Opinion of the European Economic and Social Committee on the Green Paper — Defence procurement (COM(2004) 608 final)
Date: 2005-02-09
Institutions: European Economic and Social Committee
Subjects: EU law, European Defence Agency, arms industry, award of contract, common security and defence policy, dual-use good, public contract

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Official Journal of the European Union

8.9.2005

Opinion of the European Economic and Social Committee on the Green Paper — Defence procure-
ment

(COM(2004) 608 final)

(2005/C 221/12)

On 23 September 2004 the Commission decided to consult the European Economic and Social Committee,
under Article 262 of the Treaty establishing the European Community, on the Green paper — Defence
procurement.

The European Economic and Social Committee instructed its Section for the Single Market, Production and
Consumption to prepare its work on this subject.

In view of the urgent nature of the work, the EESC appointed Mr Wilkinson as rapporteur-general at its
414th plenary session (meeting of 9 February 2005). At this same meeting the EESC adopted the following
opinion, by 96 votes with 9 abstentions:

1. Introduction

The Green Paper on Defence Procurement (COM(2004)
1.1
608 final) is one of the measures foreseen in the Communica-
tion ‘Towards a European Union defence equipment policy’
which was adopted in March 2003, and on which the
Committee commented in September 2003 (1).

(EDEM)’,

‘European Defence Equipment Market

1.2
is in
reality only a part of the internal market covering a specific
sector. The Green Paper seeks to contribute towards the crea-
tion over time of an internal market for EU defence equipment
that is more open and transparent, while respecting the specific
nature of the sector. This should lead to a stronger and more
competitive defence industry, increased cost effectiveness and
support for the development of the military capabilities of the
EU in the European Security and Defence Policy (ESDP) field,
within the context of the Common Security and Foreign Policy
(CSFP).

On 12 July 2004 the Council agreed the establishment
1.3
of the European Defence Agency (EDA) which is designed ‘to
support the Member States (MS)
in their effort to improve
European defence capabilities in the field of crisis management
and to sustain ESDP as it stands now and develops in the
future’. This Agency has now started work. The EDA's func-
tions (2) all relate to improving Europe's defence performance
by promoting coherence in place of the current fragmentation.

(1) OJEC C10/1 of 14.1.2004
(2) EDA has four agreed functions; defence capabilities development,
armaments cooperation, the European defence technological and
industrial base and defence equipment market and research and
technology.

1.4
‘Defence performance’ involves ensuring the availability
of the capabilities needed to match the tasks envisaged, and the
doctrine to undertake these tasks, in a cost effective way. This
will
include ensuring the maximum possible interoperability.
At present the 25 MS together spend about €160 billion each
year on defence, with about 20 % of this used in the equipment
procurement process (including research and development,
acquisition and support) (3).

2. General comments

The matters covered in this Green Paper relate to the
2.1
way in which improvements may be made to the system of
defence equipment procurement in the 25 Member States (MS).
Significant progress will only be possible when the other
elements of ‘defence performance’ (see paragraph 1.4 above)
are clear (4). Of particular concern to industry is the need for
very clear guidance, harmonised requirements and continuity.
Nonetheless the initiative is welcomed by the Committee as it
can be treated as a discrete part of the process of starting to
establish a more viable ESDP in a transparent and competitive
market.

The leading role foreseen by the EDA is welcomed.
2.2
There will be a need for clear agreement on the respective roles
of EDA and others at present involved in the defence equip-
ment field (5) and EESC would expect a reduction in their sepa-
rate roles as progress allows. However, the lessons learnt from
the experience of OCCAR (6)
(which handles actual project
management,
law)
should be studied before changes are made.

including the key question of contract

(3) As we commented in our opinion on COM(2003) 113 final, this
combined EU spending is about 40 % that of the US, yet only
produces about 10 % of the operational capabilities.

(4) For example, the Committee notes the recent (September 2004)
statement by the head of the EDA that EU forces are not well
adapted to the modern world and its conflicts and threats; he spoke
of the need to acquire more high technology equipment.

(5) Such as OCCAR, Western European Armemnets group (WEAG) and

Letter of Intent (LoI) countries.

(6) OCCAR is a joint organisation for armaments cooperation to which

5 MS currently belong.

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2.3 We welcome the recognition that the starting points
(and the procedures used) for each MS in the defence procure-
ment process are very different and that changes are likely to
be made at different speeds. We agree that it will be helpful to
establish a more common basis for defence procurement and
that this can be done relatively quickly given the agreement
and the cooperation of all MS.

3.2 Article 296

3.2.1
EESC agrees that exemptions to the EU rules on public
procurement granted by virtue of Article 296 of the EU Treaty
will continue to be needed to allow MS to derogate on the
grounds of protecting their essential security interests.

2.4
EESC agrees that there is a need to reduce fragmentation
of the defence equipment market and to increase its competi-
tiveness and transparency as prerequisites for maintaining and
strengthening a viable EU defence industry and for contributing
to more cost effectiveness in procuring and managing appro-
priate defence capabilities.

The Commission should give an indication of

3.2.2
the
value of the equipments for which this derogation has been
used over a period of, 5 years (and show it as a percentage of
the total amount spent on defence equipment in the EU). They
would then have a benchmark to help in measuring progress.

2.5
The analysis of the specific features of defence equip-
ment markets given in paragraph 2 of the Green Paper is a
good basis for consideration of the market and indicates some
of the difficulties faced.

2.6
However, EESC would stress that any restructuring of
defence industries must primarily be a matter for the industries
concerned, taking account of market realities (7). A good reason
for this is that most significant companies are trans national,
even though their customers are national. Moreover, MS have
different industrial strategies, of which the defence industries
are only a part.

Industry (in the defence sector as elsewhere) has to
2.7
avoid too many regulatory procedures if it is to function effi-
ciently and to provide cost effective and economical results.

3. Specific comments

It

is necessary to clarify exactly what parts of

3.1
the
defence equipment procurement process are expected to be
covered by the rules agreed. As well as the acquisition of such
equipment there will be research and development, mainte-
nance, repair, modification and training aspects, which are
included in the cost of
these are
‘ownership’,
normally far more costly over time than the acquisition.

to consider;

3.2.3
The problem is that the use of such derogation has,
for some MS, become almost the rule rather than the exception
and this is clearly not compatible with the single market. EESC
supports the Commission's view that this should change. The
challenge will be to use Article 296 in conformity with deci-
sions in past cases (8) while retaining its possibility as a deroga-
tion from standard rules for public procurement. MS must be
prepared to justify (legally if need be) derogations that they do
make. The benefits of greater competition and greater transpar-
ency should be stressed in the discussion.

3.2.4
The list of products produced in 1958 under Article
296.2 which suggests the scope of Article 296.1 is not
working and is likely to remain of no real value as a useful way
of ensuring the proper use of the security derogation. Each case
must continue to be treated on its merits since even basic
equipment (9) will fall within the scope for derogations in some
cases. Further, lists are not likely to keep pace with new devel-
opments.

3.2.5
There is thus no easy solution to defining which
equipments and which services related to them could be
covered under Article 296. As a first step there is a need to
clarify the EU's existing legal framework through an ‘interpreta-
tive communication’ to improve understanding and to facilitate
better and more consistent application.

3.2.6
As well as procurement any such communication will
have implications for several other aspects; State aid and
(possibly) services of general interest are among these and need
to be taken into consideration.

(7) However, because of the specific nature of defence markets and
because of the need to manage payments as part of national finan-
cial arrangements, MS will inevitably play a role in facilitating the
development of defence equipment.

(8) The decisions in the ‘Bremen case’ (1999/763/63(OJ L 301/8 of 24
November 1999) and the ‘Koninklijke Schelde Groep’ (OJ L 14/56
of 21 January 2003) are examples of the current lack of clarity.
(9) We should note that even apparently simple equipment such as

clothing can involve advanced technology.

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3.2.7 We believe that the ‘negociated procedure’ with prior
notification should be suitable for the specific needs of defence
equipment where the ‘open’ and the ‘restricted’ methods are
not suitable. However, this view may need to be reconsidered
after experience has been gained of working with the ‘interpre-
tative communication’.

3.4.2
Also the efforts put into RTD for such equipment has
a value to other (civil) purposes. It is therefore important that
resources put into defence RTD is not subject to a regime that
is too inflexible.

3.2.8
There is a view that a communication can only be an
interim measure until a specific directive (or other specific legal
instrument) has been drawn up. EESC's view is that after such
an ‘interpretative communication’ has been produced and
agreed the need for a legislative instrument can be considered
in the light of its effect. We would welcome early action to
produce the communication.

3.2.9
There is a further possibility, not mentioned in the
Green Paper, of establishing a ‘code of conduct’ to be used by
participating MS as another means of establishing an EDEM.
Since the area is one within the responsibility of MS this could
be considered, presumably using EDA as a facilitator. It might
be difficult to monitor and enforce such a code and the Internal
market aspects would still need to be included.

3.3 Publication of calls for tender

3.3.1
The need to consider further the system and format
for calls for tender is not convincing. If defence equipment is
to be treated as just another part of the internal market in prin-
ciple (although it has greater possibilities for derogations) it
will presumably be dealt with in the same way as other tenders.
This will entail different
such as
language, that are found elsewhere. The grounds for a centra-
lised publication system are weak.

systems and problems,

3.3.2
The potential problem areas are confidentiality and
offset, which are more likely to arise for defence equipment
than for other equipments and services, and security of supply,
where it will be hard to change suppliers or contractors once a
contract has been let. These are all areas where the MS
concerned should be responsible, although some general
guidance from the Commission may be helpful.

3.4 Dual use

It

is often difficult

3.4.1
in today's industry to classify
companies as being ‘defence equipment manufacturers’. Much
equipment is now ‘dual use’ and the percentage is increasing.
This is welcome from several points of view;
for example,
economies of scale can lead to more competitive pricing and
security of supply can be easier to guarantee.

3.4.3 We remain concerned that there is much to be done
to maximise the value of the coordination and focus that are
needed in the defence equipment area, as we pointed out in
our earlier paper on defence equipment (10).

3.5 European Defence Agency (EDA)

3.5.1 We welcome the establishment of the EDA and recog-
nise that it can play a leading role in the field of defence equip-
ment. We note that it is still building up the resources required
to fulfil its agreed roles.

take NATO's

It will be important

for EDA to ensure that EU
3.5.2
doctrine and capabilities
role, doctrine and
capabilities fully into account by maximising interoperability
and by minimising any differences. It is not yet clear how EDA
could add value by becoming directly involved in procurement
but its expertise in the field of defence equipment should leave
it in a good position to suggest how national rules can be
better harmonised.

It will also be valuable in getting agreement to the
3.5.3
financial aspects of equipment cooperation where necessary. A
significant area of potential difficulty is sharing the costs and
benefits of RTD in defence related areas and in separating the
defence and the general aspects in so doing.

EDA should also be helpful

3.5.4
in moving towards the
licencing systems when defence
approximation of national
equipments are transferred between Member States. At present
the national procedures are both varied and burdensome. It
could also help in getting agreement to the way in which offset
arrangements are handled since these will remain a feature of
procurement in the future.

EDA may find it possible to get some agreement on
3.5.5
national
is
industrial policies as far as defence equipment
concerned and to define the elements that constitute ‘strategic
equipment’ whose provision the EU would wish to be capable
of providing to reduce dependence on third countries; this
would be most valuable.

(10) See paragraph 5 of the opinion refered to at footnote 1.

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3.5.6
EDA may also be able to encourage MS to consider
such innovative methods of acquisition as pooling, leasing and
specialisation to meet capability needs.

3.5.7
Since ESDP will only become effective if the MS show
the necessary strong political will to provide and to maintain
the necessary capabilities to meet agreed EU tasks, EDA should
also play a role in encouraging MS to do this.

4. Conclusions

4.1
Defence equipment is only one requirement for a viable
‘defence performance’. For industry to play its part fully it will
need clear guidance, harmonised requirements and continuity.
It must also have primary responsibility for necessary restruc-
turing. Industry also needs to avoid over burdensome regula-
tory procedures.

It must be made very clear what parts of the defence
4.2
equipment procurement process will be covered by the rules
agreed.

4.3
Article 296 of the Treaty will continue to be required.
To ensure that progress in avoiding its too frequent use the
Commission needs to establish a benchmark though examining
current performance. It is not practicable to maintain any list

Brussels, 9 February 2005.

of equipments and procedures to which Article 296 can be
applied.

As a first step the Commission should produce as soon
4.4
as possible an ‘interpretative communication’ on Article 296.
Only after experience has been gained with this communica-
tion will it be possible to decide whether a legal instrument is
also required.

4.5
‘Dual use’ equipment is increasingly common and this
trend is welcome, not least because of the potential for civil use
of RTD which applies to military equipment.

The important role foreseen for the European Defence
4.6
Agency (EDA) is welcome; it will need to be clear what part all
the agencies now involved are to play.

4.7

Among the important roles for EDA in this area are:

— Ensuring coordination with NATO requirements

— Helping to negotiate all the necessary financial aspects

— Helping to harmonise existing national procedures

— Suggesting innovative ways of providing necessary capabil-

ities

— Encouraging the maintenance of the necessary political will.

The President

of the European Economic and Social Committee

Anne-Marie SIGMUND