic  or 
greater  coherence  of  action 
humanitarian  aspects of  European  crisis  management. 

12 

3. The  players  and  means  of  action 

3.1 

The  European  Union:  promotion  of  the  synergies  between  its  various 
means  of  action 

On  the  armaments  market,  supply  and  demand  follow  special  rules  dictated  by  the 
exclusive  role  of  the  public  authorities,  which  are  guided  largely  by  security  and  foreign 
policy  imperatives.  This  implies  that  armament  issues  could  be  discussed  within  the  EU's 
CFSP  bodies.  However,  the  economic  dimension  of  armament  issues  inevitably  entails 
interaction  with  the  EC  Treaty.  In  this  context,  either  the  rules  already  in  force, 
particularly  on  the  single  European  market,  must  be  taken  as  the  basis  for  drafting  rules 
specifically  for  the  armaments  sector  or  the  existing  rules  must  be  applied,  taking  full 
account,  however,  of the specific  nature  of the sector.  Completion  of such  a single  market 
for  armaments  will  create,  in  the  perspective  of  the  eventual  framing  of  a  common 
defence  policy, 
interdependence  between  Member  States  for  supplies  of  defence 
equipment.  This  will  facilitate  security  of  supply  of  such  equipment  between  Member 
States  under  market  conditions. 

Although  a European  market  in defence-related  products  could  be established  by  applying 
the  relevant  rules  of  the  EC  Treaty  and  of  Title  V  of  the  Treaty  on  European  Union,  it 
must  also  be  acknowledged  that  a  single  fiuropean  market  implies  that  it  must  have  its 
own  identity  vis-à-vis  third  countries. This  would  be created  by establishing  specific  rules 
concerning  the  customs  union,  commercial  policy  and  access  to  public  contracts.  In 
particular,  it must  be  stressed  that  with  this defence-products  market  with  its own  identity 
the  European  Union  would  be  in  a better  position  to  secure  comparable,  effective  access 
for  its products  to  markets  in third  countries  under  mutually  advantage  conditions.  In  this 
connection,  once  normal  conditions  have  been  restored  within  the  Customs  Union, 
transatlantic  trade  must  be  developed  on  the  basis  of  reciprocal  liberalization  with  the 
objective  of  strengthening  transatlantic  cooperation  on  armaments,  including  on  export 
limits  on  "inhuman"  weapons  (antipersonnel  mines).  Establishment  of  such  a  balanced 
relationship  also  implies  establishing  mechanisms  for  evaluating  the  volume  of trade  and 
enforcing  effective  and  comparable  access to markets  in practice, where  necessary. 

3.1.1 

Instruments  available within  the  EC  framework 

First,  the  Community  authorities  have  a  range  of  instruments  concerning  the  industrial 
aspects  of  armaments.  Second  and  above  all,  the  Community  framework  offers  the 
possibility  of  applying  binding  rules  taking  account  of  the  specific  nature  of  the  sector 
and  guaranteeing  legal  certainty  for  all  involved  and  fair  conditions  throughout  the 
Community  market. 

In  view  of the  importance  of  these  instruments,  this  communication  places  the  accent  on 
the  means  of  action  available  to  the  European  Community  which  can  be  implemented  in 
the  short  term.  For  this  reason,  a  more  detailed  analysis  of  this  potential  is  set  out  in 
Chapter  4, taking account  of the specific  nature of the  sector. 

13 

These  considerations  will  undoubtedly  be  an  extremely  important  factor  in  ensuring  that, 
in  contrast  to  past  practice,  the  Member  States  no  longer  interpret  the  exemptions 
authorized  by  Article  223  of  the  EC  Treaty  so  broadly.  In  particular,  hitherto  Article  223 
of the  EC  Treaty  has  placed  limits on  the  Community  framework  by allowing  exemptions 
from  the  provisions  of  the  Treaty  for  "the  production  of  or  trade  in  arms,  munitions  and 
war  material". 
This  exemption  applies  only  under  particular  circumstances  and 
conditions  since  the  same  article  adds  that  the  national  measures  on  the  subject  must  be 
"necessary  for  the  protection  of  the  essential  interests  of  the  security"  of  the  Member 
State  and  must  "not  adversely  affect  the conditions  of competition  in  the common  market 
regarding  products  which  are  not 
for  specifically  military  purposes." 
intended 
Article  225  lays  down,  in  particular,  procedures  for  the  Court  of  Justice  to  monitor  the 
national  measures  taken  under  Article  223.  Moreover,  Article  223  states  that  the  national 
exemptions  may  apply  solely  to  the  products  on  the  list  to  be  established  by  the  Council 
in  1958.  This  list  was  adopted  by  the  Council  on  15 April  1958  and  has  never  been 
changed  since.  Consequently,  Article 223  gives  the  Member  States  no  exclusive  general 
powers.  Instead,  it  gives  them  the  possibility  of  invoking  an  exemption  to  the  discipline 
imposed  by the  Treaty  under  the conditions  described  above  and  under  the  supervision  of 
the  Courts. 

Hitherto,  however,  some  Member  States  have  interpreted  this  Article  broadly  and 
divergently,  accentuating  the fragmentation  of the  European  defence  market.  Exemptions 
have  been  applied  to  a  wider  range  of  products  without  reference  to  the  1958  list.  The 
Commission  has  never  exercised  its  powers  to  take  the  initiative  to  amend  the  list  of 
products.  Moreover,  many  Member  States  have  seen  Article  223  as embodying  a  general 
principle  that  all  areas  concerning  national  security  are  not  covered  by the  Treaties.  The 
Commission  has  always  contested  this  approach,  an  attitude  confirmed  by  two  recent 
Court  of  Justice  judgments.  In  cases  C-70/94  and  C-83/94  the  Court  gave  its  ruling  on 
the  Community's  exclusive  powers  under  Article  1  13  of  the  Treaty  and  dual-use  goods. 
In  particular,  it  found  that  since  full  responsibility  for  commercial  policy  was  transferred 
to the  Community,  national  commercial  policy  measures  are  therefore  permissible  only  if 
they  are  specifically  authorized  by  the  Community  and  that  a  product  cannot  fall  outside 
the  scope  of the common  commercial  policy  on  the  grounds  that  it  is of a strategic  nature. 
On  this  basis,  Article  11 of  Regulation  (EEC)  No  2603/69  establishing  common  rules  for 
exports  allows  Member  States  to  adopt  national  restrictive  measures  to  avoid  the  "risk  of 
a  serious disturbance  to  foreign  relations  or to peaceful  coexistence  of nations  which  may 
affect  the  security  of  a  Member  State".  Moreover  "a  measure  ...  whose  effect  is  to 
prevent  or  restrict  the  export  of  certain  products  cannot  be  treated  as  falling  outside  the 
scope  of  the  common  commercial  policy  on  the  grounds  that  it  has  foreign  policy  and 
security  objectives." 

3.1.2 

Instruments  available  under the common  foreign  and  security  policy 

fhe  Treaty  on  European  Union  created  a new  situation  by  introducing  a common  foreign 
and  security  policy  (CFSP)  which  "shall  include all questions  related  to the  security  of  the 
Union,  including  the  eventual  drafting  of  a common  defence  policy,  which  might  in  time 
lead  to a common  defence". 

14 

Security  is a general  concept.  It therefore  also  includes  issues  relating  to  armaments.  At 
the  same  time  the  Maastricht  Treaty  introduced  the  concept  of  important  interests  which 
the  Member  States  have  in  common.  In  particular,  the  Union  is  gradually  implementing 
joint  action  in areas  where the  Member  States have  important  interests  in common.  In the 
case  of  security,  these  important  common  interests  were  identified  in  preparation  for  the 
entry  into  force  of  the  Treaty  on  European  Union  (sec  the  conclusions  adopted  by  the 
European  Council  in  Copenhagen  on  the  preparatory  work  on  security).  This  notion  of 
common  security  interests  will  make  it  easier  to  decide  the  conditions  for  implementing 
the action  necessary  in the armaments  sector  within  the framework  of the  CFSP. 

in  June  1991  and  supplemented 

In  the  "Declaration  on  non-proliferation  and  arms  exports"  adopted  by  the  European 
Council 
in  June  1992,  the  Heads  of  State  and 
Government  expressed  the  desire  for  a  common  approach  leading  to  a  harmonization  of 
national  policies  on  arms  exports,  based  on  the  eight  criteria  agreed  on  arms  export 
policies. 

At  the  Maastricht  European  Council  they  identified  areas  where  common  action  could  be 
taken  as  part  of  the  future  common  foreign  and  security  policy.  These  include  the 
economic  aspects  of security,  in particular  control  of the transfer  of military  technology  to 
third  countries  and  control  of arms exports. 

In  1995  the  EU  took joint  action,  based  on  Article  J.3  of  the  Treaty  on  European  Union, 
inter  alia  on  extension  of  the  Non-proliferation  Treaty  and  on  anti-personnel  mines.  The 
latter,  in  particular,  included  a  ban  on  exports  of  mines  from  the  Union,  based  on 
humanitarian  as well  as foreign  and  security  policy  concerns. 

The  existing  legislation  together  with  the  objectives  of  the  CFSP  therefore  lay  the 
foundation  for  the  EU  to  evolve  a  policy  and  action  making  the  most  appropriate  use  of 
the  instruments  available  under  the  Community  framework  and  under  the  CFSP  to  the 
benefit  of the defence-related  industries. 

The  European  Union  has  a  single  institutional  framework  which  ensures  the  consistency 
and  continuity  of  the  activities  carried  out  in  order  to  attain  its  objectives  while 
complying  with  and  building  on  the  existing  Community  legislation. 
In  particular,  the 
Union  ensures  the  consistency  of  its  external  activities  as  a  whole  in  the  context  of  its 
external  relations,  security,  economic  and  development  policies.  The  Council  and  the 
Commission  are  responsible  for  ensuring  this  consistency.  They  ensure  implementation 
of  these  policies,  each  acting  in  accordance  with  its  respective  powers  (Article  C  of  the 
Treaty  on  European  Union). 
In  an  economic  area  without  internal  frontiers  and  with 
common  security  interests,  consistency  demands  that  the  Union  institutions  implement 
policies  ensuring  greater combination of the powers  of the  institutions  in connection  with 
the various  pillars of the Unkm. 

15 

3.2. 

Closer  cooperation  between  the WEU  and  EU 

3.2.1 

Relations  between  the  EU  and  WEU 

In  the  Declaration  on  Western  European  Union,  as  annexed  to  the  Treaty  on  European 
Union,  the  WEU  Member  States  agreed  on  the  need  to  develop  a  genuine  European 
security  and  defence  identity  and  a  greater  European  responsibility  on  defence  matters. 
The  WEU  would  be developed  as the defence  component  of the  European  Union  and  as a 
means to strengthen  the  European  pillar of the Atlantic  Alliance. 

At  their  meeting  in  Bonn  in  December  1992  the  Ministers  of  Defence  of  the  13 countries 
then  in  the  Independent  European  Programme  Group  (IEPG)  set  up  in  1976  decided  to 
transfer  the  Group's  functions  to  the  WEU,  in  accordance  with  the  objectives  set  in 
Maastricht. 

the  IEPG,  bringing 
The  Western  European  Armaments  Group  (WEAG),  formerly 
together  13 countries,  including  2  non-EU  members,  was  thus  set  up  and  attached  to  the 
WEU  as the body  responsible  for  cooperation  on  armaments  issues  within  the  WEU.  The 
objectives  of  the  WEAG  are  to  open  up  the  national  defence  markets  to  competition,  to 
reinforce  Europe's  technological  and  industrial  base  in  the  defence  sector  and  to  bring 
about  closer  cooperation  on  research  and  development.  At  the  meeting  of  the  WEU 
Council  in  Noordwijk  on  14 November  1994,  the  Ministers  of  Defence  from  the  WEAG 
countries  noted  the establishment  of an armaments  secretariat  within  the  WEU. 

As  its  operational  role  develops  the  WEU/WEAG  will  probably  take  on  activities  in 
fields  where  the  EU  is active  on  the  basis  of  the  Community  policies.  Given  that  the  EU 
and  the  WEU/WEAG  have  common  political  objectives,  where  their  activities  cover  the 
same  fields  there  are  clear  advantages  to  be  gained  from  mutual  information  and  closer 
cooperation,  particularly  in terms of efficiency,  costs  and  consistency. 

Closer  cooperation  between  the  EU  institutions  and  the  WEAG  would  be  facilitated  by 
building  bridges  between  the  European  institutions  dealing  with  defence  markets.  Such 
synergies  and  bridges  could  be  established  rapidly  and  pragmatically  on  the  basis  of  the 
Treaty  of  Rome  or  of  Title  V  (for  example,  by  extending  the  existing  information  and 
consultation  procedures  between  the  WEU  and  the  Commission). 

3.2.2 

European  Armaments  Agency 

The  Declaration  on  Western  European  Union  annexed  to  the  Treaty  on  European  Union 
provided  for  enhanced  cooperation  between  the  Member  States  concerned  in  the  field  of 
armaments  with  the  aim  of  creating  a  European  Armaments  Agency.  Despite  the 
the 
considerable  progress  made  with  defining 
groundwork  has  revealed  that  big  differences  still  remain  on  the  principles  and  priorities 
of the Agency's  activities. 

tasks  and  statutes, 

the  Agency's 

16 

The  WEAG's  decision  establishing  the  Agency  has  therefore  been  delayed.  Against  this 
background,  the Commission  should  consider  its possible contribution  to establishing  this 
Agency  and  to defining  its tasks and  carrying  out  its activities. 

In  addition,  France  and  Germany  have  decided  to  set  up  a joint  armaments  structure  in 
1996  to  allow  more  rational  cooperation  and  contribute  towards  establishing  an  efficient 
and  appropriate  industrial  and  technological  base.  The  Ministers  of  these  two  countries 
declared  that  this  move  is  part  oflhe  process  of  establishing  the  common  security  policy 
provided  for  in the  Maastricht Treaty  and,  in particular,  marks a constructive  step  towards 
establishment  of the  European  Armaments  Agency. 

fhe  Maastricht  Treaty  stipulates  that  the  WEU  "as  the  defence  component  of  the 
European  Union  will  formulate  common  European  defence  policy  and  carry  forward  its 
concrete  implementation  through  the  further  development  of  its  own  operational  role." 
To  this  end,  for  interoperability  and  cost  reasons  and  in  order  to  fulfil  the  common 
forces 
security  objectives/tasks, 
participating  in  the  WEU  will  in  turn  become  common.  Definition  by  the  WEU  of 
European  forces'  operational  requirements  will  mark  a  decisive  step  for  European 
armaments  policy. 
In  particular,  largely  common  demand  for  armaments  from  WEU 
states  would  put  the  EU  in  a  position  to  define  more  closely  the  rules  governing  the 
internal  market,  imports  and  supplies  of  military  equipment.  Here  too  cooperation 
between  the  EU and the  WEU  is essential. 

requirements  of 

the  equipment 

increasingly 

the 

4. Contribution  of  the  Community  instruments  and  activities  of  relevance  to  the 

defence-related  industry 

4.1. 

Internal  market  and  technological  base 

4.1.1 

Public  procurement 

The  Commission  is  convinced  that  important  benefits  could  be  derived  by  the  defence 
community  from  applying  procurement  procedures  largely  inspired  by  those  applied  in 
the EU's civil  sector. 
It  recognizes  that  the  specific  character  of  the  defence  sector,  which  involves  essential 
national  security  interests,  which  may  vary  among  Member  States,  may  require  some 
adjustments  to  the  procedures  which  are  enshrined  in  the  Community's  procurement 
directives.  However,  it  is  important  that  the  main  features  of  those  rules  are  applied  as 
uniformally  as  possible. 

Indeed,  the  procurement  regime,  which  exists  in  the  Community  is  based  mainly  on  the 
following  principles:  a  generally  applicable  non-discrimination  and  equal  treatment 
principle,  competitive  tendering,  open  and  transparent  procedures  based  on  objective 
selection  and  award  criteria  and  an enforcement  structure  consisting  of  legal  remedies  for 
aggrieved  suppliers  and  an  independent  enforcement  authority  which  has  investigative 
powers  and  can  seek  corrective  measures. 

17 

According  to  a  study  carried  out  in  1992  for  the  Commission  into  the  "Cost  of  non-
Europe  in  Defence  Procurement  '"', de fence  procurement  amounted,  in  1990  in  the  EU  to 
about  65  to  70  billion  ECU  a  year.  Efficient  purchasing  in  this  sector  could  result  in 
savings  of  between  5  to  11  billion  ECU  per  year  thereby  avoiding  the  substantial 
duplication  of  industrial  capabilities  in  aircraft,  helicopters,  missiles,  tanks  and  warships 
in the  sector. 

These  principles  have  been  further  developed  by  the  Council  in  six  directives  which  lay 
down  detailed  provisions  on  procurement  of  goods, services  and  public  works  by  public 
authorities  and  utilities  and  minimum  requirements  as  to  legal  remedies.  These  detailed 
rules  only  apply  above  certain  monetary  thresholds. 
It  is  important  to  keep  in  mind, 
however,  that  the  abovementioned  principles  apply  to  all  contracts,  regardless  of  their 
value.  Applying  a similar  legal  environment  to the defence  sector  would  enable  Member 
States  to  take  full  advantage  of  the  savings  delivered  by  efficient  procurement  pro 
cedures,  while  being  reassured  that  their  partners  abide  by  the  same  rules  and  are 
submitted  to the  same  discipline. 

Although  the  main  core  of  the  Community's  procurement  regime  should  therefore  be 
applied  to the  defence  sector as well, certain  adjustments  need  to be  made  in order to  take 
into  account  the  specificity  of that  sector.  The  main  issues  in  this  regard  are  the  need  to 
ensure  the  confidentiality  of  information  "the  disclosure  of  which  Member  States 
consider  contrary  to  their  essential  security 
interests",  and  the  need  to  maintain 
guaranteed  sources of  supply. 

The  Community's  procurement  directives  provide  for  three  different  types  of  purchasing 
procedures,  i.e.  open,  restricted  or  negotiated.  Although  utilities  can  freely  choose 
between  these  three  alternatives,  public  authorities  should  normally  opt  for  open 
procedures,  unless  there  are  important  justifications  to  use  one  of  the  others.  The 
Commission  could  well  imagine  that  for  certain  strictly  limited  defence  purchases,  public 
authorities  will  consider  bids  only  from  companies  which  have  been  selected  beforehand 
on  the  basis  of  objective  criteria  as  willing  and  able  to  maintain  the  confidentiality  of 
sensitive  information. 
It  is  important  to  ensure,  of  course,  that  this  selection  process  is 
not  used  as a disguised  means  of arbitrarily  eliminating  certain  suppliers. 

With  regard  to the  necessity  to  maintain  guaranteed  sources  of  supply,  especially  in  times 
of  international  tension  or  war,  the  Commission  feels  that  the  current  regime  offers 
sufficient  possibilities  to  take  this  element  into  account.  First  of  all  the  purchasing  entity 
could  select  suppliers  on  the  basis  of  their  ability  to  ensure  supply  under  virtually  all 
circumstances.  Furthermore  they  could  conclude  multilateral  contracts,  i.e.  contracts 
concluded  with  several  suppliers  for  one  type  of  product  or  service.  In  such  a  case  a 
hierarchical  order  would  be  established  between  the  various  suppliers.  If  supplier  one  is 
not  able  to  provide  the  product  within  a  given  time-period  the  product  would  be 
purchased  from  the next company  in line and  so on. 

6  In  1990 defence  procurement amounted in the  EU to about 65 to 70 billion  ECU per year  within  which 

expenditure  on Article 223 items was estimated  at  ECU 40 billion. 

18 

If a  Member  State  feels  that  its needs can  be  fully  met  by a offer  from  a non-EU  company 
which  makes  the  best  offer  for  that  Member  State's  money  there  does  not  seem  to  be  a 
compelling  reason  for  the  Community  to  require  this  Member  Stale  to  select  an  offer 
which  satisfies  its  needs  less  well  for  the  sole  reason  that  it  is presented  by a  Community 
supplier.  This  does  not  mean,  of  course,  that  the  third-country  supplier  will  be  able  to 
claim  any  rights  to  even  being  considered  as  a  possible  supplier.  At  this  stage,  the 
Commission  considers  that  it  would  be  preferable  only  to  apply  these  rights, 
including 
legal  remedies, to Community  suppliers. 

The  Commission  intends  further  to  explore  these  ideas,  as  well  as  others  which  may  be 
presented,  with  the  other  institutions  and  with  representatives  of  the  Member  States, 
taking  into due  account  the objective  of enhancing  in a dynamic  way the  competitiveness 
of  the  European  defence-related 
industry.  If  this  leads  to  legislative  measures,  it  is 
obvious  that these  will  have  to be binding  on  all  Member  States. 

However,  in  order  to  allow  Member  States  some  flexibility  in  extreme  eases  involving 
national  security,  a  safeguard  clause  should  be  included  in  those  measures.  This  clause 
could  be  used  on  condition  that  other  Member  States  and  the  Commission  are  informed 
immediately  after 
the  common  rules. 
Sufficiently  detailed  reasons  should  be  given. 

to  procure  without  following 

the  decision 

4.1.2 

Intra-Community  trade 

internal  market  does  not  only  constitute  a 

The 
favouring  greater 
competitiveness,  but  also  provides  the  environment  for  stronger  cooperation  amongst 
intra-Community  trade,  the  completion  of  a 
European 
"European  defence  market"  should  facilitate  both  cooperation  and  integration  in  the 
European  defence-related  industry. 

industries.  By  facilitating 

trade  area 

it 

Regarding  the  BU  framework,  the  gradual  opening  of  intra-European  borders  requires  a 
minimum  standard  of  competition  policy  and  in  the  long  term  harmonized  export  rules. 
Furthermore, 
and 
rationalization  of controls  on  intra-Community  trade carried  out  by  States.  In view  of  this 
objective  and  in  order  to  coordinate  the  methods  of  control  and  ensure  more  transparent 
results,  certain  Community  instruments  should  be  put  in  place,  based  on  administrative 
cooperation. 

implies  especially,  whenever  possible, 

simplification 

the 

The  need  to  simplify  the  national  control  procedures  concerning  the  movement  of 
defence  products  applies  even  more  when  the  trade  concerned  by  these  controls  takes 
place  within  the framework  of industrial  cooperation  agreements.  However,  the  principle 
of  mutual  recognition  recognized  in  the  framework  of  the  EC  Treaty  could  be  used  as  a 
basis  for  technical  specifications  used  for  the  construction  of  defence-related  products, 
cither  in an  intergovernmental  framework,  or through  a Commission  initiative. 

19 

At  the  end  of  the  day,  trade  within  Europe  will  not  only  contribute  to  eliminating 
distortions  of competition,  but also  facilitate  industrial  cooperation  and  integration,  whilst 
still  assuring  the necessary  provisions  for  the national  security  of Member  States. 

4.1.3 

Research  and  technological  development  (RTD)  activities 

Although  they  are  focused  on  civil  objectives,  Community  research  programmes,  like 
civil  research  activities  at  national  level,  are  increasingly  of  interest  for  the  defence 
technology  base  because  of  (1)  the  overlapping  and  converging  technology  needs  of  the 
civil  and  defence  sectors  in  a  wide  range  of  areas  (dual-use  technologies)  and  (2)  the 
leading  role  taken  by  the  civilian  markets  in  the  development  of  a  growing  number  of 
these dual-use  technologies. 

As  the  competitiveness  of  the  Community  industry  is a primary  objective  of  Community 
RTD  policy,  Community  programmes  support  research  in  a  wide  range  of  dual-use 
information 
technologies, 
technological 
technologies,  communications  technologies,  telematics,  aeronautics,  energy  storage  and 
conversion,  etc.). 

advanced  materials, 

(production 

areas 

It has  been  estimated  that  technological  areas of  potential  dual-use  interest  account  for  as 
much  as  one  third  (i.e. about  1 billion  ECU  per  year)  of  the  overall  Community  research 
budget. 
It  is  therefore  not  surprising  that  a  number  of  companies  and  research 
organizations  known  to  be  active  in  the  defence  sector  participate  in  Community 
programmes  and  that  some  Member  States are encouraging  them  to do  so.  Some  of  these 
companies  are also  being consulted  in the  framework  of the Commission's  Task  Forces  to 
improve  the  links between  research  and  industry  (e.g. aeronautics). 

to  commercial  products,  processes,  standards  or 

Community  RTD  programmes  can  contribute  to  the  technology  base  of  the  defence-
related  industry  in  several  ways  :  (1)  by  strengthening  the  overall  European  research 
infrastructure  and  scientific  base;  (2)  by  supporting  R&D  projects  leading,  after  further 
improved  quality 
development, 
assurance  which  can  also  be  used  in  the  defence  sector;  (3)  by  supporting  R&D  projects 
on  generic  technologies  which  can  lead,  after  further  development,  to  either  civil  or 
defence-specific  applications.  Furthermore,  Community  programmes  can  also  support 
research  by  defence  related  organizations  to  develop  civil  applications  of  their  defence 
technologies. 

With  the  growing  importance  of  trans-European  R&D  cooperation  in  both  civil  and 
defence  sectors,  it  is now appropriate  to consider  how, and  to what  extent  increased  civil-
defence  synergies  can  be  promoted  at  the  European  level  with  the  aim  of  optimizing  the 
overall  use of R&D  efforts. 
The  Commission  considers  that,  while  maintaining  the  civil  orientation  of  Community 
research  programmes, appropriate  steps to start addressing these  issues  should  be : 

-  to  establish  cooperation  links  between  EC  and  WEAG  research  programmes  to  avoid 
duplications,  to  ensure  complementarity,  and  to  facilitate  optimal  use  of  research 
results; 

20 

to  identify,  in  cooperation  with  the  WEAG  and  industry,  key  dual-use  technological 
areas where  European  capabilities are weak or not sufficiently  autonomous and should 
be strengthened; 

to  determine,  on  the  basis  of  the  experience  and  knowledge  from  the  above  action, 
whether,  how and to what extent dual-use considerations  should  be taken  into account 
in 
the  future  Community  programmes  (Fifth  Framework 
Programme). 

the  preparation  of 

4.1.4 

Standardization  and technical  harmonization 

Standardization  has been  transformed  in recent  years from  a marginal  policy  area to one 
which  is  attracting  priority  attention  within  European  industry  as  a  means  of  reducing 
costs  and  promoting  industrial  competitiveness.  It  is  recognized  to  be  of  strategic 
importance  for the efficiency  of the internal market. 
Union-wide  standardization  policies  are  relevant  to  the  defence-related  industry  in  such 
laser 
key  areas  as 
technology,  new materials, aerospace  and quality systems and conformity  assessment. In 
many of these  areas, civil  standardization  activity  is proceeding  faster  than  similar  work 
organized  for  purely  military  purposes  and  civil  standards  are  becoming  more  widely 
used in defence  procurement. 

telecommunications,  power  supply, 

technology, 

information 

Hence,  further  convergence  of  civil  and  military  use  of  standardization,  in  order  to 
maximize  economic  benefits  and  to  minimize  duplication  of  effort  and  the  waste  of 
scarce technical expertise, should  be one of the main objectives of EU policy in respect of 
the defence-related  industry. 

Greater  use  by  the  military  of  the  existing  standardization  mechanisms  and  company 
accreditation  at  international  and  European  level  will  combine  the  advantages  of  lower 
costs of procurement, greater competition in supply and, in some cases, shorter lead-times 
in the development of standards. 

Although  the  scope for  the  use of civil  standardization  will  remain  limited  or even  non 
existent in some security-sensitive areas, such as weaponry, in other areas  standardization 
can  provide  a common  basis  from  which  additional,  non-standard,  requirements  may be 
developed  by the  military,  if necessary.  Unnecessary  overlap  between  civil  and  military 
standardization work should be avoided for reasons of industrial efficiency  and budgetary 
savings. 

In  order  to  promote  civil/military  convergence  in  this  field,  the  Commission  considers 
that the following  steps would be helpful: 

21 

•  the  conclusion  of  ccxrperative  arrangements  between  the  European  standardization 
organizations  and  NATO  standardization  experts  in  order  to  identify  areas  of 
common  interest  of overlap  in their current activity, perhaps  by  means of a joint 
report; 

•  identification  by  the  defence  authorities  within  the  EU  of  standardization  work  already 
planned  in  the  civil  field  that  could  also  be  of  interest  to  the  military,  with  the 
possibility  of  Community  support,  where  appropriate,  by  standardization 
mandates; 

•  the  establishment  of  a  system  for  regular  information  exchange  between  NATO  with 
the  European  standardization  bodies  in order to minimize  the risk  of  duplication 
of work  in the  future. 

Examples  of  such  initiatives  which  have  already  been  launched  include  developments  in 
the  field  of  CALS  (Continuous  Acquisition  and  Life  cycle  Support)  where  cooperation 
between  civil  and  military  structures  is about  to be  implemented. 
Recent  discussions  between  the  European  Commission  and  the  European  aeronautics 
industry  have  taken  place  to  bring  about  closer  integration  between  military  and  civil 
standards. 
NATO  has also shown  interest by setting up a new standardization  organization  (NSO). 
These  initiatives  would  not  affect  the  continued  commitment  of  the  Community  to 
ensure  that  European  standardization  is  based  on  international  standards  wherever 
possible. 

4.1.5 

Competition  policy 

In  the  light  of  the  emergence  of  a  Community  market  for  the  defence  industry,  resulting 
from  common  defence  programmes,  from  European  alliances  and  from  necessary 
It  can  facilitate, 
restructuring,  there  is  a  place  for  the  Community  competition  policy. 
thanks  to  a  clear  framework  and  quick  decisions,  the  concentrations  and  cooperations 
between  companies  which  do  not  call  into  question  effective  competition.  Moreover, 
rigorous  control  of  State  aids  will  make  it  possible  to  distinguish  between  aid  necessary 
for  restructuring,  since  it  accelerates  change,  encourages  research,  development  and 
innovation  and  reduces  the  social  consequences  of  reorganization,  and  aid  used  for 
defensive  reasons  that  certain  Member  States  might  be  inclined  to  use  to  avoid  the 
necessary  structural  changes  and  transfer  the  production  and  employment  adjustment 
costs  onto  other  Member  States.  The  control  of aid  should  also  provide  a means  to  make 
sure,  in  a  more  effective  manner  than  today,  that  aid  granted  to  the  defence-related 
industry  is not  also used  by certain companies to subsidize  civil  production. 
In  a  sector  such  as the  defence-related  industry,  the  introduction  of  effective  competition 
should  therefore  result  in  considerable  productivity  gains,  in  the  form  of  cost  reductions 
and  increased  innovation  which  could  only  improve the industry's  exporting  capacity. 

22 

The  Commission  considers  that  the  legal  basis  for  the  Community's  competition  policy 
could  be  used  and  provide  an  adequate  framework  for  competition  matters  relating  to  the 
European  defence-related  industry. 

However,  the  application  of  competition  law  to  the  defence-related  industry  must  take 
into  consideration  the  specific  features  of this  industry.  It must  also  be consistent  with  the 
objectives  of  other  Community  policies,  be  receptive  to  information  and  comments  from 
Member  States'  Ministries  of  Defence  (MODs)  in  their  capacity  as  main  clients  of  the 
defence-related  industry  and  allow  Member  States  to  take  appropriate  measures  in  order 
to  protect  national  security  in  addition  to  those  measures  which  might  be  taken  by  the 
Commission  to  maintain  and  develop  effective  competition.  Competition  policy  in  the 
defence-related  industry  should  be  implemented  progressively,  in  fields  such  as  State 
aids,  agreements  and  concerted  practices  since,  up  to  the  present  date,  the  Commission 
has  adopted  a careful  approach  to  exercising  its  competence  in  these  fields.  Finally,  it  is 
evident  that  the  Commission  will  take  into  consideration,  in  the  operation  of  its 
competition  policy  for  the  defence-related  industry,  the  manner  in  which  in  particular 
governments  of 
formulate  and  apply 
competition  law to their own  industry. 

third  countries  which  produce  armaments 

So  far  the  Commission  has  approved/notified  concentrations  (see  table  in  Annex)  of 
defence  industries  on the  following  lines: 

-  For  the  moment,  geographic  markets  for  defence  products  and  services  tend  to  remain 
national  where  a  domestic  supplier  exists  because  MODs  still  tend  to  have  strong 
preferences  for  national  suppliers.  However,  where  there  is  no  domestic  supplier,  then 
subject  to  other  barriers  such  as  export  restrictions  and  national  preferences,  suppliers 
of  defence  products  and  services  compete  with  each  other  world-wide.  Consequently, 
dominant  positions  by  European  defence-related  companies  at  world  level  are  not 
likely  to be observed,  given  the  weight  of  US competitors  in this  area.  Likewise,  when 
the  geographic  market  is  national,  a  dominant  position,  if  any,  is  normally  not 
strengthened,  given  that  there  is  no  addition  of  market  share,  except  when  the  merger 
concerns two national  suppliers. 

-  When  assessing  the  market  position  of  a  firm  in the  defence  industry,  account  must  be 
taken  of the  bargaining  power  of  its main  clients: the  Ministries  of  Defence  (MODs)  of 
the  States  concerned.  MODs  generally  formulate  the  operational  requirements  and 
technical  specifications  of  armaments.  Also,  as  a  consequence  of  the  reduction  in 
national  defence  budgets,  MODs  tend  to  require  higher  technical  specifications  with 
lower  levels  of  manpower  and  lower  overall  costs  and  to  be  reluctant  to  bear  the  risks 
associated  with  R&D. 

-  fhe  Commission  considered  the  general  views  of  the  MODs  concerned  as  relevant  for 

the assessment  of the  operation. 

The  extent  to  which  a  common  market  for  defence  equipment  is  achieved  is  crucial  to 
evaluate  the  effects  of  the  merger  policy  on  the  conditions  of  competition.  As  far  as 
national  markets  remain,  further  concentration  may  aggravate  monopolistic  inefficiencies 

23 

that  can  extend  into  civilian  areas  of  business.  On  the  other  hand,  if  progress  towards  a 
common  market  for  defence  equipment  is  achieved,  and  provided  that  conditions  of 
competition  are  preserved,  business  consolidation  may  contribute  favourably  to  Euiopcun 
competitiveness  on  a global  market. 

Finally  the  Merger  Regulation  allows  Member  States  to  take  appropriate  measures  to 
protect  public  security  7This  clause  which  reaffirms  Member  States'  ability  either  to 
prohibit  a  concentration  or  to  make  it  subject  to  additional  conditions  and  requirements 
compatible  with  Community  law,  has  been  used  once  by  a  Member  State 8. 

As  regards  agreements  and  State  aids,  the  Commission  has  always  approved  the  notified 
operations.  The  Commission  is  conscious  that  cooperation  programmes  are  necessary  in 
industry,  in  view  of  the  size  of  certain  projects  which  require 
the  defence-related 
substantial  financing  and  multiple  skills. As  far  as  financing  of military  R&D  by  Member 
States  is  required,  the  Commission  takes  account  of the  particularities  of  defence-related 
activities,  namely  a  high  technology  base  of  production,  high  costs  and  a  very  long 
development  cycle, which,  to a large degree, require  public  financing.  Concerning  aid  for 
rescuing  and  restructuring  firms  in difficulty,  great  attention  should  be  given  in  particular 
to social  and  regional  policy  considerations. 

4.1.6 

Structural  Funds 

A  study  carried  out  in  1992  for  the  Commission  on  the  economic  and  social  impact  of 
reductions  in  defence  spending  and  military  forces  on  the  regions  of  the  Community 
showed  that about  half of the  regions  in which  defence-related  activity  is concentrated  are 
not  eligible  for  assistance  under  the  Structural  Funds  instruments  (Objective  1, 2 or  5(b) 
regions).  Following  the  revision  of the  Structural  Fund  Regulations  in  1993,  a number  of 
these  areas  (in  UK,  France  and  Italy) were  integrated  into  Objective  2 regions. As a  result 
more  than  half  the  defence-dependent  areas  are  now  in  assisted  areas.  It  is,  however, 
important  to  note  that  even  in  assisted  areas,  Structural  Fund  aid  is  not  available  for 
investment  in  the  defence-related  industry  itself.  The  role  of  the  Structural  Funds  is 
therefore  limited  to  providing  general  economic  development  assistance  (including  aid 
for  conversion)  through  the  Community  Support  Frameworks  in  place  in  the  assisted 
regions  and  to the  KONVER  initiative. 

industries  or 

In  this  context,  Objective  4  of  the  European  Social  Fund  and  the  related  Community 
Initiative  ADAPT  have established  a horizontal  approach  (i.e without  a priori  reference  to 
the 
specific 
workforce.Incertain  circumstances,  assistance  is  available  for  measures  which  help  the 
adaptation  of workers  threatened  with  unployment  due to  industrial  change  and  change  in 
production  systems  (especially  within  small  and  medium  size  enterprises).Particular 
improving 
the  anticipation  of 
emphasis 
qualifications  and  employment  opportunities  for  the workers  in  question. 

structural  change  and 

its  effects  on 

labour  market 

is  placed  on 

trends  and 

sectors) 

to 

7  Cf.  Art.  21(3) of the Regulation 

8  See point  321 of  the XXIIIrd  Report  on Competition  Policy 

24 

through 

In  response  to  calls  from  the  European  Parliament,  the  Commission  adopted  Perifra  1 
(1991)  and  Perifra  II  (1992).  These  special  measures  included  support  for  demonstration 
projects  which  could  serve  as  models  for  the  conversion  of  military  installations.  In 
conformity  with  the  position  taken  by  the  Parliament,  the  KONVER  Community 
Initiative  was adopted  in  1993 to assist  regions weakened  by the decline  of defence  indus 
tries  and  installations,  fhe  annual  programme  introduced  in  1993 has  been  extended  on  a 
multiannual  basis  up to the end  of  1997. 
The  purpose  of  KONVER  is  to  provide  support  for  economic  diversification  in  areas 
the  encouragement  of 
activities 
heavily  dependent  on  defence-related 
commercially  viable  activities  not  related  to  defence. 
Eligible  areas  can  be  located  anywhere  in  the  EU,  although  at  least  50%  of  the  1994-97 
KONVER  budget  must  be  spent  in  ERDE  assisted  areas  (Objective  1,  2  or  5(b)).  fhe 
eligible  areas  are  small  geographical  regions  in  which  actual  or  announced  defence-
related  job  losses  total  1.000  or  more  since  1990.  Other  areas  heavily  dependent  on 
defence  can  also  be  accepted  as  eligible  regions  taking 
their  high 
unemployment  rates, poor environmental  conditions, or  isolation/remote  location. 
A  full  range  of  conversion  measures  including  the  financing  of  both  tangible  and 
intangible 
the  modernization  of 
in  alternative  economic  activities, 
infrastructure  in relation  to the economic  regeneration  strategy  of the  area  concerned,  and 
measures  in  favour  of  the  environment  and  tourism  can  be  financed  through  KONVER. 
The  budget  for  the programme  is  ECU  130 million  for  1993 and  ECU  500  million  for  the 
period  1994-97.  A  reserve  of  ECU  245  million  to  support  product  innovation,  the 
development  of  environmental  technologies  and  SMEs  was  allocated  to  the  KONVER 
initiative  on  4  October  1995.  KONVER  was  also  extended  until  the  end  of  1999.  Loans 
from  the  European  Investment  Bank  are also  available. 

into  account 

investment 

Also,  the  possibility  and  detailed  ruled  for  financing  from  other  EU  resources  could  be 
examined  in the  light of the priorities of the armament  policy. 

4.2. 

The external  dimension 

4.2.1 

Export  policy 

In  the  European  Union,  national  policies  on  arms  exports  have  traditionally  differed 
considerably,  ranging  from  nearly  total  ban  to  a  voluntaristic  approach,  where  arms 
export  is considered  vital  not  only  for  strategic  and  political  reasons  but  also  for  reducing 
unit  costs  and  maintaining  a  broad  defence  industrial  and  technological  base  at  the 
national  level.  Not  less  importantly,  assessments  of  the  risk  of  exports  to  certain 
destinations,  linked  to  foreign  policy  considerations,  have  traditionally  been  made  on  a 
national  basis.  The  ensuing  differences  between  Member  States  are  not  without  cost  : 
national  concerns  about  either  a  too  restrictive  or  too  liberal  approach  of  one  or  more 
other  Member  States  on  arms  exports  in  general,  or  in  regard  to  specific  destinations, 
have  not  favoured  intra-European  industrial  cooperation  or  integration.  Differences  in 
export  policy  thus  also  impede  the  development  of  intra-European  policies.  As  a 
consequence  the  development  of  common  policies  inside  the  European  Union  in  order  to 
secure  the  industrial  basis of the  sector  should  be complemented  by a corresponding  level 
of harmonization  of national  export  policies and  export-control  systems. 

25 

The  European  Council  has  taken  a  first  step  towards  a  common  approach  on  arms 
exports, by adopting, in June  1991 (Luxembourg) and June  1992 (Lisbon) (in the annex), 
eight  criteria  which  Member  States  interpret  when  deciding  on  issuing  a  licence  for  a 
specific  export.  Exchanges of information  on the concrete application  of the criteria  are 
being conducted between Member States, with a view to harmonizing their  interpretation. 

Given  the  difficulties  in  developping  a  common  basis  for  the  harmonization  of  arms 
export  policies  a gradual  process  should  be pursued  following  a two  steps  approach.  In 
a  first  stage,  regular  exchange  of  information  between  Member  States  on  arms  exports 
(type and  quantity  of exported  material,  destination, end-use)  should  be pursued.  In the 
case  of  cooperation  programmes,  which  should  be  encouraged,  progress  could  be 
achieved  on  the  basis  of  current  experiences,  namely  by  following  the  principles 
according  to  which  export  rules  of  the  country  where  the  prime  contractor  is  located 
apply. 
In  a  second  stage  the  establishment  should  be  pursued  of  an  operational  system  aimed 
at  eliminating  the  distorsions  between  the  various  national  treatments.  The  drafting  of 
such  a  system  should,  for  it  to  become  effective,  take  into  account  the  modalities, 
principles,  scope  and  the  possible  needs  for  improvement,  based  on  the  experience 
gained  with  the  establishment  of  the  export  control  regime  on  dual-use  goods  and 
technologies  (see below). 

4.2.2 

Export controls on dual-use goods and  technologies 

To  resolve  one  of  the  most  difficult  problems  hindering  the  completion  of  the  internal 
market,  i.e.  the  problem  of  controls  on  intra-Community  trade  in  dual-use  goods,  the 
Council  agreed,  after  two  years  of  intensive  discussions  on  a  Commission  proposal,  to 
establish a Community export control system. It is based on two legal  instruments, viz. an 
Article  113  Regulation9  and  a  Joint  Action  under  the  Common  Foreign  and  Security 
Policy 10, which together form  an integrated  system. Both texts were formally  adopted by 
the Council on  19 December  1994 and apply from  1  July  1995. 

The  objective  of  the  integrated  system  is  to  ensure  that  effective  controls,  based  on 
common standards, are applied by all Member States on exports of controlled goods  from 
the Community. 

Council  Regulation  (EC)  No 3381/94  of  19 December  1994 setting  up  a  Community  regime  for  the 
control  of exports  of  dual-use  goods,  as  amended  by Council  Regulation  (EC)  No  837/95  of  10 
April  1995, OJ L 367 of  31 December  1994 and OJ  L 90 of 21 April  1995. 

Council  Decision 94/942/CFSP of  19 December  1994 on the joint  action  adopted by the Council on 
the  basis  of  Article  J.3  of  the  Treaty  on  European  Union  concerning  the  control  of  exports  of 
dual-use  goods,  as amended by Council  Decision 95/127/CFSP of  10 April  1995 and by Council 
Decision  95/128/CFSP  of  10 April  1995,  OJ  L  367  of  31  December  1994  and  OJ  L  90  of  21 
April  1995. 

26 

Two  key  features  of the  integrated  system  are: 
•  a  common  list  of  dual-use  goods  and  technologies  subject  to  export  control  by  all 

Member  States as well  as a list of destination  countries; 

•  common  criteria  to  be  applied  by all  Member  States  when  determining  whether  or  not 

to authorize  exports  from  the  Community. 

This  system  is  part  of  the  effort  of  the  international  community  to  reinforce  and 
coordinate  export  controls  over  sensitive  items.  In particular,  28 countries, among  which 
all  EU  Member  States, agreed  in  December  1995 on  the establishment  of the  "Wassenaar 
arrangement".  This  arrangement  succeeds  the COCOM  regime as regards export  controls 
for  arms  and  dual-use  goods.  There  are  obvious  links  between  this  arrangement  and  the 
EU  system,  which  will  call  for an adaptation  of the  EU common  list of dual-use  goods. 

In  such  a  sensitive  and  complex  area  where  internal  market,  trade,  foreign  and  security 
policy  interests converge, the common  export  control  system  cannot  be applied  overnight. 
to  ensure  that  the  system  works 
is  foreseen 
Consequently,  a  transitional  period 
effectively.  It will  be  used  to strengthen,  where  necessary,  the control  systems  of  Member 
States and  to reinforce  administrative  cooperation  between  the competent  authorities. 
The  new  system  provides  for  a clear  identification  (and  a common  list) of  dual-use  goods 
and  technologies  and  serves  as  a  basis  for  the  reduction,  and  ultimate  elimination,  of 
policy  differences  between  Member  States.The  fact  that  an  export  licence  issued  by  one 
Member  State  is  presently  valid  throughout  the  Union,  facilitates  joint  export  projects 
between  companies  established  in the  Community. 

facilitate 

important 
The  creation  of  a  common  regime  for  dual-use  export  controls  is  an 
industry 
improvement  in  the  regulatory  framework  for  the  European  defence-related 
companies' 
adjustments 
which  will 
competitiveness.Therefore  the  whole  system  has  to  be  implemented  effectively.  When 
making  new  proposals  for  a common  regime,  the  Commission  will  take  into  account  the 
ruling  of  the  European  Court  of  Justice  in  case  C-83/94  that  dual-use  goods  fall  within 
the  scope of the common  commercial  policy  defined  by  Article  113. 

increasing 

structural 

thereby 

4.2.3 

Import  duties on  military  equipment 

The  common  customs  tariff  provides  for  the  application  of  customs  duties  to  most 
military  or  dual-use  civil  and  military  equipment  imported  from  third  countries.  Only 
certain  products  benefit  from  specific  exemptions,  generally  as  a  result  of  GATT 
Individual  exemptions  from  duties  have  also  been  granted  under 
negotiations. 
preferential  arrangements  with  certain  third  countries,  such  as  the  members  of  EFTA. 
However,  other  military  equipment,  and  dual-use  products  are  in  principle  subject  to 
customs  duties,  although  the  level  of  those  duties  has  been  lowered  considerably  in  the 
course  of multilateral  trade  negotiations. 

It  is against  this  background  that  the  Commission  submitted  a proposal  to  the  Council  in 
1988  for  a  regulation  temporarily  suspending  import  duties  on  certain  weapons  and 
military  equipment  '  '.  The  aim  was  a uniform  Community  response  to  national  defence 

COM(88)502 final - OJ C 265,  12.10.1988. p.9. 

27 

procurement  requirements  which  had  hitherto  resulted 
in  certain  Member  States 
unilaterally  granting  exemptions  from  custom  duties.  The  Commission  considered  then, 
and  still  does,  that  the  tariff  arrangements  for  imported  products,  even  military  or  dual-
use  equipment,  are  the  sole  responsibility  of  the  Community  and  that  Article  28  of  the 
Treaty  therefore  constitutes  the  only  permissible  legal  basis  for  granting  autonomous 
suspensions.  In  this  respect,  the  existence  of  differing  national  approaches,  apart  from 
not  being  founded  in  Community  law,  is  incompatible  with  the  very  principles  of  the 
Customs  Union  and  the  Internal  Market. 

The  scope  of  the  proposal  for  a  regulation  was  defined  with  the  aim  of  establishing  a 
balance  between  the  desire  to  facilitate  access  by  national  armed  forces  to  the  most 
technologically  advanced  equipment  and  the  need  to  take  account  of  the  interests  of  the 
Community  arms  industry.  It  therefore  covers  equipment  which  is  military  "by  nature", 
and  parts  thereof.  During  discussions  in  the  Council,  a  number  of  Member  States  asked 
for  the  list  to  be  extended  to  certain  equipment  which  would  necessarily  imply  not  only 
verifying  that  importation  of  this  dual-use  equipment  with  duties  suspended  is  not  likely 
to  disturb  the  balance  mentioned  above  but  also  defining  what  is  meant  by  "military  use" 
in their  regard. 

These  discussions  could  be  resumed  within  the  overall  context  of  this  communication  in 
order to establish  a list of products  benefiting  from  duty  suspensions  which  is most  suited 
to  the  various  objectives  of  a  European  defence  policy.  This  will  also  contribute,  as 
proposed  by  the  Commission  since  1988,  to  resolve  outstanding  difficulties,  referred  to 
above. 

4.2.4 

Trade  relations 

The  development  of  a  European  defence  equipment  market,  to  the  extent  that  it  would 
lead  to  greater  self-sufficiency  in  different  market  segments,  has  potentially  far-reaching 
implications  for  relations  with  third  countries,  and  particularly  with  the  United  States, 
which  is the main third-country  supplier  of arms to the  European  Union  Member  States. 
Exploitation  of  the  Community  dimension  in  defence  procurement  does  not  imply 
unilateral  opening  at Community  level  of the defence  market  to third-country  suppliers. 
Because  of  the  exceptions  in  me  multilateral  trade  regime,  including  the  Government 
Procurement  Agreement  (GPA)  concluded  in  the  framework  of  the  WTO,  competitive 
tendering  does  not  yet  apply  to  purchases  of  defence-related  material  by  our  trading 
partners.  Every  Member  State  will  remain  free  to  consider  if  bids  received  from  non-EU 
firms  should  be  examined. 
Negotiations  should  be undertaken  in order  to  lay down  the conditions  under  which  third-
country  suppliers  could  enjoy,  in  relation  to  public  procurement  and  other  market  access 
issues,  the  same  rights  as  Community  suppliers  in  the  armament  sector,  based  on 
comparable  and  effective  access  to the markets of those countries  for  EU  suppliers,  whilst 
respecting  each  party's  security  interests. 

28 

S. Conclusions: 

fhe  Commission  notes  that  matters  concerning  the  production  of and  trade  in  armaments 
are  linked  to defence  and  foreign-policy  considerations  of  Member  States  and  to  progress 
in  the  development  of  a  European  security  and  defence  identity.  On  the  other  hand 
securing  a  competitive  European  defence-related  industry  is  also  a  precondition  for  a 
European  security  and  defence  identity. 

There  is  therefore  an  urgent  need  for  recognition  of  the  state  of  health  of  the 
defence-related  industry  since,  if this  is  not  followed  by  tangible  action,  there  is a  danger 
of  aggravation  of  the  situation,  leading  to  massive  job  losses  and  the  disappearance  of 
technological  skills, with  serious  repercussions  in the civil  sector. 

Numerous  questions,  particularly  concerning 
example, 
harmonization  of  operational  requirements)  can  only  be  discussed  within  the  framework 
of  the  preparations  for  a  European  security  and  defence  identity. 
In  the  short  term, 
however,  the  CFSP  provides  mechanisms  and  procedures  which  could  smooth  the  way 
for  urgent  measures. 

the  demand 

side 

(for 

Many  other  questions,  particularly  with  an  impact  on  the  competitiveness  of  businesses, 
can  be answered  within  the  European  Community  framework. 

In  fact  a  coherent  range  of  Community  instruments  is  available  for  the  establishment  of 
unified  markets  and  competitive  industries.  The  specificity  of  this  industry  can  be  taken 
into account  adequately  when  implementing  the current  instruments. 
The  action  proposed  in  this  document  could  usefully  be  complemented  by  measures  in 
the  framework  of  the  Western  European  Union,  in  particular  the  establishment  of  a 
European  Armaments  Agency  referred  to  in the  WEU  Declaration  of  10 December  1991. 

The  Council  is  requested  to  give  its  opinion  on  the  foregoing  analysis  and  on  the 
suggestions  concerning  the contribution  by the Community  instruments. 

In the  light  of  the  Council's  work,  the  Commission  plans  to  take  the  appropriate  action  in 
the form  of specific  proposals or other suitable  measures. 

29 

ANNEX 

Table  1* :  Military  expenditure, in constant  price figures,  1985-1994 

Figures are  in  US $m., at  1990 prices and  exchange-rates. 

North  America 
Canada 
USA 

l:ur<>l>c 
Belgium 
Denmark 
Trance 
Germany 
( ireeee 
Italy 
Luxembourg 
Netherlands 
Norway 
Portugal 
Spain 
Turkey 
UK 
Austria 
I  inland 
Ireland 
Sweden 

1985 

1986 

1987 

1988 

1989 

1990 

1991 

1992 

1993 

1994 

11.014 
313.307 

11.233 
335.048 

11.488 
331.215 

11.631 
323.860 

11.536 
320.427 

11.547 
306.170 

10.413 
268.994 

10.482 
284.116 

10.433 
269111 

10.151 
252.358 

4.789 
2.613 
39.918 
38.824 
4.524 
19.538 
74 
7.350 
3.339 
1.336 
9.058 
4.011 
43.549 
1.644 
1.826 
556 
5.234 

4.984 
2.520 
41.081 
39.889 
3.861 
20.187 
78 
7.461 
3.234 
1.504 
8.827 
4.532 
42.867 
1.726 
1.975 
571 
5.387 

5017 
2 662 
42.284 
40.570 
3.856 
22.699 
89 
7.598 
3.442 
1.563 
9.995 
4.316 
42.561 
1.612 
1.989 
533 
5.499 

4.806 
2.714 
42.243 
40.242 
4.078 
24.113 
101 
7.561 
3.279 
1.738 
9.345 
3.802 
40.646 
1.546 
2.085 
530 
5.573 

4.732 
2  648 
42.793 
40.146 
3.819 
24.304 
93 
7.636 
3.369 
1.824 
9.668 
4.398 
40.792 
1.622 
2.058 
525 
5.762 

4 6 44 
2 6 50 
42.589 
42.320 
3.863 
23.376 
97 
7.421 
3.395 
1.875 
9.053 
5.315 
39.776 
1.542 
2.116 
596 
5.909 

4.579 
2.697 
42.875 
39 216 
3.663 
23.706 
107 
7.161 
3.293 
1.925 
8.775 
5.463 
41.087 
1.550 
2.447 
623 
5.540 

3.760 
2.648 
41.502 
37.697 
3.808 
23.004 
111 
7.088 
3.569 
1.977 
8.113 
5.747 
37.141 
1.507 
2.499 
617 
5.392 

3.571 
2.653 
41.052 
33.486 
3.716 
23.187 
102 
6.548 
3.385 
1.914 
8.823 
6.355 
36.312 
1.502 
2.356 
592 
5.273 

3.549 
2.608 
41  235 
31.258 
3.778 
23.492 
110 
6.263 
3.523 
1.948 
8.141 
6.173 
35.055 
1.513 
2.167 
613 
5.260 

180.833 

182.921 

188.527 

187.321 

188.422 

187.827 

185.951 

176.856 

171.087 

173.163 

Note  : This  series  is based  on  the data given  in the  local  currency  series, defiated  to  1990 price  levels 
and  converted  into dollars at  1990 period-average  exchange-rates.  Local  consumer  price  indices  (CPI) 
are taken  as  far  as possible  from  Internation  Financial  Statistics (IFS) (International  Monetary  Fund  : 
Washington,  DC).  For the  most  recent  year, the CPI  is an estimate  on  the  first  6-10 months  of the  year. 
Period-average  exchange-rates  are taken  as  far as possible  from  IFS. 

From  SIPRI  Yearbook  1995, pp. 440-44 

30 

Table 2: 

Major weapon  procurement  expenditure,  1983-92 

figures  are  in  US $m, at constant  (1991 ) prices 

Nor ill  A  turned 
Canada 
USA 

lùiro/H' 
Belgium 
Denmark 
I  ranee 
Germany 
(,reeee 
Italy 

Luxembourg 
Netherlands 

Norway 
Portugal 

Spain 
Turkey 
UK 

Kuropean  N A TO 
Total 
N A TO  tolal 
IX '  member 
eounlries 

1983 

1984 

1985 

1986 

1987 

1988 

1989 

1990 

1991 

1992 

2  100 
68.635 

2.350 
76  442 

2.226 
83.997 

2.155 
90  105 

2  568 
9 1 4 61 

2  521 
84  956 

2.3H 
84  271 

2.129 
79  337 

.1020 
7 1 7 57 

2.053 
66.110 

705 
448 
9.613 
7.884 
633 
3.642 

I 
1.700 

637 
76 

646 
416 
9.491 
7.805 
724 
3.505 

1
1.774 

527 
69 

615 
357 
9.888 
7.825 
681 
3.946 

3
1.739 

834 
48 

1.970 
411 
11.467 

2.591 
519 
12.263 

1.581 
573 
12.259 

650 
349 
10.305 
8.191 
634 
3.942 

23 

1.531 

668 
104 

2.164 
847 
11.505 

664 
393 
11.235 
8.218 
689 
4.994 

1.367 

704 
173 

2.565 
1.010 
11.004 

3 

583 
387 
11.057 
7.826 
987 
5.075 

1.561 

619 
200 

2.009 
888 
10.842 

474 
344 
11.347 
7.685 
870 
5.112 

4
1.359 

838 
238 

1.838 
785 
9.575 

371 
391 
10.615 
7.545 
859 
4.202 

4
1.344 

769 
212 

1.214 
1.103 
7.798 

379 
422 
10.077 
4.347 
773 
3.967 

65 

1.130 

727 
180 

1.176 
1.287 
8.118 

322 
430 
9.869 
3.562 
828 
3.247 

1.208 

846 
131 

1.492 
1.488 
7.359 

39.189 
109.923 

40.333 
119.125 

40.349 
126.572 

40.894 
133.354 

43.021 
137.050 

42.0.38 
129.514 

40.468 
127.052 

36.427 
117  892 

32.587 
109.364 

30.787 
98.979 

38.154 

39  514 

38.965 

3 9 4 16 

4 1 3 30 

40  570 

38  865 

34.574 

30.591 

28.470 

Sources  : NATO,  Financial  and  Economic  Data  Relating  to NATO  Defence  (NATO  : Brussels,  annual); 
author's calculations.  Figures  for  France are based  on  national  data. 

31 

Table 3: 

EU  imports  and  exports  of  major  conventional  weapons,  1984-93 

Trend-indicator  values, as expressed  in mio  US $, at constant  (1990)  prices 

Year 

TJ imports 

World  total 

TJ exports 

World  total 

19X5 
1 9X6 
19X7 
19XX 
19X9 
1990 
1991 
1992 
1993 
1994 

2.126 
3.1 IX 
2.942 
4.162 
4.X27 
3.865 
5.463 
6.190 
3.766 
3.766 

39.713 
44.1 IX 
46.377 
38.5X5 
37.79X 
30.X9I 
25.527 
24.776 
24.494 
21.725 

Source:  SIPRI  Yearbook  1995, p 510-51  1 

X.5I4 
X.00I 
7.372 
6.129 
7.696 
6.160 
5.637 
4.611 
5.10X 
6.54X 

39.713 
44.1 IX 
46.377 
38.585 
37.799 
30.X91 
25.527 
24.777 
24.494 
21.725 

Table  4: 

Imports  by  EU  Member  States  of  Major Conventional  Weapons,  1988-92 
(in  millions  of  US dollars  at constant  1990  prices) 

Supplier: 

USA 

F 

D 

1 

INL 

UK 

Others 

T o t al 

Recipient 

Belgium 

D e n m a rk 

G e r m a ny 

(irecce 

Spain 

France 

Ireland 

Italy 

Netherlands 

Portugal 

UK 

709 

204 

4.279 

3.309 

3.040 

1.577 

23 

494 

1.734 

449 

2.074 

54 

12 

67 

1.365 

372 

17 

36 

121 

49 

9X7 

30 

58 

14 

836 

32 

69 

15 

126 

3 

286 

80 

24 

19 

13 

30 

3 

10 

32 

254 

43 

33 

102 

43 

15 

244 

159 

36 

16 

119 

13 

65 

933 

596 

4.473 

6.197 

3.747 

1.626 

71 

688 

1.765 

1.374 

2.326 

T o t al  EU  12 

17.892 

2.044 

2.006 

213 

362 

465 

812 

23.795 

USA 

3 

429 

199 

543 

669* 

1.843 

*  Of  which  at  least  S  128  mio  from  non-TU  countries 

Source:  SI PR I  Yearbook  1994 

32 

Table 5: 

Critical  technologies 

Critical  technologies 

Dual-use 

NATO  allies 

V 

V 

V 

V 

V 

V 

V 

V 

V 

V 

V 

V 

V 

V 

V 

Semiconductor  materials and  microelectronic  circuits 

Software  producibility 

Parallel  computer  architectures 

Machine  intelligence and  robotics 

Simulation  and  modeling 

Photonics 

Sensitive  radars 

Passive  sensors 

Signal  processing 

Signature  control 

Weapon  sytem  environment 

Data  fusion 

Computational  fluid  dynamics 

Air-breathing  propulsion 

Pulsed  power 

Uypervelocity  projectiles 

High-energy  density  materials 

Composite  materials 

Superconductivity 

Biotechnology  materials  and  processes 

12 
13 
14 
15 
16 
17 
18 
19 
20 

Capability  to contribute  to the technology  : 

4 

3 

2 

Significantly  ahead  in some niches of  technology 

Capable  of making  major  contributions 

Capable  of making  some  contributions 

1  Unlikely  to make any  immediate  contribution 

SOURCE  : Adapted  from  Office  of  Technology  Assessment,  J990 

33 

Chart 1 

CHART  1: EU Major Weapon Procurement  Expenditure 

mio US$ 

1987 

1988 

1989 

1990 

1991  1992 

(  hail  I  is  based  on  I able  2 on  N A IO  and  IX ' major  weapon  procurement  expenditure,  19X3-92  period, and  on  fable  3 on 
I.(J  imports  and  exports  of  major  conventional  weapons,  19X4-93. 

Chart  2 

CHART 2: Exports of Major Conventional Weapons 

- • — W o r ld  Total 
H i—US 
- A—EU 

1984  1985  1986  1987  1988  1989  1990  1991  1992  1993 

Chart  2  is  based  on  fable  3 

Chart  2  bis 

CHART 2 BIS  : Europe's share of total arms exports 

Total deliveries 

40% 

Market  share 

30% 

100 

90 

80 

70 

60 

50 

40 

30 
Total deliveries (billion  US$ at  1985 rates) 
20 

10 

19»f> 

108/ 

1088 

1980 

1900 

1091 

VYY? 

1003 

Source  : (  onvetiormal  arms  transfers  to  the  Third  World  19X6-19963,  Kl  (irimmett.  Congressional  Reseaich  Service, 
Library  of  Congress.  Washington  D C.  I 994,  pp  87-XX 

34 

Chart  3 

CHART 3: Imports by  EU Member States of Major  Conventional 
Weapons, 1988-92 

D Total  imports 

•  US imports 

mio US$ 

B 

DK 

D  GR 

E 

F 

IRL 

I 

NL 

P  UK 

Chart  3 has  been  derived  from  the  figures  in  Table 4 

Chart  4 

CHART 4: EU Imports and Exports of Major Conventional  Weapons 

1984 

1985 

1986 

1987 

1988 

1989 

1990 

1991 

1992 

1993 

Chart  4 has been  derived  from  the  figures  in  Table 3 

35 

List of concentration  operations with Community dimension in the defence industry1 which have 
taken place since the "Merger" regulation took  effect2 

Reference 
N°of 
operation 

Companies 
involved 

Nationaly of 
companies 
involved 

Activities 
involved 

IV/M.17 

MBB/ Aerospatiale 

RFA/France 

Helicopters 

1V/M.86 

Thomson/Pilkington 

France/UK 

Optronics 

IV/M.272 

Matra/Cap Gemini  Sogeti 

France/France 

IV/M.318 

Thomson/Short 

France/UK 

Defence 
informatics 
Missiles 

IV/M.275 

Aerospatiale/SNPE 

France/France 

Missiles engines 

IV/M.527 

Thomson/Deutsche 
Aerospace 

France/Germany 

IV/M.528 

British  Aerospace/VSEL 

UK/UK 

IV/M.529 

GEC/VSEL 

UK/UK 

IV/M.571 

CGI "/Dassault 

France**/France 

IV/M.598 

Daimler Benz/Karl Zeiss 

FRG/FRG 

IV/M.620 

Thorn son/Teneo/Indra 

France/Spain 

Propulsion 
systems for 
missiles 
Military 
shipbuilding 

Military 
shipbuilding 
Defence 
informatics 
Optronics 

Defence 
electronics 

Subsidiary of d'IBM 

* 
**  US for the parent company  headquarters 

The status with 
regard  to 
"Merger" 
regulation 

approved on 
25.2.91 
approved on 
23.10.91 
approved on 
17.3.93 
approved on 
14.4.93 
not notified  under 
art. 223 
approved on 
2.12.94 

not achieved, not 
notified  under 
art. 223 
not notified  under 
art. 223 
approved on 
24.3.95 
approved on 
27.6.95 
approved on 
22.8.95 

1  Only  includes operations involving solely or principally  production of military material.  One can find the same number of 

operations partially concerning defence material. 

2 

Council regulation (EEC) n°4064/89 of 21 December  1989, on the control of concentrations between undertakings, came into  effect 
on 21 September  1990.  Only major  concentrations with Community dimension are covered by the regulation and these are  defined 
in terms of the turnover of the undertakings involved (see Art  1  of Regulation). 

36 

ISSN 0254-1475 

I» 

Catalogue number : CB-CO-96-029-EN-C 

ISBN 92-77-99759-1 

Office for Official Publications of the Enropeta Communities 

L-2985 Luxembourg 

3^