EU defence market set to embrace competition

Europe is to experience a "quiet revolution" in its €30 billion defence equipment market from the start of July, according to the head of the European Defence Agency (EDA).

From 1 July, 22 member states will post all new defence equipment contracts on the agency's website, offering them to any of the other participating countries and introducing real competition into the sector.

For Nick Witney, chief executive of the EDA, "July marks the crossing of a psychological Rubicon". From that date, he said, assumptions about defence procurement would switch from favouring national suppliers to "Europe-wide competition".

Defence ministers agreed in November last year to a new code of conduct on defence contracts which meant that tenders for military equipment worth more than €1 million would be open to all participating states. Under Article 296 of the EC treaty, the EU defence industry has been exempt from normal competition rules including those on public procurement. The defence industry has been fragmented into 25 separate markets, each dominated by national suppliers, suffering from higher costs, duplication and a lack of interoperability between armed forces.

Witney admitted that the defence market opening would get off to a "slowish start" and that initially there would be only a handful of notices advertised on the agency's site.

But further down the line, he said, the initiative would lead to "keener prices" for defence ministries as procurement officers no longer automatically selected their national suppliers. The initiative would help the restructuring of national industries which were struggling to survive in the face of tight national budgets, leading to a more competitive European defence industry.

"A number of member states are very well aware that the restructuring process has to happen inside or outside the code because the money is not there in defence budgets," he said. But thanks to the code of conduct, national defence industries that had to restructure would have the "comfort" of "strong markets", he said, and the chance to find specialisations within a pan-European defence industry.

The EDA head said he hoped that the new more transparent regime might lead to some equipment currently covered by defence procurement rules being "flushed out" and coming under normal public procurement procedures, bypassing the code of conduct altogether. He cited the example of soldiers' boots. The Commission is also considering whether to draw up a specially tailored set of procurement rules for defence equipment to escape the grip of Article 296.

Some issues of the code of conduct remain to be settled, notably the questions of security of supply and security of information.

Witney said that the EDA would present proposals on these to a meeting of national armaments directors in September but insisted that the delay in resolving these issues would have only a "minimal impact" on the volume of tenders which were posted on the site.

Denmark has an opt-out on defence matters and is not participating. Witney said he hoped that the other two countries which had so far declined to join the initiative, Hungary and Spain, might participate later. In the meantime, they would be paying the penalty of being "outside the code" and not being able to influence it, he said.

Gerd Runde, director of defence and security at the Aerospace and Defence Industries Association, which represents 2,000 companies in Europe, said: "We are full of hope it will make a significant contribution to increasing cross-border defence business."

Runde stressed that the code's success would depend on the "behaviour of national governments".

Europe is to experience a "quiet revolution" in its €30 billion defence equipment market from the start of July, according to the head of the European Defence Agency (EDA).

• Primary Source