Opinion of the Economic and Social Committee on the 'Communication from the Commission to the Council, the European Parliament, the Economic and Social Committee and the Committee of the Regions - Implementing European Union strategy on defence-related industries'
Date: 1998-07-02
Institutions: European Economic and Social Committee
Subjects: EU policy, action programme, arms industry, defence policy, industrial restructuring

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Opinion of the Economic and Social Committee on the ‘Communication from the Commission
to the Council, the European Parliament, the Economic and Social Committee and the
Committee of the Regions — Implementing European Union strategy on defence-related
industries’

(98/C 284/18)

On 4 December 1997 the Commission decided to consult the Economic and Social Committee,
under Article 198 of the Treaty establishing the European Community, on the above-mentioned
communication.

The Section for Industry, Commerce, Crafts and Services, which was responsible for preparing
the Committee’s work on the subject, adopted its opinion on 3 June 1998. The rapporteur
was Mr Mobbs.

At its 356th plenary session (meeting of 2 July 1998), the Economic and Social Committee
adopted the following opinion by 68 votes to 20, with 17 abstentions.

1. Conclusions

There is an essential

the
1.1.
expression of a European political will for a Common
Foreign and Security Policy (CFSP) and for the recog-
nition of the European Defence Industry as a vital
component of such a policy.

requirement

for

1.2.
The harmonisation of Operational Requirements
is a cornerstone of future progress towards a European
Defence Equipment Market. In parallel, harmonisation
of acquisition procedures, regulations and standards for
defence equipment is required. The formation of a
European Armaments Agency to manage common
activities would obviously also have advantages.

1.3.
To sustain an effective operational capability,
European Armed Forces require high technology, cost
effective equipment at a price that nations can afford.
Europe should not become dependent on third countries
in the area of defence equipment, for political, technical
and economic reasons.
is therefore essential to
It
maintain a modern, efficient and competitive Defence
Industry in Europe as a vital component of its security
provisions.

1.4.
To sustain the European Defence Industries’
ability to support a future European CFSP, a European
Defence Equipment Market must be established. This
will be the foundation upon which the European Defence
Industries can embrace trans-national rationalisation to
sustain their global competitiveness.

1.5.
The operation of a European Defence Equipment
Market will require the acceptance of industrial/techno-
logical interdependence and security of supply between
nations.

1.6.
In the long term, the sustaining of the European
Defence Industrial Technological Base will require the
identification of the critical ‘leading edge’ technologies
necessary for this purpose. A centrally administered and
funded collaborative R and T process across Europe
will also be needed in support. The recently completed
first phase of a Western European Armaments Group
Science and Technology Study is an example of what
work needs to be undertaken.

1.7.
The Governments of the Member States must
take positive action now to state the political will for
Europe to develop a CFSP, to set objectives, and to
allow for the restructuring and rationalisation of the
European defence industry. If they are neither prepared
nor able to do so, then they must accept full responsibility
for the continuing decline of the industry and the
increasing reliance by Europe on alternative sources of
supply for defence equipment. There are welcomed signs
that a number of governments recognise the defence
industry problems and are starting to take positive
action to assist European industrial restructuring.

2. Background

Until recently, the defence-related industries have
2.1.
been an industrial sector with which the Community
has not been particularly involved. This has been due to
individual Member States viewing defence and national
security issues being a national responsibility of the
sovereign nations involved, having taken a fairly broad
interpretation of Article 223 of the Treaty.

In January 1996, the Commission produced its
2.2.
first comprehensive Communication on ‘the challenges

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facing the defence industry’ (1). The Committee adopted
an Opinion in March 1997 (2).

up and attention given to the opportunities offered by
the exploitation of dual-use technologies.

2.3. Whilst this current Opinion will not cover the
detailed matters dealt with in the original Commission
document, it is nevertheless worth recalling the Com-
mission’s primary concerns and those of the Committee.

2.4.
In September 1997, the Commission issued a
Communication concerning the ‘European aerospace
industry’ (3). In passing it is worth noting that, in Decem-
ber 1996, the Commission had also issued a Communi-
cation on ‘Space’ (4). The Committee adopted Opinions
on both these Communications in January 1998 (5).

2.3.1.
The end of the Cold War and the break up of
the Soviet bloc resulted in a progressive change in the
nature of the defence environment. The scenario from
which defence requirements are formulated changed
and Governments had to adapt to the resultant effects
both from an operational point of view and from the
point of view of the European defence industry.

2.5.
All of these Communications are timely since:
a) the companies concerned are often the same, b) the
technologies involved have much in common, and c) the
competitive market place problems are often similar
even if customer markets and conditions are different.

2.3.2.
The European defence-related industries are
also facing an economic and political context which
continues to change and which calls for responses going
level. Much restructuring has
beyond the national
already taken place, with a loss of jobs, on the initiative
of individual companies for commercial reasons because
of cuts in defence budgets and fierce international
competition. Above all, the fragmented nature of the
European defence equipment market is a major obstacle
to the implementation of a truly European strategy for
the Industry.

2.3.3.
A problem for Governments is to preserve a
balance between the political need for a strong and
technically competent and independent Industry, which
remains a keystone for the existence of a truly indepen-
dent European Common Foreign and Security Policy
(CFSP), and the need to take economic advantage of the
reduction of the military threat to make savings in
defence expenditure for the benefit of other high priority
social and environmental issues.

The Committee in its previous Opinion called
2.3.4.
for the Commission’s involvement to take account of
the industry’s links with security and defence policies,
the way in which R&D and production are organised
and the reliance on defence ministries for its markets.
In addition, in order to maintain jobs and technology
levels at a time when demand in the defence market is
falling, reconversion and diversification must be speeded

(1) Communication from the Commission — The challenges
facing the European defence-related industry, a contri-
bution for action at European level (COM(96) 10 final).

(2) ESC Opinion: OJ C 158, 26.5.1997, p. 32.

3. Current position

in

the

1996

before

January

3.1.
The Commission’s first Communication on
defence related industries (ibid. Footnote No 1) was
published
Inter-
Governmental Conference. Unfortunately the Treaty of
Amsterdam signed in July 1997 did not produce clear
decisions on CFSP issues. Therefore the European
defence industry, in general, remains compartmentalised
and fragmented with small business structures which
are unable to respond appropriately to the rationali-
zation and concentration processes required. Despite
industrial restructuring which is taking place, and which
is mainly national with little cross border management
involved, the industry has no single politically agreed
basis upon which to establish the total restructuring
which is necessary if the industry is to compete in the
global market place. All this is particularly relevant to
competition with the defence industry of the USA where
significant restructuring has taken place rapidly ‘with
the open and practical support of the Administration (6)’.

3.2.
Present commercial and business pressures, led
by the drop in demand for military products, are making

(3) Communication from the Commission to the Council, the
European Parliament, the Economic and Social Committee
and the Committee of the Regions — The European
aerospace industry: meeting the global challenge (COM(97)
466 final).

(4) Communication from the Commission to the Council and
the Parliament: the European Union and space: fostering
applications, markets and industrial competitiveness
(COM(96) 617 final).

(5) ESC Opinions of 28 January 1998: OJ C 95, 30.3.1998, p. 6

and 11.

(6) COM(97) 583 final, Point 1 (Context), 3rd paragraph.

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it vital for the competitive future of the European
defence industry for it to rationalise and restructure. At
present, this rationalisation and restructuring is being
undertaken in response to these commercial and business
pressures without necessarily account being taken of the
wider future strategic needs of the individual Member
States and the European Union as a whole.

3.3. Over the past 25 years, the European defence
industry has concentrated its collaborative ventures on
the basis of
individual project programmes where
nations have shared responsibilities for management,
costs, development and production. However this has
led to structures which have neither been commercially
efficient nor cost effective. For example, whilst the
announced intention to proceed with the production of
Eurofighter is welcomed, it should be recognised that
this project is being undertaken under the process of a
co-operative/consortium programme established in the
1980s long before the present concerns for the future
size and shape of the European defence industry were
seriously under consideration by the Member States and
the Commission. Future major European projects of this
kind will require central management on a commercial
basis and the ‘Airbus Military’ Consortium which is
proposed to build the European Future Large (Military)
Aircraft (FLA) is one example of the new industrial
organisations that will be needed.

3.4.
The call, in December 1997, by the leaders of
France, Germany and the UK for a restructuring of the
European aerospace and defence electronics industries
was the first political move towards a position that will
allow the European industries to begin implementing
the necessary restructuring. However,
it has to be
recognised that unless all of the individual Member
States fundamentally change their policies and agree on
a uniform CFSP and all that this implies, many of
the defence industries’ problems will remain and any
industrial initiatives will only stand a limited chance of
success. Time is short if the industry is to retain its
current competitiveness in the World Market for defence
equipment. As the Committee stated in its Opinion on
the European aerospace industry (ibid. footnote No 5,
p. 116) point 3.15 ‘a new impetus can only come
about if the Member States make a serious and joint
commitment, agreeing to shared economic objectives
and pooling their means for achieving them’.

3.5.
Since, aside from the Council and the Com-
mission (the EU), there are many organisations, existing
or proposed, who are concerned with the European

defence related-industries, the key ones are listed below
with a brief description of their role. Further details are
contained in Annex 2 (involvement) and Annex 3
(relationship).

3.5.1. NATO. No further description is considered
necessary in the context of this Opinion.

WEU (Western European Union). An organisation
dealing with defence and security matters. It was
established by the Paris Agreement, signed in October
1954, which modified the Brussels Treaty of 1948. The
WEU occupies a pivotal role between the EU and NATO
as the only organisation prepared to conduct military
operations in the humanitarian, peacekeeping and crisis
management fields.

WEAG (Western European Armaments Group). An
organisation whose function is to co-ordinate armament
co-operation activities within the WEU.

The objectives of WEAG are:

— the more efficient use of resources through, inter
alia, the increased harmonisation of operational
requirements;

— the opening up of national defence equipment

markets to cross border competition;

— he strengthening of the European defence technologi-

cal and industrial base;

— co-operation in Research and Development.

WEAO (the Western European Armaments Organi-
zation). WEAO, created in November 1996, is a new
subsidiary body of the WEU. It is the first European
armaments body to be created with an international
legal personality. It provides a legal framework for
such co-operative armaments activities as the WEAG
ministers assign to it.

OCCAR (Organisme Conjoint de Cooperation en ma-
tière d’Armement). Since the conditions to establish a
real EAA (European Armaments Agency) are not yet
achievable, the Governments of France, Germany, Italy
and the UK have decided to create OCCAR as a step
towards the formation of an EAA. Its primary objectives
are:

— the introduction of new optimised programme man-

agement procedures;

— the harmonisation of operational requirements;

— to increase efforts towards the improved competi-
tiveness of European industry and technology base
in the armaments sector;

— to strengthen industrial co-operation;

— to ensure in the short and medium term, the support

of the armed forces in all circumstances.

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EAA (European Armaments Agency). The Declaration
on Western European Union, annexed to the Treaty
of Amsterdam, provides for a European Armaments
Agency as a possible vehicle for future armaments
co-operation within the Western European Union.

— armaments policy is linked to Community policies,
in particular on industry, trade, customs, the regions,
competition, innovation and research;

— the Action Plan is to be used to develop a European

armaments policy;

4. The Commission Communication

— the position shall be reviewed after 18 months.

The Commission Communication of December
4.1.
1997 reiterates the concerns originally expressed in
the January 1996 Communication (ibid. footnote No 1,
p. 116) and observes that in areas such as employment
and trade imbalance with the USA, matters are getting
worse. The Commission considers that an integrated
European market for defence products must be set up
using all the instruments at its disposal, and proposes a
global approach to implement this strategy:

— a proposal for a Common Position on drawing up a
European armaments policy in a form suggested by
the Commission. Initially, this will specifically cover
intra-Community transfers (of defence-related prod-
ucts), public procurement and common customs
arrangements;

— an Action Plan for the defence-related industries.
The plan describes areas where immediate action is
seen as necessary and for which detailed proposals
will be developed by the Commission.

4.1.1.
The Commission sees these two actions as
complementary to each other and intends to proceed
with both in parallel.

4.2.
In regard to the Action Plan, the Commission
proposes that, without waiting for a new institutional
context to be established, action should be taken at
once to protect the defence sector’s technological and
industrial base. The Commission intends to develop
more detailed proposals for action in these areas and
calls upon the European defence-related industries and
other parties concerned to cooperate in the implemen-
tation of the Action Plan.

4.3.
The Commission Communication includes as
Annex I a ‘Draft Common Position on Framing a
European Armaments Policy (adopted on the basis of
Article J.2 of the Treaty on European Union)’.

4.3.1.
mon Position are that:

Some of the key points of the proposed Com-

— account shall be taken of the specific features of the

armaments sector;

— development of an effective European armaments
policy entails using existing Community and CFSP
instruments;

4.3.2.
Included in the Appendix to Annex I is the
‘definition of specific characteristics of the defence-
related sector’, drafted by the working party on European
armaments policy (POLARM) and approved by the
Coreper on 10 December 1996.

4.3.3.
Appendix are:

Some of the key points contained in this

— The specific characteristics of the armaments sector,
which have been acknowledged since the foundation
of the Community, are taken into account by the
provisions of Article 223 of the Treaty of Rome.

— 90 % of production of EU defence equipment is
concentrated in some Member States: France, UK,
Germany, Italy and Sweden.

— Since governments are the only customers, and in
some cases a major owner of defence industries, the
market differs from most sectors of the economy.

— Production and trade of armaments are subject to

governmental authorisation.

— Quality-price relationship is not the sole criterion
which determines procurement policy. Offset (com-
pensation), including industrial co-operation agree-
ments, as well as strategic political, economic and
security considerations can also be a factor.

The main objectives of the Action Plan are to

4.4.
establish the necessary conditions to:

— strengthen the competitiveness of the European

defence industry;

— preserve the Defence Technology and Industrial

Base;

— favour the integration of European defence tech-
nology and industrial base in the general economy
to avoid duplication of efforts between the civil and
the military areas;

— create the necessary preconditions for a European

Security and Defence Identity.

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4.4.1.
needed in the following areas;

The Commission Action Plan details actions

1. Simplification of Intra-Community transfers.

2. European Company Statute.

3. Public Procurement.

4. RTD.

5. Standardisation.

6. Customs duties.

7. Innovation, transfer of technology and SMEs.

8. Competition policy.

9. Exports.

10. Structural funds.

11. Taxation.

12. Principles for market access.

13. Benchmarking.

14. Enlargement.

4.4.2.
Finally the Communication includes a detailed
target time table for the proposed Action Plan starting
in the first half of 1998 and continuing until 2000.

5. General Comments

5.1.
The Committee is pleased to have the opportunity
to comment on this Commission Communication as a
natural follow-on to the previous Commission Com-
munications (the ‘Challenges facing the European
Defence-Related Industries’ (ibid. footnote No 1, p. 116)
and also ‘The European Aerospace Industry — Meeting
the Global Challenge’ (ibid. footnote No 3, p. 116).

5.2.
The Committee generally welcomes the Action
Plan. The Committee notes that the Commission con-
siders the proposed Draft Common Position and the
proposed Action Plan as independent one of the other,
even though they are contained in one Communication.
The Committee, whilst noting the Commission inten-
tions, does not feel that the connection between the
Draft Common Position and the Action Plan is suf-
ficiently clear within the overall Communication and
wishes to see more evidence of this relationship. The
Committee considers that the lack of political will and
commitments to convergence, restricts the Commission’s
room for manoeuvre, even though the Commission
considers that the measures contained in the proposed
Action Plan should proceed on their own.

5.2.1.
In the meantime, the Committee is concerned
that much of what is proposed by the Commission still
requires major decisions and positive actions by Member
States. To date, all indications are that such decisions
and actions by Member States are ‘noticeable by their
absence’. Unless, and until, the Heads of Government
of Member States actually take the decisions required
regarding defence and security, little progress will be
made. Even the December 1997 announcement by the
Heads of Government of France, Germany and the UK
(see point 3.4 above), whilst welcomed, was, at best,
only the first sign of active realism by the three countries.

5.3.
The magnitude of the problems to be resolved at
Government level can be demonstrated. Some Govern-
ments/Companies would favour the formation of a
European civil/military conglomerate which would be
seen as domestic enough in each country to win arms
orders from Governments, whilst others would favour
a more multisectoral approach. However there are
Governments who are unwilling for individual national
political reasons, to buy from foreign companies or to
harmonise their procurement. In addition, the different
legal status of defence companies in Europe may make
it difficult to create merged companies which will be
attractive to private shareholders.

5.3.1.
A number of European companies currently
have substantial business interests (for example subsidi-
aries) in the USA. Therefore there may be circumstances
in which these companies may not share enthusiasm for
future large scale European rationalisation since this
might hamper future prospects for trade with the USA.

5.4.
A key element for progress will be an agreement
on a CFSP and a common defence policy. Without this,
any proposals by the Commission risk being introduced
in a random manner without full regard to the specific
characteristics of the defence industry referred to in the
Appendix to the Draft Common Position.

5.4.1.
The Committee realises that some Member
States may feel obliged to keep some aspects of defence
to themselves. However, the survival of Europe’s inde-
pendent defence industrial base will not be possible
without some major changes such as:

— policies are adopted that recognise that the defence

market is global;

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— actions are taken to achieve economies of scale;

— reduce the number of national champions in line

with market requirements;

— and the ‘juste retour’ concept is suitably replaced.

problems facing the European defence industry —
fragmentation of the European defence equipment mar-
ket, falling European demand, increasingly fierce compe-
tition for export orders, and increasing job losses.
However, without the European Commission being
given genuine authority by Member States to advance
matters, the Commission may well be totally frustrated
in its efforts.

5.5.
The Committee supports the Commission’s aim
to correct the currently fragmented nature of the defence
market in Europe. Many Member States still retain an
ability to be self reliant, but this is unlikely to be
affordable in the long term. Closer working together
and the creation of a European defence equipment
market will however be totally influenced by what ever
political and institutional framework is agreed by the
Governments of the Member States. A real European
defence equipment market will comprise a European
body responsible for the harmonisation of the oper-
ational requirements of the different countries, for
defining and agreeing harmonised procurement and
acquisition rules, for establishing procedures within a
structural framework to ensure competition and the
achievement of an effective economic return but avoiding
unnecessary duplication of capability. Such a body will
require the Governments of the Member States to agree
on common economic and military goals. An effective
Western European Armaments Group (WEAG) could
fulfil these tasks.

5.6.
A European defence equipment market will
enable the European defence industry to maintain the
technology standards necessary to compete in the world
market place and, more importantly, to supply the
Armed Forces of the Member States with the high
technology, cost effective equipment they need to carry
out their tasks. Without this capability, Europe may
well become dependent on third countries for the supply
of defence equipment with restrictions on freedom
of political manoeuvre that this could bring. The
maintenance of a modern, efficient and competitive
European defence industry therefore becomes a vital
component of the security of the European Union.

5.8.
Restructuring within defence-related industries
will produce a fewer number of bigger holding (Euro-
pean) companies which at an operational level will
result in a concentration on project management, system
integration and assembly.

The nature of subcontracting is changing with
5.8.1.
an increase in the amount of specialisation and ‘risk
sharing’ (partnering). This is likely to continue, albeit
‘industrial risk sharing’ is likely to involve only the
major first tier subcontractors. However, there will
inevitably be ‘economic effects’ which flow down the
supply chain and include SMEs.

5.8.2. Whilst recognising that change is inevitable,
the Committee is concerned that this shall not be to the
overall detriment of those involved, especially SMEs.
The Committee recommends there should be Com-
mission initiatives into the possible effects on innovation,
job security, regional development, planning, financing,
etc.

5.8.3.
‘As said earlier (point 2.3.2), a large number of
jobs have already been lost due to industrial restructur-
ing. The human resources aspect of the run-down of the
European defence-related industry demands particular
attention towards alternative job creation opportunities
and skill (re)training in order to maintain a high level of
technological expertise. This should be investigated by
the Commission.’

5.7.
An examination of the two relevant Commission
Communications of January 1996 and November 1997
shows how little real progress has been made towards
constructively addressing the issues originally raised at
the beginning of 1996. With the passing of time, a
number of the problems identified have become worse.
Although the Committee has a number of reservations
about the Commission’s proposals, many of the pro-
posals offer constructive suggestions for tackling the

5.9.
All major international defence equipment pro-
ducing countries endeavour to export their products. A
number of European States do so with a fair degree of
success and in the process secure a considerable number
of jobs and defray the development and procurement
costs of new equipment for their own use. The Com-
mittee considers that a common commercial policy, in
line with the eight criteria approved by the Council in
1991 in Luxembourg and subsequently confirmed in
1992 in Lisbon, might enhance Europe’s exports.

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6. Specific Comments

6.1.
The Committee notes the Commission’s 14 areas
for specific actions and the Commission view that they
can proceed without waiting for agreement on the Draft
Common Position (see earlier points 4.1.1 and 5.2.1).
Since several of the line items are also relevant to
business areas outside the defencerelated industries, the
Committee welcomes many of the proposed actions.
For the purposes of this Opinion, the Committee
comments only on those items of the Action Plan where
the Committee is concerned about the Commission
proposals in regard to the defence-related industries.

6.2. Plan item V.2. ‘European Company Statute’

Agreement on this subject may well facilitate aspects of
the restructuring of the defence industry and this has
been endorsed strongly by the Committee in the past.

6.3. Plan item V.3. ‘Public Procurement’

Security of supply is a key aspect of this topic. The
application of three categories does not seem a practical
and realistic approach. The Committee recommends a
joint review by the Commission and WEAG.

6.3.1.
Initially, at least, all actions to open up the
market within Europe should be legally defined in order
to avoid their interpretation by countries and industries
outside the EU as a means of opening up the European
market to outside suppliers. Action which opens up the
European market
to ‘global’ competition must be
controlled to ensure the existence of a truly level playing
field in the world market (reciprocity).

6.3.2.
A number of Member States have not yet fully
implemented existing Public Procurement Directives.
Therefore it may well be unwise to move too far and/or
too fast with their complete application into the very
specific area of the defence equipment market. A
cautious approach may be more successful especially
bearing in mind the need to ensure security of supply.

6.4. Plan V.4. ‘Research and Technological Develop-

ment (RTD)’

arbitrary split between ‘defence’ and ‘civil’ procedures
and funding is wasteful and inefficient, particularly in
view of the increasing impact of the so-called ‘dual use’
technologies.

6.4.1.
Although the funding mechanisms for ‘defence’
and ‘civil’ are not the same, ‘defence RTD’ including an
element for product development, Europe cannot afford
to continue its current funding processes. Whilst it is
probable that some dedicated funding for ‘defence
development’ will need to be retained at national
level, more effort is needed to co-ordinate European
expenditure in this area to ensure the best possible value
is obtained and duplication between European and
national research programmes is reduced to the absolute
minimum.

6.4.2.
It is probable that the amount of money
available for research will define what military equip-
ment can be developed in the future. The European
Commission and the WEAG should jointly examine
new arrangements for the co-ordination of civil and
defence research activities to ensure the minimum
of duplication between these two organisations and
maximum return on investment for the Member States.

6.5. Plan V.5. ‘Standardisation’

The Committee agrees with the Commission’s intentions
to rationalise standards wherever possible in the interests
of economy, be this between European Defence Minis-
tries, civil and military applications or Europe and
the USA. However, when the Committee looked into
standards problems (1), it was found that many problems
existed in the ‘commercial field’ and that legislation,
implementation and enforcement throughout the Union
fell well short of expectations. Thus action and results
here, however well intended, are likely to be delayed
before material benefits are achieved. The recently
initiated Commission Study of the present standards
situation in the European Union and the USA will,
hopefully, clarify the current confused picture and be a
move towards a more co-ordinated approach to stan-
dards in both the EU and the USA.

The Committee notes that there is no reference
6.5.1.
to the countries of eastern Europe and the former Soviet
Union. In view of the European Union’s interest in these
countries, further study will be needed on the probable
impact on their industries of the introduction of indus-
trial standards of Western origin.

There is a major weakness in the approach to Research
and Technology Development in Europe. The current

(1) ESC Opinion on Technical Standards and Mutual Recog-

nition: OJ C 212, 22.7.1996.

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6.6. Plan V.7. ‘Innovation, transfer of technology and

SMEs’

6.6.1.
Support for SMEs should be made available
from a wider market than just defence. ‘Offset, juste
retour or a suitable alternative (economic return)’ could
be made available from market areas other than defence.

6.6.2. Measures to promote SMEs should reflect the
importance of the sub-contracting sector, which largely
involves small businesses and craft undertakings.

These must,
in order to adjust to defence-market
developments and ‘dual-use’ activities, face up to the
rapid obsolescence of equipment and invest in quality,
training and communication.

6.6.3.
As a complement to market-access measures,
the Committee would, in this context, ask the Com-
mission to take action on three fronts:

— to foster investment via rapidly accessible financing
systems, without being confined to the objective
areas of the regional funds;

— to strengthen and adapt technological training and

facilitate know-how transmission;

— to promote access to technology advisers whose
remit would cover not only technology but also
quality, funding and training.

6.7. Plan V.8. ‘Competition policy’

This matter must be considered alongside ‘public pro-
curement’. In view of the lack of much open/free
competition in Europe for defence products, competition
in the defence market will only evolve slowly over the
years. Competition Policy may have to recognise and
accept the reality of a ‘European champion(s)’ in some
groupings (aircraft, engines and equipment, for example)
as a pre-requisite for successful world market competi-
tiveness.

6.8. Plan V.9. ‘Exports’

but has been awaiting the outcome of the initiative
under the UK Presidency regarding a ‘ European Code
of Conduct’. The Committee is pleased that the Council
formally adopted that Code (8/9 June 1998) on arms
exports and hopes that Member States will enforce it
rigorously. The Committee welcomes the statement
that Member States will use their best endeavours to
encourage other arms exporting States to subscribe to
the principles of the code.

6.8.3.
As the collaborative development of defence
equipment becomes increasingly the usual way of doing
such work, the question of the export of defence
equipment developed in this manner to countries outside
the EU has to be resolved. A proposal that the rules of
the nation of the prime contractor and, thus, the ‘final
exporting nation’ should be the datum, is one that must
be carefully considered. The more stringent export
controls which are applied by some Member States must
not be jeopardised within the framework of the code of
conduct.

6.8.4.
The obtaining of some major arms export
orders is often subject to political pressure on client
countries by government authorities
in supplier
countries. This may even involve direct intervention by
Heads of State.

The Council and the Commission should recognise that
the promotion of exports is a common interest and
could benefit from their support.

6.8.5.
in the continuing general debate on all these issues.

The Committee looks forward to participating

6.9. Plan V.12. ‘Market Access’

Reciprocity for market access needs greater emphasis.
It is a key part of the opening up of the public
procurement process (para 6.3) in order to avoid any
uneven playing fields whereby Europe’s defence market
offers opportunities to third countries which are not
available to European Industry. Reciprocity in this case
should include investment opportunities for European
companies, the removal of barriers which limit percent-
age of foreign ownership, outright foreign ownership,
or security restrictions.

6.8.1.
Dual use. The outcome of the Commission
review on the operation of current rules and regulations
to see how their operation may be simplified without
the need for new legislation is awaited with interest.

6.8.2.
Conventional armaments. The Committee is
aware that the Commission is ready to issue a White
Paper on this aspect of defence equipment export policy

6.10. Plan V.13. ‘Benchmarking’

The Committee has undertaken work on ‘Bench-
marking’ in other contexts and issued Opinions contain-
ing comment. Nevertheless the Committee considers
that the Commission needs to be clearer in the context
of the defence industry and specify exactly what is
expected.

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6.11. Plan V.14. ‘Enlargement’

6.12. The Euro

Enlargement may offer opportunities as well as
problems. The Commission Action Plan must recog-
nise that defence and civil markets can well have
differing implications and that general economic
in political
factors can play an important part
decisions.

The Commission Action Plan does not refer to the Euro
(since adopted May 1998). The Committee recommends
that the Commission studies a) possible effects which
the Euro may have on the activities of the defence-related
industries, and b) the possible use of the Euro as an
international alternative to the US dollar.

Brussels, 2 July 1998.

The President

of the Economic and Social Committee

Tom JENKINS

APPENDIX I

to the opinion of the Economic and Social Committee

1.
At the end of March 1998, the four Airbus Industries (AI) partners (Aerospatiale of France, British
Aerospace of the UK, CASA of Spain and Daimler Benz of Germany) presented their reply to the Heads
of State Declaration of December 1997 regarding the restructuring of the European aerospace and
defence electronics industry.

1.1.
In their report, the AI partners share with the Governments the strategic interest in building a
strong European aerospace and defence industry. The report reflects the wide measure of agreement, in
principle, between the partners on the formation of a single unified European Aerospace and Defence
Company (EADC). But equally it recognises that significant work still has to be done, particularly in the
area of ownership. Therefore no timetable is set and the partner studies will continue.

The report also recognises the importance of other European aerospace and defence companies

1.2.
in the restructuring process, in particular those of Italy and Sweden.

1.3.
Recent events confirm that the European Defence Industry is expected to be primarily responsible
for its own industrial restructuring. However it is evident that the Governments of the Member States
play a key role in the development of any defence equipment market and for determining the requirements
of European defence. They must accept responsibility for this as there is a limit to what Industry can
and should do on its own.

2.
The statement on 20th April 1998 by the Defence Ministers of France, Germany, the UK, Italy and
Spain reaffirming their will to accelerate consolidation of the European defence industry and their
intention to approve a letter of intent in June on means of lifting ‘certain obstacles to industrial
restructuring’ is further proof of an increasing desire by some governments to make progress.

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APPENDIX II

to the opinion of the Economic and Social Committee

Membership of Organisations referred to in point 2.6

COUNTRY

Austria
Belgium
Canada
Denmark
Finland
France
Germany
Greece
Iceland

Ireland
Italy
Luxembourg
Netherlands
Norway

Portugal
Spain
Sweden
Turkey

UK
USA

EU

Yes
Yes

Yes
Yes
Yes
Yes
Yes

Yes
Yes
Yes
Yes

Yes
Yes
Yes

Yes

NATO

WEU

WEAG

Yes
Yes
Yes

Yes (Note 1)
Yes
Yes
Yes

Yes
Yes
Yes
Yes

Yes
Yes

Yes

Yes
Yes

Observer
Member

Observer
Observer
Member
Member
Member
Associate
Member
Observer
Member
Member
Member
Associate
Member
Member
Member
Observer
Associate
Member
Member

Participant

Participant

Participant
Participant
Participant

Participant
Participant
Participant
Participant

Participant
Participant

Participant

Participant

Notes: 1. France withdrew from the integrated military structures of NATO in 1966. Otherwise it is a full member

of NATO.

2. Under heading for WEU, Bulgaria, Czech Republic, Estonia, Hungary, Latvia, Lithuania, Poland, Romania,

Slovak Republic and Slovenia are Associate Partners.

3. This is not an official document. It has been prepared to augment information in point 3.6.

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APPENDIX III
to the opinion of the Economic and Social Committee

Outline organisation chart to show the inter-relationships between the various organisations mentioned
in the opinion of the Economic and Social Committee

(NB: This diagram is not an official document. It has been prepared by the rapporteur as an aide-memoire)