EU in new bid to open up defence market

The European Commission is launching a fresh drive to open up the EU’s €30bn-a-year defence market to increased cross-border competition by breaking down protection for national champions.

“The time has come for governments … to get their acts together and allow industry to broaden its options,” EU Enterprise Commissioner Guenter Verheugen said in Brussels, Belgium.

Governments are allowed protect their national defence industries because military contracts are largely excluded from EU legislation which has ripped down barriers to trade in other sectors across the European Union.

The EU’s executive branch is today due to set out guidelines to close loopholes in the law.

Officials said it would make clear that the exemption should only be applied when national security was engaged for sensitive military contracts – and not be used to cover products ranging from boots and tents to high-tech communications components which could have both military and civilian use.

“We all recognise an excessive use of the exemption,” Verheugen said. “We want to stop that.”

Verheugen said the guidelines were part of a wider push to open defence markets that would likely be included in a draft law to be presented late next year.

EU officials claim the current fragmentation of the European market creates duplication and inefficiency, pushing up prices for Europe’s armed forces and hampering efforts to develop an EU-wide defence industry capable of taking on international competitors.

But although governments agree in principle on the need to open up markets, many have been reluctant to expose domestic defence contractors to competition within the 25-nation bloc.

“I have not the slightest idea how the member states will respond,” Verheugen admitted. “It is so clearly based on European common sense, that I hope we will get the support.”

Among the barriers Verheugen wants to remove are stipulations that exporters must obtain security licences to export defence-related goods to other EU nations, despite the close military cooperation among EU governments.

He said about 10,000 such requests for licences were filed every year, and only about a dozen were refused. “This is simply an additional cost factor that makes no sense,” he complained.

New rules would promote joint research into new defence technologies, ensuring more effective use of the European defence spending. “We do spend a lot of money on defence and security, but we do not get the value we should,” he acknowledged.

Verheugen insisted governments vital security interests would still be protected. “No member state will have to abandon its sovereign rights, he said.

In June, 22 of the 25 EU nations signed up to a voluntary code of conduct designed to open up defence contracts across the bloc. Critics say it does not go far enough and say the defence trade should be brought into the EU’s common market rules.