Overview: Defence Package of the European Union

The fragmentation of the European defence market and divergent national policies create red tape, hamper innovation and competitiveness and, ultimately, weaken the European Security and Defence Policy (ESDP). The European Commission presented in December 2007 a package of initiatives to improve this situation. This "defence package" contains three elements:

1. A Directive on defence procurement to enhance openness and intra-European competition in Member States' defence markets; and
2. A Directive on intra-EU transfers of defence products designed to alleviate obstacles to intra-community trade.

The objective of the proposed new legislation is to contribute to creating a genuine European market in this sector without sacrificing Member State control over their essential defence and security interests. The creation of a European defence market will improve the efficiency of defence spending in Europe and strengthen our ability to get the best available equipment for our soldiers and civilian personnel serving in operations in Europe and abroad.

1. Draft Directive on defence procurement

EC procurement rules apply also in defence and security. However, Member States can exempt contracts in these fields if this is necessary for the protection of their essential security interests. The legal basis for this exemption is Article 296 of the Treaty (for defence) and Article 14 of the current procurement Directive (for security). According to the Court of justice, the use of these exemptions must be limited to exceptional cases. In practice, however, many Member States have used them extensively to exempt almost all defence and sensitive security procurement from Internal Market rules.

As a consequence, most defence and sensitive security equipment is procured on the basis of uncoordinated national rules, which differ greatly in terms of publication, tendering procedures, selection and award criteria. This regulatory patchwork is a major obstacle on the way towards a common European defence equipment market and opens the door to non-compliance with the Treaty principles. Lack of transparency and discrimination of suppliers from other Member States leads to lack of openness of defence markets, with negative effects for all stakeholders.

Proposed measures: The new Directive will apply to the procurement of arms, munitions and war material, as well as related works and services. At the same time, Member States can also use it for certain particularly sensitive non-military procurements in areas such as protection against terrorism, where contracts often have similar features to defence contracts.

The new Directive will contain a number of innovations tailored to the specificities of such procurement cases. Awarding authorities may in particular use the negotiated procedure with prior publication as a standard procedure, which gives them flexibility to negotiate all details of the contract. They may also require from candidates specific clauses for security of information (in order to ensure the confidentiality of sensitive information) and for security of supply (in order to ensure on-time delivery).

Member States will still have the possibility to use Article 296 to exempt defence and security procurement contracts which are so sensitive that even the new rules do not satisfy their security needs. In most cases, however, Member States should be able to use the new Directive without any risk for their security.

The draft Directive and the EP:

The European Parliament has supported the initiative through the following reports: 1) Report on the annual implementation of the ESS in the context of ESDP (Rapporteur Karl von Wogau, adopted in Plenary in 2006), 2) "Wuermeling" Report, adopted in Plenary in 2005.

The Directive will not be a "Buy European Act": The objective is not to introduce a "Buy European" policy, but to foster transparency and openness of defence markets between Member States. Intra-European competition has proven to be the best means to improve the competitiveness of Europe's defence industry. The Directive will set rules on how to procure defence equipment, but not determine which equipment should be procured. This is the decision of the customer, i.e. Member States. The proposal therefore does not contain a "Buy European" clause.

2. Draft Directive on intra-EU transfers of defence products

This draft directive aims to significantly simplifying national licensing procedures and therefore facilitating crossfrontier commercial exchanges within the EU. This will contribute to making defence industries more competitive and facilitate SMEs participation into prime contractors' supply chains. The new legislation should enable Member States to meet military needs at lower cost and enhance security of supply for public procurement and industrial cooperation.

(AB, 19 May 2008)