Commission targets open defence market

The European Commission is to present plans next week (5 December) aimed at opening the EU defence market to competition.

New rules on licensing and public procurement are at the heart of the strategy to overhaul Europe’s defence market, estimated at close to €24 billion this year.

Enterprise and Industry Commissioner Günter Verheugen wants to introduce a general licensing system for defence equipment that would allow transfers of a broad range of goods to recipients within the EU. But he could face opposition, as the proposals would shake up well-established and often exclusive relationships between governments and suppliers.

Verheugen said in an interview with European Voice that the current system did not make sense, "because you have to apply for a licence for each single transfer and you have to pay". He said that of the approximately 10,000 licensing applications last year, not a single one was denied.

Arcane regulations, licensing procedures, export control lists and a lack of information-sharing led to duplication and high prices on the EU defence market. Differences between member states are holding back the market, even though it boasts some of the most technologically-advanced companies and facilities in the world.

"It’s an economic problem," Verheugen said. "To increase the efficiency of the EU defence market you need more co-operation…more money for development, you will have an economy of scale because you can produce the items in higher numbers."

The commissioner hopes to convince member states of the efficiency gains that a reform of licensing systems would deliver - especially since national politicians will not be able to justify an increase in defence budgets. "We spend a lot on defence," he said. "If you compare the total EU defence budget to the Americans’, it’s close to 50%, but the value we get for this is poor due to the fragmentation."

Verheugen said that he was "very confident" that he would win the backing of member states and industry. "The Commission was very wise not to… create the impression there is a question of new competences, new powers," he said.

Charlie McCreevy, the internal market commissioner, will also announce proposals aimed at curtailing member states’ ability to dodge public procurement rules on grounds of national security. Current EU rules give ministries of defence the option of invoking Article 296 of the EC treaties, which allows them to select a company based on national security interest. It is estimated that around half of all defence contracts in the EU today are not subject to normal procurement rules.

McCreevy’s measures would limit the use of Article 296 by specifying goods that should not be deemed sensitive to national security such as paint, furniture and certain vehicles. Thousands of contracts could be opened up to market rules.

Increased transparency of defence procurement markets was introduced last year under a code of conduct established by the European Defence Agency (EDA). The EDA’s electronic bulletin board has created a market worth more than €10bn.

The European Commission is to present plans next week (5 December) aimed at opening the EU defence market to competition.