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# 52013DC0542

**COMMUNICATION FROM THE COMMISSION TO THE EUROPEAN PARLIAMENT, THE COUNCIL, THE EUROPEAN ECONOMIC AND SOCIAL COMMITTEE AND THE COMMITTEE OF THE REGIONS Towards a more competitive and efficient defence and security sector /\* COM/2013/0542 final \*/**

  

COMMUNICATION FROM THE COMMISSION TO
THE EUROPEAN PARLIAMENT, THE COUNCIL, THE EUROPEAN ECONOMIC AND SOCIAL
COMMITTEE AND THE COMMITTEE OF THE REGIONS

Towards a more competitive and efficient
defence and security sector

"The
world needs a Europe that is capable of deploying military missions to help
stabilise the situation in crisis areas…. We need to reinforce our Common
Foreign and Security Policy and a common approach to defence matters because
together we have the power, and the scale to shape the world into a fairer,
rules based and human rights' abiding place."

President Barroso, State of the Union Speech September
2012

"The
Council reiterates its call to retain and further develop military capabilities
for sustaining and enhancing the CSDP. They underpin the EU's ability to act as
a security provider, in the context of a wider comprehensive approach (and)
the need for a strong and less fragmented European defence industry to
sustain and enhance Europe's military capabilities and the EU's autonomous
action".

Foreign Affairs Council, 19 November 2012, Conclusions

1.           European Commission's
contribution to strengthening Europe's defence and security sector

This Communication builds on the work of
the Commission's Defence Task Force established in 2011 with the objective to
strengthen the defence sector by mobilising all relevant EU policies. The EEAS
and EDA have been fully associated to the work of the Task Force and in the
preparation of this Communication.

1.1.        Introduction

The strategic and geopolitical environment
is rapidly and constantly evolving. The world’s balance of power is shifting as
new centres of gravity are emerging and the US is rebalancing its strategic
focus towards Asia. In this situation, Europe has to assume greater
responsibilities for its security at home and abroad. To punch its weight, the
EU needs to develop a credible CSDP. This evolution must be fully compatible
with NATO and its principles.

The security challenges we are facing today
are numerous, complex, interrelated and difficult to foresee: regional crises
can occur and turn violent, new technologies can emerge and bring new vulnerabilities
and threats, environmental changes and scarcity of natural resources can provoke
political and military conflicts. At the same time, many threats and risks
spread easily across national borders, blurring the traditional dividing line
between internal and external security.

These security challenges can only be
tackled in a comprehensive approach combining different policies and instruments,
short and long-term measures. This approach must be underpinned by a large
range of civil and military capabilities. It is increasingly unlikely that
Member States can bear this burden in isolation.

This is the case in particular for defence,
where new equipment is often technologically complex and expensive. Today,
Member States encounter difficulties to equip their armed forces adequately.
Recent operations in Libya have highlighted important European shortfalls in
key military capabilities.

The crisis in public spending induces cuts
in defence budgets which exacerbates the situation, in particular, because they
are neither co-ordinated nor implemented with regard to common strategic
objectives. From 2001 to 2010 EU defence spending declined from €251 billion to
€194 billion. These budget cuts are also having a serious impact on the
industries that develop equipment for our armed forces with cutbacks in
existing and planned programmes. They affect in particular the investment in
defence R&D that is crucial for developing capabilities of the future.
Between 2005 and 2010 there was a 14% decrease in European R&D budgets down
to €9 billion; and the US alone spends today seven times more on defence
R&D than all 27 EU Member States together.

Defence budgets are falling, and the cost
of modern capabilities is rising. These cost increases come from the long-term
trend of growing technological complexity of defence equipment, but also from
the reduction of production volumes which are due to the reorganisation and
downsizing of European armed forces since the end of the Cold War. These
factors will continue to shape defence markets in Europe regardless of budget
levels.

This situation has knock-on effects for an
industry that plays a crucial role in the wider European economy. With a
turnover of €96 billion in 2012 alone, it is a major industrial sector, generating
innovation and centred on high-end engineering and technologies. Its
cutting-edge research has created important indirect effects in other sectors,
such as electronics, space and civil aviation and provides growth and thousands
of highly skilled jobs. Defence industry in Europe directly
employs about 400,000 people and generates up to another 960,000 indirect jobs. It is, therefore, a sector that is essential to retain if Europe is to remain a world-leading centre for manufacturing and innovation. This is why
action to strengthen the competitiveness of the defence industry is a key part
of the Europe 2020 Strategy for smart, sustainable and inclusive growth.

At the same time, the importance of this
industry cannot be measured only in jobs and turnover. The European Defence Technological
and Industrial Base (EDTIB) constitutes a key element for Europe's capacity to
ensure the security of its citizens and to protect its values and interests. Europe must be able to assume its responsibilities for its own security and for
international peace and stability in general. This necessitates a certain
degree of strategic autonomy: to be a credible and reliable partner, Europe must be able to decide and to act without depending on the capabilities of third
parties. Security of supply, access to critical technologies and operational
sovereignty are therefore crucial.

Currently defence companies are surviving
on the benefits of R&D investment of the past and have been able to
successfully replace falling national orders with exports. However, this often
comes at the price of transfers of technology, IPRs and production outside the
EU. This in turn has serious implications for the long-term competitiveness of
the EDTIB.

The problem of shrinking defence budgets is
aggravated by the persisting fragmentation of European markets which leads to
unnecessary duplication of capabilities, organisations and expenditures. Cooperation
and EU-wide competition still remains the exception, with more than 80% of
investment in defence equipment being spent nationally. As a result, Europe risks losing critical expertise and autonomy in key capability areas.

This situation necessitates a reorientation
of priorities. If spending more is difficult spending better is a necessity.
There is significant scope to do so. In spite of cuts, in 2011 EU Member States
together still spent more on defence than China, Russia and Japan together[1]. Budgetary constraints must therefore
be compensated by greater cooperation and more efficient use of resources. This
can be done via supporting clusters, role specialisation, joint research and
procurement, a new, more dynamic approach to civil-military synergies and more
market integration.

1.2.        The Commission's strategy

Defence is still at the heart of national
sovereignty and decisions on military capabilities remain with Member States. However,
the EU does have a significant contribution to make. It has policies and
instruments to implement structural change and it is the best framework for
Member States to maintain collectively an appropriate level of strategic
autonomy. With Members States having amongst themselves around 1.6 million
soldiers and annual defence budgets of €194 billion the EU has the capacity to
be a strategic actor on the international stage, in line with its values.

The European Council, in its Conclusions of
14 December 2012, therefore called upon "… the High Representative,
notably through the European External Action Service and the European Defence
Agency, as well as the Commission, (…) to develop further proposals and actions
to strengthen CSDP and improve the availability of the required civilian and
military capabilities...".

The ultimate objective is to strengthen
European defence to meet the challenges of the 21st century. Member
States will be in lead on many of the necessary reforms. The European Defence
Agency (EDA) has as its mission to support them in their effort to improve the Union's defence capabilities for the CSDP. The Commission can also make an important
contribution, and it has already started to do so. As President Barroso has
stressed: "The Commission is playing its part: we are working towards a
single defence market. We are using our competences provided under the Treaty
with a view to developing a European defence industrial base."

With these objectives in mind, the
Commission has put forward the two Directives on defence and sensitive security
procurement (2009/81) and transfers (2009/43), which constitute today the
cornerstone of the European defence market. Moreover, it has developed
industrial policies and specific research and innovation programmes for
security and space. The Commission has also developed policies and instruments supporting
both internal and external security in areas such as protection of external
borders, maritime surveillance, civil protection, or crisis management, which
have numerous technological, industrial, conceptual and operational similarities
and links with defence.

The present Communication consolidates this
acquis and develops it further within the scope of its competencies as defined
in the Treaty of Lisbon. It tries, in particular, to exploit possible synergies
and cross-fertilisation which come from the blurring of the dividing line
between defence and security and between civil and military.

To achieve these objectives, the Commission
intents to take action in the following strands:

·
Further deepen the internal market for defence
and security. This means first of all to ensure the full application of the two
existing Directives. Based on this acquis, the Commission will also tackle
market distortions and contribute to improving security of supply between
Member States;

·
Strengthen the competitiveness of the EDTIB. To
this end, the Commission will develop a defence industrial policy based on two
key strands:

–
Support for competitiveness – including developing 'hybrid standards' to benefit security and
defence markets and examining the ways to develop a European certification
system for military airworthiness.

–
Support for SMEs –
including development of a European Strategic Cluster Partnership to provide
links with other clusters and support defence-related SMEs in global competition.

·
Exploit civilian military synergies to the
maximum extent possible in order to ensure the most efficient use of European
tax payers' resources. In particular by:

–
concentrating its efforts on possible
cross-fertilisation between civil and military research and the dual-use
potential of space;

–
helping armed forces reduce their energy
consumption and thereby contribute to the Union’s 20/20/20 targets.

·
In addition, the Commission suggests actions
which aim at exploring new avenues, driving the strategic debate in Europe forward and preparing the ground for more and deeper European cooperation. In
particular by:

·
Assessing the possibility of EU-owned dual-use
capabilities, which may in certain security areas complement national
capabilities and become effective and cost-efficient force multipliers;

·
Considering launching a preparatory action for
CSDP-related research focusing on those areas where EU defence capabilities are
most needed.

The Commission
invites Heads of State and Government to discuss this Communication at the European
Council in December 2013, together with the report prepared by the High
Representative of the Union for Foreign Affairs and Security Policy.

Action Plan[2]

2.           Strengthening the
Internal Market for Defence

2.1.        Ensure market efficiency

· With the Defence and Security Procurement Directive 2009/81 being
fully transposed in all Member States, the regulatory backbone of a European
Defence Market is in place. For the first time specific Internal Market rules
are applicable in this sector to enhance fair and EU-wide competition. However,
defence remains a specific market with a longstanding tradition of national
fragmentation. The Commission will therefore take specific measures to ensure
that the Directive is correctly applied and fulfils its objective.

Action:

· The Commission will monitor the openness of Member States' defence
markets and regularly assess via the EU’s Tenders Electronic Daily (TED) and
other specialised sources how the new procurement rules are applied. It will
coordinate its market monitoring activities with those of the EDA in order to
exploit potential synergies and avoid unnecessary duplication of efforts.

In times of budget constraints, it is
particularly important to spend financial resources efficiently. Pooling of demand
is an effective way of achieving this objective. The Directive contains
specific provisions on central purchasing bodies which enable Member States to
use the new rules also for joint procurement, for example via the EDA. Member
States should use this tool as much as possible to maximise economies of scale
and take full benefit of EU-wide co-operation.

Certain contracts are excluded from the
scope of the Directive, since the application of its rules would not be
appropriate. This is particularly the case for cooperative programmes, which
are an effective means to foster market consolidation and competitiveness.

However, other specific exclusions, namely
those of government to government sales and of contract awards governed by
international rules, might be interpreted in a way undermining the correct use
of the Directive. This could jeopardize the level playing field in the internal
market. The Commission will therefore ensure that these exclusions are
interpreted strictly and that they are not abused to circumvent the Directive.

Action:

· The Commission will clarify the limits of certain exclusions. To
that end, it will provide, in consultation with Member States, specific
guidance, notably on government to government sales and international
agreements.

2.2.        Tackle market distortions

In order to further develop the Internal
Market for defence and work towards a level playing field for all European
suppliers, the Commission will tackle persisting unfair and discriminatory
practices and market distortions. It will in particular mobilise its policies
against offsets, i.e. economic compensations required for defence purchases
from non-national suppliers. Offset requirements are discriminatory measures
which stand in contrast to both EU Treaty principles and effective procurement
methods. They can therefore not be part of the internal market for defence.

Action:

· The Commission will ensure the rapid phasing out of offsets. Since
the adoption of the defence procurement directive, all Member States have
withdrawn or revised their national offset legislation. The Commission will
verify that these revisions comply with EU law. It will also ensure that these
changes in the legal framework lead to an effective change in Member States’
procurement practice.

The Commission has extensively applied the
merger control rules to the defence sector. Those cases allowed the Commission
to guarantee effective competition control, contributing to an improved
functioning of the market for defence. Concerning state aid, and in line with
the Communication on the Modernisation of State Aid policy, public spending
should become more efficient and better targeted. In that respect, state aid
control has a fundamental role to play in defending and strengthening the
internal market, also in the defence sector.

Member States have an obligation, under the
Treaty, to notify to the Commission all state aid measures, including aid in
the pure military sector. They may only derogate from that obligation if they
can prove that non-notification is necessary for reasons of essential security
interests under Article 346 TFEU. Therefore, if a Member State intends to rely
on Article 346, it must be able to demonstrate that the concrete measures in
the military sector are necessary and proportionate for the protection of their
essential security interests and that they do not go beyond what is strictly
necessary for that purpose. The burden of proof that these conditions are
fulfilled lies upon Member States.

Action:

· The Commission will ensure that all necessary conditions are
fulfilled when Article 346 TFEU is invoked to justify state aid measures.

2.3.        Improve Security of Supply

Security of supply is crucial to ensure the
functioning of the internal market for defence and the Europeanisation of
industrial supply chains. Most security of supply problems are the
responsibility of Member States. However, the Commission can develop
instruments which enable Member States to improve the security of supply
between them. Directive 2009/43 on intra-EU transfers is such an instrument,
since it introduces a new licencing system which facilitates the movement of
defence items within the internal market. Member States should now fully
exploit the possibilities of this Directive to enhance security of supply
within the Union.

Actions:

· The Commission, together with the EDA, will launch a consultative
process aimed at bringing about a political commitment by Member States to
mutually assure the contracted or agreed supply of defence goods, materials or
services for the end-use by Member States' armed forces.

· The Commission will optimise the defence transfer regime by: a)
supporting national authorities in their efforts to raise awareness of it with
industry; b) establishing a central register on general licences and promote
their use; and c) promoting best practices in managing intra-EU transfers.

Security of supply depends also on the
control and ownership of critical industrial and technological assets. Several
Member States have national legislation for the control of foreign investment
in defence industries. However, the more international industrial supply chains
become, the more can a change of ownership of one company (also at lower tiers)
have an impact on the security of supply of other Member States' armed forces and
industries. It is also an issue affecting the extent of the autonomy Europe has, and wishes to retain, in the field of military capacity, as well as the general
question of control of incoming foreign investment in that sector. A European approach
may be needed to cope with this challenge.

Action:

· The Commission will issue a Green Paper on the control of defence
and sensitive security industrial capabilities. It will consult stakeholders on
possible shortfalls of the current system, including the possible
identification of European capacities, and explore options for the
establishment of an EU-wide monitoring system, including mechanisms of
notification and consultation between Member States.

3.           Promoting a more
competitive defence industry

The creation
of a genuine internal market for defence requires not only a robust legal
framework but also a tailored European industrial policy. The future of the EDTIB
lies in more co-operation and regional specialisation around and between
networks of excellence. A further reinforcement of their civil-military
dimension, can foster more competition and contribute to economic growth and regional
development. Moreover, in an increasingly globalised defence market it is
essential that European defence companies have a sound business environment in Europe to enhance their competitiveness worldwide.

3.1.        Standardisation
– developing the foundations for defence co-operation and competitiveness

Most standards
used in EU defence are civilian. Where specific defence standards are required
they are developed nationally, hindering co-operation and increasing costs for
the industry. Therefore, the use of common defence standards would greatly
enhance co-operation and interoperability between European armies and improve the
competitiveness of Europe's industry in emerging technologies.

This
highlights the need for creating incentives for the Member States to develop European
civil-military standards. Clearly, these should remain voluntary and there must
be no duplication with the standards-related work of NATO and other relevant
bodies. However, much more could be done to develop standards where gaps and
common needs are identified. This concerns particularly standards in emerging
technologies, such as in Remotely Piloted Aircraft Systems (RPAS) and in
established areas, such as in camp protection, where markets are underdeveloped
and there is a potential to enhance the industry's competitiveness.

Actions:

· The Commission will promote the development of 'Hybrid Standards',
for products which can have both military and civilian applications. It has
already issued a standardisation request for such a “hybrid standard” in 2012
for Software Defined Radio. The next candidates for standardisation requests could
deal with Chemical Biological Radiological Nuclear & Explosives (CBRNE)
detection and sampling standards, RPAS, airworthiness requirements, data sharing standards,
encryption and other critical information communication technologies.

· The Commission will explore options with the EDA and European
Standardisation Organisations for establishing a mechanism to draft specific
European standards for military products and applications after agreement with Member
States. The main purpose of this mechanism will be to develop standards to meet
identified needs while handling sensitive information in an appropriate way.

· The Commission will explore with the EDA new ways of promoting
existing tools for selecting best practice standards in defence procurement.

3.2.        Promoting
a Common Approach to Certification – reducing costs and speeding up development

Certification,
as with standards, is a key enabler for industrial competitiveness and European
defence co-operation. The lack of a pan-European system of certification of
defence products acts as a major bottleneck delaying the placing of products on
the market and adds substantially to costs throughout the life-cycle of the
product. There is a need for better arrangements in the field of the
certification so that certain tasks currently performed at national level
should be carried out in common.

In particular,
in military airworthiness, according to the EDA, this is adding 50% to the
development time and 20% to the costs of development. Moreover, having a set of
common and harmonised requirements reduces costs by enabling cross-national
aircraft maintenance or training of maintenance personnel.

Ammunition is
another example. The lack of a common certification for ground launched
ammunition is estimated to cost Europe €1,5 billion each year (out of a total
of €7,5 billion spent on ammunition each year).

Action:

· Building on the civil experience of EASA, its experience gained by
certifying the Airbus A-400M (in its civil configuration) and the work of the
EDA in this area, the Commission will assess the different options for carrying
out, on behalf of the Member States, the tasks related to the initial
airworthiness of military products in the areas specified by the EDA.

3.3.        Raw
Materials – tackling supply risks for Europe's defence industry

Various raw
materials, such as rare earths elements, are indispensable in many defence
applications, ranging from RPAS to precision guided munitions, from laser
targeting to satellite communications. A number of these materials are subject
to increased supply risks, which hamper the competitiveness of the defence
sector. A key element of the EU overall raw materials strategy consists of a
list of raw materials that are considered to be of critical importance to the
EU economy. The current list of critical raw materials at EU level is expected
to be revised by end 2013. Although these are often the same materials that are
important for civil and defence purposes, there would be a clear value-added if
this work would take into account the specific importance of raw materials to
Europe’s defence sector.

Action:

· The Commission will screen raw materials that are critical for the
defence sector within the context of the EU’s overall raw materials strategy
and prepare, if necessary, targeted policy actions.

3.4.        SMEs
– securing the heart of Europe's defence innovation

The defence
directives on procurement and transfers offer new opportunities for SMEs to
participate in the establishment of a European defence market. This is the case
in particular for the subcontracting provisions of the procurement directive
which improves access to supply chains of non-national prime contractors.
Member States should therefore actively use these provisions to foster
opportunities for SMEs.

Further steps
are necessary, in particular in the area of clusters. These are often driven by
a prime company that works with smaller companies in a supply chain. Moreover,
clusters are often part of networks of excellence bringing together prime
contractors, SMEs, research institutes and other academic sectors.

Clusters are
therefore particularly important for SMEs, as they offer them access to shared
facilities, niches in which they can specialise, and opportunities to cooperate
with other SMEs. In such clusters, companies can combine strengths and resources
in order to diversify into, and create new markets and knowledge institutions.
They can also develop new civilian products and applications based on
technologies and materials initially developed for defence purposes (e.g.
internet, GPS) or vice versa, which is an increasingly important trend.

Actions:

· The Commission will explore with industry – taking a bottom-up
approach - how to establish a European Strategic Cluster Partnership designed
to support the emergence of new value chains and to tackle obstacles faced by defence-related
SMEs in global competition. In this context, the
Commission will use tools designed to support SMEs, including COSME, for the
needs of defence-related SMEs. To this end the use of European Structural and
Investment Funds may also be considered. This work will include clarifying
eligibility rules for dual use projects.

· The Commission will also use the Enterprise Europe Network (EEN) to
guide defence-related SMEs towards networking and partnerships,
internationalisation of their activities, technology transfers and funding
business opportunities.

· The Commission will promote regional networking with the objective
of integrating defence industrial and research assets into regional smart
specialisation strategies particularly through a European network of
defence-related regions.

3.5.        Skills
– managing change and securing the future

The defence industry
is experiencing profound change to which Member States and industry must adapt.
As the European Council in December 2008 stated: "restructuring of the
European defence technological and industrial base, in particular around
centres of European excellence, avoiding duplication, in order to ensure its
soundness and its competitiveness, is a strategic and economic necessity".

The restructuring
process is mainly the responsibility of industry but there is a complementary
role for the Commission, national governments and local authorities. The
Commission and Member States have a range of European tools available that
foster new skills and tackle the impacts of restructuring. These should be
deployed with a clear understanding of the capabilities and technologies
critical to the industry. The Commission will encourage Member States to make
use of labour flexibility schemes to support enterprises, including suppliers,
that suffer from temporary slump in demand for their products and to promote an
anticipative approach to restructuring. In this context, Member States can use
the support that can be provided by the European Social Fund (ESF) and in
certain cases of mass redundancies also by the European Globalisation
Adjustment Fund. An important foundation of this work will be to map existing
skills and identify skills needed for the future, possibly on the basis of a
European Sector Skills Council for Defence under the leadership of the sectors'
representatives.

Actions:

· The Commission will promote skills identified as essential to the
future of the industry including through the "Sector Skills
Alliances" and "Knowledge Alliances" programmes currently being
trialled.

· The Commission will encourage the use of the ESF for workers'
retraining and re-skilling, in particular for projects addressing skills needs,
skills matching and anticipation of change.

· The Commission will take into account the potential of the European
Structural and Investment Funds to support regions adversely affected by
defence industry restructuring, especially to help workers to adapt to the new
situation and to promote economic reconversion.

4.           Exploiting Dual-Use Potential
of Research and Reinforcing Innovation

Since a range of technologies can be dual in nature, there is growing
potential for synergies between civil and military research. In this context,
there is an on-going coordination between the Security Theme of the 7th
Framework Programme for Research and Technological Development and European
defence research activities. Work has so far concentrated on CBRNE and has recently also addressed cyber defence in the context
of CSDP and its synergies with cyber security. A number of activities in this
regard are announced in the EU's Cyber Security Strategy, designed to make the
EU's online environment the safest in the world. Furthermore, the SESAR Joint
Undertaking has launched research activities on cyber security in the field of
Air Traffic Management.

Within Horizon 2020, the areas of "Leadership
in Enabling and Industrial Technologies" including the "Key Enabling
Technologies" (KETs) and "Secure Societies" (Societal
Challenge), offer prospects of technological advances that can trigger
innovation not only for civil applications, but also have a dual-use potential.
While the research and innovation activities carried out under Horizon 2020
will have an exclusive focus on civil applications, the Commission will evaluate
how the results in these areas could benefit also defence and security industrial
capabilities. The Commission also intends to explore synergies in the development of dual-use applications with a clear security
dimension or other dual-use technologies like, for example, those supporting
the insertion of civil RPAS into the European aviation system to be carried out
within the framework of the SESAR Joint Undertaking.

Defence research has created important
knock-on effects in other sectors, such as electronics, space, civil aviation
and deep sea exploitation. It is important to maintain such spill-over effects
from defence to the civil world and to help defence research to continue
feeding civilian innovation.

The Commission also sees the potential benefits
of additional possibilities for CSDP-related research outside the scope of Horizon
2020. This could take the form of a Preparatory Action on defence capabilities critical
for CSDP operations seeking synergies with national research programmes. The
Commission will define content and modalities together with Member States, EEAS and the EDA. In parallel Member States should maintain an appropriate level
of funding for defence research and do more of it co-operatively.

Actions:

· The Commission intends to support a pre-commercial procurement
scheme to procure prototypes. The first candidates for these could be: CBRNE
detection, RPAS and communication equipment based on software defined radio
technology.

· The Commission will consider the possibility to support CSDP-related
Research, such as through a Preparatory Action. The focus would be on those
areas where EU defence capabilities would be most needed, seeking synergies
with national research programmes where possible.

5.           Development of
capabilities

The Commission is already working on non-military capability needs supporting
both internal and external security policies, such as civil protection[3], crisis management, cyber
security, protection of external borders and maritime surveillance. Up until
now, these activities have been limited to co-funding and coordination of
Member States’ capabilities. The Commission intends to go one step further in
order to ensure that Europe disposes of the full range of security capabilities
it needs; that they are operated in the most cost-efficient way; and that interoperability
between non-military and military capabilities is ensured in relevant areas.

Actions:

· The Commission will continue to enhance interoperability of
information service sharing between civilian and defence users as piloted by
the Common Information Sharing Environment for Maritime Surveillance;

· Building on existing EU networks, the Commission will explore
together with Member States the establishment of a civil-military cooperation
group in the areas of a) detection technologies, and b) methods to counter improvised explosive devices, man-portable
air defence systems (MANPADs) and other relevant threats, such as CBRNE threats;

· The Commission will work with the EEAS on a joint assessment of
dual-use capability needs for EU security and defence policies. On the basis of this assessment, it will come up with a proposal
for which capability needs, if any, could best be fulfilled by assets directly
purchased, owned and operated by the Union.

6.           Space and Defence

Most space technologies, space
infrastructures and space services can serve both civilian and defence
objectives. However, contrary to all space-faring nations, in the EU there is
no structural link between civil and military space activities. This divide has
an economic and political cost that Europe can no longer afford. It is further
exarcebated by European dependence on third country suppliers of certain
critical technologies that are often subject to export restrictions.

Although some space
capabilities have to remain under exclusive national and/or military control, a
number of areas exist where increased synergies between civilian and defence
activities will reduce costs and improve efficiency.

6.1.        Protecting space
infrastructures

Galileo and Copernicus
are major European space infrastructures. Galileo belongs to the EU, and both
Galileo and Copernicus will support key EU policies. These infrastructures are
critical as they form the backbone for applications and services that are
essential for our economy, our citizens' well-being and security. These
infrastructures need to be protected.

Space debris has become
the most serious threat to the sustainability of our space activities. In order
to mitigate the risk of collision it is necessary to identify and monitor
satellites and space debris. This activity is known as space surveillance and
tracking (SST), and is today mostly based on ground-based sensors such as
telescopes and radars. At present there is no SST capability at European level;
satellite and launch operators are dependent on US data for anti-collision
alerts.

The EU is ready to support the emergence of a European SST
service built on a network of existing SST assets owned by Member States, possibly
within a trans-Atlantic perspective. These services should be available to
public, commercial, civilian, military operators and authorities. This will
require the commitment of Member States owning relevant assets to cooperate and
provide an anti-collision service at European level. The ultimate objective is
to ensure the protection of European space infrastructures with a European capability.

Action:

· The Commission has put forward a proposal for EU SST support
programme in 2013. Building on this proposal, the Commission will assess how to
ensure, in the long-term, a high level of efficiency of the SST service.

6.2.        Satellite Communications

There is a growing dependence of military and civilian security
actors on satellite communications (SATCOM). It is a unique capability which
can ensure long-distance communications and broadcasting. It facilitates the
use of mobile or deployable platforms as a substitute for ground-based
communication infrastructures and to cater for the exchange of large quantities
of data.

Commercial SATCOM is the most affordable and flexible solution to
meet this growing need. Since the demand for security SATCOM is too fragmented pooling
and sharing SATCOM acquisition could generate significant cost savings due to
economies of scale and improved resilience.

Commercial SATCOMs cannot fully substitute core
governmental/military satellite communications (MILSATCOM) which are developed
individually by some EU Member States. However, these communications lack
capacity to cater for the needs of smaller entities, most notably military
aircraft or Special Forces in operation.

Furthermore, by the end of this decade, current Member States'
MILSATCOM will come to the end their operational life. This key capability must
be preserved.

Actions:

· The Commission will act to overcome the fragmentation of demand for
security SATCOM. In particular, building on the EDA's experience, the
Commission will encourage the pooling of European military and security
commercial SATCOM demand;

· The Commission will explore the possibilities to facilitate, through
existing programmes and facilities, Member States efforts to deploy
government-owned telecommunications payloads on board satellites (including
commercial) and develop the next generation of government-owned MILSATCOM
capability at European level.

6.3.        Building an EU satellite
high resolution capability

Satellite high resolution imagery is
increasingly important to support security policies including CSDP and CFSP. EU
access to these capacities is crucial to perform early warning, timely decision
making, advanced planning and improved conduct of EU crisis response actions
both in the civilian and military domains.

In this field several
national defence programmes are being developed. Some
Member States have also developed high resolution dual systems to complement
defence-only national programmes. These dual systems have allowed new forms of
collaboration among Member States to emerge for the exploitation of satellite
imagery whereby the acquisition takes place either on the market or through
bilateral agreements. This successful approach, combining civil and defence
user requirements, should be pursued.

As the need for high resolution imagery
continues to grow, in order to prepare the next generation of high resolution imagery
satellites which should be deployed around 2025, a number of technologies must
be explored and developed such as hyper-spectral, high resolution satellites in
geostationary orbit or advanced ultra-high resolution satellites in combination
with new sensor platforms such as RPAS.

Action:

· The European Commission together with EEAS and EDA will explore the
possibility to develop progressively new imaging capabilities to support CFSP
and CSDP missions and operations. Also the European Commission will contribute
to developing the necessary technologies for the future generations of high
resolution imagery satellites.

7.           Application of EU Energy
policies and support instruments in the defence sector

Armed forces are the biggest public
consumers of energy in the EU. According to the EDA, their combined annual
expenditures for electricity alone sum up to an estimated total of more than
one billion euros. Moreover, fossil fuels remain the most important source to
meet these energy needs. This implies sensitive dependencies and exposes
defence budgets to risks of price increases. Therefore, to improve security of
supply and reduce operational expenditures, armed forces have a strong interest
in reducing their energy footprint.

At the same time, armed forces are also the
largest public owner of free land and infrastructures, with an estimated total
of 200 million square meters of buildings and 1 % of Europe's total land
surface. Exploiting this potential would enable armed forces to reduce their
energy needs and cover a considerable part of these needs from their own low-emission
and autonomous sources. This would reduce costs and dependences and contribute
at the same time to accomplishing the Union's energy objectives.

In the research field, the Commission has
developed the Strategic Energy Technology (SET) Plan to promote innovative and
low-carbon energy technologies which have better efficiencies and are more
sustainable than existing energy technologies. Given its important energy
needs, the defence sector could be a frontrunner in the deployment of the
emerging energy technologies of the SET-Plan.

Actions:

· The Commission will set up a specific consultation mechanism with
Member States experts from the defence sector by mid-2014, based on the model
of the existing Concerted Actions on renewables and energy efficiency. This
mechanism will focus on a) energy efficiency, particularly in building sector;
b) renewable energy and alternative fuels; c) energy infrastructure, including
the use of smart grid technologies and will:

–
Examine the applicability of the existing EU
energy concepts, legislation and support tools to the defence sector.

–
Identify possible objectives and focus areas
of action at EU level for a comprehensive energy concept for armed forces.

–
Develop recommendations for a guidebook on
renewable energies and energy efficiency in the defence sector with a focus on the
implementation of the existing EU legislation, innovative technologies’
deployment and the use of innovative financial instruments.

–
Exchange information with the SET-Plan Steering
Group on a regularly basis.

·
The Commission will also consider developing
a guidance document on implementation of Directive 2012/27/EU in the defence
sector.

· The Commission will support the European armed forces GO GREEN
demonstration project on photovoltaic energy. Following its successful
demonstration, the Commission will also help to develop GO GREEN further,
involving more Member States and possibly expanding it to other renewable
energy sources such as wind, biomass and hydro.

8.           Strengthening the
International Dimension

With defence budgets shrinking in Europe, exports to third countries have become increasingly important for European
industries to compensate for reduced demand on their home markets. Such exports
should be authorised in accordance with the political principles laid down in Common Position 2008/944/CFSP, adopted on 8
December 2008, and in accordance with the Arms Trade Treaty adopted on 2 April
2013 by the General Assembly of the United Nations Organisation. At the same time, Europe has an economic and political interest to
support its industries on world markets. Lastly Europe needs to ensure a
coherent approach to the monitoring of incoming foreign investment (as set out
in section 2.3 on ownership and security of supply).

8.1.        Competitiveness on third
markets

Whereas defence expenditure has decreased
in Europe, it continues to increase in many other parts of the world. Access to
these markets is often difficult, depending on political considerations, market
access barriers, etc. The world's biggest defence market, the United States, is basically closed for imports from Europe. Other third countries are more open, but
often require offsets which put a heavy burden on EU companies. Finally, on
many third markets, several European suppliers compete with each other, which
makes it difficult from a European perspective to support a specific EU
supplier.

Action:

· The Commission will establish a dialogue with stakeholders on how to
support the European defence industry on third markets. With respect to offsets
on third markets, this dialogue will explore ways of mitigating possible
negative impacts of such offsets on the internal market and the European
defence industrial base. It will also examine how EU institutions could promote
European suppliers in situations where only one company from Europe is
competing with suppliers from other parts of the world.

8.2.        Dual Use Export Controls

Dual-use export controls closely complement
arms trade controls and are key for EU security as well as for the
competiveness of many companies in the aerospace, defence and security sectors.
The Commission has initiated a review of the EU export control policy and has
conducted a broad public consultation, which conclusions are presented in a
Commission Staff Working Document issued in January 2013. The reform process
will be further advanced with the preparation of a Communication which will
address remaining trade barriers that prevent EU companies to reap the full
benefits of the internal market.

Action:

· As part of the ongoing export control policy review, the Commission
will present an impact assessment report on the implementation of Regulation
(EC) 428/2009 and will follow up with a Communication outlining a long-term
vision for EU strategic export controls and concrete policy initiatives to
adapt export controls to rapidly changing technological, economic and political
conditions. This may include proposals for
legislative amendments to the EU export control system.

9.           Conclusions

Maintaining and developing defence
capabilities to meet current and future challenges in spite of severe budget
constraints will only be possible if far-reaching political and structural
reforms are made. Time has come to take ambitious action.

9.1.        A new framework for developing
civil / military co-operation

Civil / military co-operation is a complex
challenge with numerous operational, political, technological and industrial
facets. This is particularly true in Europe, where distribution of competences
and division of work adds another layer of complexity. This Communication
provides a package of measures that can help to overcome these challenges and
incentivise co-operation between Member States. In this context, our objective
is to develop an integrated approach across the civ-mil dividing line, with a
seamless transition throughout all phases of the capability life cycle i.e.
from the definition of capability needs to their actual use on the ground.

As a first step towards this objective, the
Commission will review its own internal way of dealing with security and
defence matters. Based on the experience of the Defence Task Force, it will
optimise its mechanisms for cooperation and coordination between its own
services and with stakeholders.

9.2.        A call to Member States

This Communication sets out an Action Plan
for the Commission’s contribution to strengthening the CSDP. The Commission
invites the European Council to discuss this Action Plan in December 2013 together
with the report prepared by the High Representative of the Union for Foreign
Affairs and Security Policy on the basis of the following considerations:

–
Decisions on investments and capabilities for
security and defence should be based on a common understanding of threats and
interests. Europe therefore needs to develop, in due course, a strategic approach
covering all aspects of military and non-military security. In this context, a
wider political debate on the implementation of relevant provisions of the
Lisbon Treaty should be held;

–
The Common Security and Defence Policy is a
necessity. To become effective, it should be underpinned by a fully-fledged Common
European Capabilities and Armaments Policy as mentioned in Article 42 of the
TEU;

–
To ensure coherence of efforts, CSDP must be closely
coordinated with other relevant EU policies. This is particular important
in order to generate and exploit synergies between the development and use of
defence and civil security capabilities;

–
For CSDP to be credible, Europe needs a strong defence
industrial and technological base. To achieve this objective, it is crucial to
develop a European Defence Industrial Strategy based on a common
understanding of the degree of autonomy Europe wants to maintain in critical
technology areas;

–
To maintain a competitive industry capable of
producing at affordable prices the capabilities we need, it is essential to strengthen the internal market for defence and
security and to create conditions which enable European companies to
operate freely in all Member States;

–
Facing severe budget constraints, it is particularly important to allocate and spend financial
resources efficiently. This implies inter alia to cut back operational
costs, pool demand and harmonise military requirements;

–
To show real added value of the EU framework,
what is needed is to identify a joint project in the area of key defence
capabilities, where EU policies could fully be mobilized.

9.3.        Next Steps

On the basis of the discussions with Heads of State and Government, the Commission will develop for the
areas defined in this Communication a detailed roadmap with concrete actions
and timelines.

For the preparation and implementation of
this roadmap, the Commission will set up a specific consultation mechanism with
national authorities. The mechanism can take different forms, depending on the
policy area under discussion. The EDA and the External Action Service will be
associated to this consultation mechanism.

[1]               SIPRI data

[2]               Any envisaged action in this Action Plan is coherent
and compatible with the relevant financial instruments established under the
Multi-annual Financial Framework.

[3]               In the case of civil protection the development of
capabilities is set out in the Commission's proposal for a Decision of the
European Parliament and of the Council on a Union Civil Protection Mechanism
(COM (2011) 934 final

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