Towards a more competitive and efficient European defence and security sector
24 July 2013by eub2 -- last modified 24 July 2013
A more influential Europe needs a strong and active common foreign and security policy, which in turn demands a more competitive and efficient defence and security sector. The successive waves of cuts in defence budgets and the persisting fragmentation of defence markets in Europe threaten Europe's capacity to sustain effective defence capabilities and a competitive defence industry. This also jeopardises Europe's capacity to meet the new security challenges in an autonomous and effective way. This, says the European Commission, is why it has presented a Communication which contains an Action Plan to enhance the efficiency and competitiveness of Europe's defence and security sector. The Communication foresees measures to strengthen the internal market for defence, to promote a more competitive defence industry and to foster synergies between civil and military research. Besides these, the Communication also explores options in other areas such as energy, space and dual-use capabilities. 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.
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What is the EU's role in defence?
Although defence is at the heart of national sovereignty and decisions on military capabilities remain with Member States, there remains a significant role for the EU. The EU Member States have committed themselves to a Common Foreign Security Policy (CFSP) for the European Union. This aims to strengthen the EU's external ability to act through the development of civilian and military capabilities in conflict prevention and crisis management. A major element of the CFSP is the Common Security and Defence Policy (CSDP) and is the domain of EU policy covering defence and military aspects, as well as civilian crisis management. The European External Action Service plays a central role in co-ordinating activities in both policies. Although both policies are the responsibility of Member States, the Commission is playing an important role especially in civilian crisis management and development.
In addition, some European laws directly concerns defence and security. In particular, two recent Directives on Defence and Security Procurement (2009/81/EC) and the Transfers of Defence-related Products (2009/43/EC) set the legislative framework for the Internal Market in this field. The Commission has also developed industrial policies and specific research and innovation programmes for security and space. Moreover, it has 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.
A Commission Defence task force was therefore established in 2011 by Vice-President Antonio Tajani and Commissioner Michel Barnier to mobilize all relevant EU policies. The European External Action Service (EEAS) and the European Defence Agency (EDA) have been fully associated to the work of the Task force, which led to the communication adopted on 24 July.
What is the role of the European Defence Agency (EDA)?
The EDA is an intergovernmental body under the authority of the Council of Ministers. It was established in 2004 and its mission is to support Member States in their effort to improve the Union's defence capabilities for the CSDP. Mrs Ashton, Vice President of the European Commission, is the Head of the Agency acting solely in her capacity of High Representative for CFSP.
Defence industry - Why does the EU need to act?
The security challenges we are facing today can only be tackled in a comprehensive approach combining different policies and instruments. CSDP must therefore be closely coordinated with other relevant EU policies such as development, maritime security, border surveillance, etc. Moreover, this comprehensive 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. More European cooperation is therefore a must: on defence and security in general, and on their economic aspects in particular.
For CSDP to be credible, Europe needs a strong defence industrial and technological base. To achieve this objective, it is crucial to further develop the European Defence Industrial Base. 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, while ensuring security of supply in Europe.
What is the situation of the defence sector in Europe?
The crisis in public spending induces cuts in defence budgets which exacerbates this situation. From 2001 to 2010, EU defence spending declined from €251 billion to €194 billion while defence budgets increased significantly in emerging markets. 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; the US alone spends today seven times more on defence R&D than all 27 EU Member States. Moreover, emerging actors in the global defence market, such as the BRIC (Brazil, Russia, India & China) countries, already today invest more in Defence R&D than the UK, France and Germany together.
Persisting fragmentation of European markets leads to duplication
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 75% of investment in defence equipment being spent nationally. The EU has sixteen types of frigates versus only one in the US. As a result, the industry is lacking necessary economies of scale and risks losing critical expertise and autonomy in key capability areas.
What is the importance of defence industry in Europe?
Defence industry is of strategic importance for Europe's security and plays a crucial role in the wider European economy. With a turnover of €96 billion in 2012 alone and €23 billion of exports in 2011, 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.
What is the Commission´s strategy and why an action plan?
This situation necessitates a reorientation of priorities. 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 always depending on the capabilities of third parties. Security of supply, access to critical technologies and operational sovereignty are therefore crucial and should guide Commission action.
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 legal cornerstone of the European defence market. Moreover, it has developed industrial policies and specific research programmes for security and space. It presents now a Communication with an Action Plan which consolidate this acquis and develop it further, trying in particular to exploit synergies and cross-fertilisation which comes from the blurring of the dividing line between defence and security.
What is the action plan in a nutshell?
The general objective of the action plan is to enhance the efficiency and competitiveness of the defence and security sector in Europe. To achieve this objective, the Commission will take initiatives to:
Strengthen the internal market for defence and security. Based on the two existing Directives, the Commission will also tackle market distortions and contribute to improving security of supply between Member States;
Strengthen the competitiveness of European industry. 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 dual-use potential of research to the maximum extent possible and reinforce innovation 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;
developing a comprehensive concept to help armed forces reduce their energy consumption and thereby contribute to the Union's 20/20/20 targets.
The Commission invites Heads of State and Government to discuss this Communication at the European Council in December 2013, together with the reports prepared by the Vice-President of the Commission and High Representative of the Union for Foreign Affairs and Security Policy.
What will be done to accomplish the internal market for defence and security?
With the two Directives on defence transfers (2009/43) and procurement (2009/81) being fully transposed in all Member States, the Commission will now take specific initiatives to consolidate and further develop this legislative acquis. More specifically, it will:
Ensure application of procurement rules: 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 European Defence Agency (EDA) in order to exploit potential synergies and avoid unnecessary duplication of efforts. It will also clarify the limits of certain exclusions. To that end, the Commission will provide, in consultation with Member States, specific guidance notably on government to government sales and international agreements.
Offsets: 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.
State aid: The Commission will ensure that all necessary conditions are fulfilled when Article 346 TFEU is invoked to justify state aid measures.
Improve security of supply: 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: This regime was introduced by Directive 2009/43/EC and it provides a common approach to licensing allowing for a simplified system of transfers of defence-related products within the EU (exports outside the EU is Member State competence). Such transfers are needed for the supply of components or for assembling final products. The Directive simplified these transfers, in particular by introducing an EU wide coherent licencing system for the transport of defence-related products through one or more Member States. Before the adoption of the Directive, individual licensing was the most common administrative tool, which was required prior to every transfer with the associated procedures and costs, and more than 21 000 licences were issued by Member States in 2010. Heterogeneous national licensing regimes hampered the security of supply between Member States at a cost of over €400 million in 2007/8. For example, national systems to control the transfer of defence equipment to another Member State did not distinguish between exports to third countries and transfers between Member States. Moreover, SMEs did not have the means to enter into the supply chain in other Member States. In today´s paper, the Commission proposes to improve the regime by: a) supporting national authorities in their information campaigns with industry; b) establishing a central register on general licences and promote their use; and c) promoting best practices in managing intra-EU transfers.
Control and ownership of critical industrial and technological assets: 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.
What will be done to improve competitiveness of defence industry?
Standardisation: The Commission will promote the development of 'Hybrid Standards', for products which can have both military and civilian applications. It has already issued such a "hybrid standard" in 2012 for Software Defined Radio. The next candidates could be Chemical Biological Radiological & Nuclear (CBRN) detection and sampling standards, RPAS1, airworthiness requirements, and data sharing standards.
The Commission will explore options with the EDA for establishing a mechanism to draft specific European standards for military products and applications after agreements with Member States to develop standards to meet identified needs while handling sensitive information in an appropriate way.
The Commission, building on the civil experience of EASA, will assess the possibility to establish a European certification system for military airworthiness reducing costs and speeding up development.
Raw Materials – tackling supply risks for Europe's defence industry: 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.
What will be done for SMEs - the heart of Europe's defence innovation?
Clusters are 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. The Commission will therefore 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 support defence-related SMEs in global competition. 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.
What will be done for improving skills of Europe's workforce?
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 European Social Fund (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.
How can Dual-Use Potential of Research and Reinforcing Innovation be exploited?
Civilian military synergies should be exploited to the maximum extent possible in order to ensure the most efficient use of European tax payers' resources. 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 defence and industrial capabilities. In particular by:
Cross fertilisation between civil and military research
The Commission intends to launch a pre-commercial procurement scheme to procure prototypes. The first candidates for these could be: CBRN detection, RPAS and communication equipment based on software defined radio technology.
The Commission will also 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.
Development of capabilities
The Commission's objective is to ensure that Europe disposes of the full range of capabilities it needs, and that they are operated in the most cost-efficient way. To achieve this objective, it 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;
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 CBRN threats;
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.
How can space and defence profit from each other?
Building on the EDA's experience, the Commission will encourage the pooling of European military and security commercial SATCOM demand to overcome fragmentation in 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.
The European Commission together with EDA will also explore the possibility to develop progressively new imaging capabilities to support CFSP and CSDP missions and operations. In particular, the European Commission will contribute to developing the necessary technologies for the future generations of military and civilian imagery satellites.
How can defence sector save energy?
Armed forces have both a strong security and economic interest to reduce their energy consumption. By doing so, they can contribute considerably to the Union's 20/20/20 objectives. The Commission proposes to benefit from this win-win-situation.
It will therefore 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 consultation 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.
Exchange information with the Steering Group of the Strategic Energy Technology (SET)-Plan en emerging low-carbon technologies.
The Commission will also consider developing a guidance document on implementation of Directive 2012/27/EU (energy efficiency directive) 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.
How can the international dimension be strengthened?
Exports outside Europe have become increasingly important for defence industries to compensate for shrinking home markets. The Commission will therefore establish a dialogue with stakeholders on how to support European industries on third markets. With respect to offsets on third markets, this dialogue will aim at mitigating possible negative impacts of such offsets on the internal market and the European defence industrial base. It will also explore 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.
How will Dual Use Export be controlled?
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.
As part of the on-going export control policy review, the Commission will present an impact assessment report of the implementation of the current regulation 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.
What is expected from Member States?
The Commission invites the European Council to discuss this Action Plan in December 2013, together with the report prepared by the Vice president of the Commission and 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.
What are the next steps now?
On the basis of the discussions with Heads of State and Government in December 2013, 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 which shall act as an interface with national authorities. The EDA and the European External Action Service will be associated to the work of this mechanism.
The Commission will also review its own internal way of dealing with security and defence matters to optimise its mechanisms for cooperation and coordination between its own services and with stakeholders.
Maintaining and developing defence capabilities 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.
Further information
Communication
Defence procurement
Source: European Commission