Commission responds to declining arms industry

Date: 02/11/1995

By Elizabeth Wise

THE European Commission will publish a report this month on the state of the EU's armaments industry, encouraging governments to create a single market for defence procurement and technical development.

“We are suggesting eliminating the barriers to a European market,” said a Commission official. “We need to get rid of the really unnecessary medieval barriers to trade inside the Community.”

The Commission report is a partial response to industry requests for help in saving their declining industry with more funding, some restructuring and encouragement for joint ventures.

Two ideas already being considered are a European Armaments Agency (EAA), which Foreign Affairs Commissioner Hans van den Broek has said should be “the first phase” in developing a common foreign and security policy, and a 'Buy Europe' policy for EU governments contracting defence equipment.

The Commission report will not propose 'Buy Europe' rules, but will encourage EU states to recognise that European arms makers can offer the same guarantees of supply or confidentiality as American suppliers. Existing EU procurement rules do not distinguish between a European or non-European tender, so once a member state cannot produce a fighter plane at home, contracts are up for grabs by the Americans as soon as tenders are invited from other EU producers.

The Commission will have to tread carefully. A restructuring of the aerospace industry, whose owners and clients are governments and which involves not only jobs and huge sums of money but also national sovereignty, would make last year's agonising steel restructuring look simple.

But it will give voice to industry pleas for an environment conducive to mergers.

“We want to have a change in attitude in the national defence ministries,” said an official. “Mergers will be necessary in the declining market.”

This month's communication will answer only some of industry's requests, however, as the Treaty of Rome removed the arms industry and defence from the Commission's jurisdiction. Normally the arbiter of joint ventures or mergers, the Commission would have no response if a member state invoked the treaty.

The industry wants more research funding, saying it needs 650 million ecu per year over the next decade. Currently, the aerospace share of the Fourth Framework and other EU funding comes to about 550 million ecu over 5 years.

The Commission says its current research budget is not for defence-related research and there are no plans to increase funding. EU-funded research for civilian aircraft, including research on engines and electronics can be useful to the military, however.

The communication will suggest that EU research programmes should be coordinated with Western European Union (WEU) programmes to avoid duplication and to identify research priorities jointly.

EU regional funds are currently used to wean defence industry-dependent regions off armaments and space production, introducing new industries into such areas. About half the regions heavily dependent on the defence industry are currently receiving funds.

The Commission consulted industry leaders while drafting its communication and will seek their responses before the paper is voted on by Commissioners.