INT/406 - R/CESE 460/2008 EN/o

EN 99 rue Belliard - B-1040 Brussels - Tel. +32 (0)2 546 90 11 - Fax +32 (0)2 513 48 93 – Internet: http://eesc.europa.eu

European Economic and Social Committee

INT/406

A Strategy for a stronger and

more competitive

European Defence Industry

Brussels, 17 June 2008

WORKING DOCUMENT

of the

EUROPEAN ECONOMIC AND SOCIAL COMMITTEE

on the

Communication from the Commission to the European Parliament, the Council,

the European Economic and Social Committee and the Committee of the Regions:

“A Strategy for a stronger and more competitive European Defence Industry”

COM(2007) 764 final

_____________

Rapporteur: Marius – Eugen Opran (Gr.I – RO)

_____________

Administrator: J. Pereira dos Santos

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Study Group on: Communication from

the Commission to the European

Parliament, the Council, the European

Economic and Social Committee and the

Committee of the Regions:

“A Strategy for a stronger and more

competitive European Defence Industry”

COM(2007) 764 / INT 406

President:

Rapporteur:

Members:

GKOFAS (GR-III)

OPRAN (RO-I)

BOYLE (UK-II)

CABRA DE LUNA (ES-III)

CARR (EE-II)

CASSIDY (UK-I)

CEDRONE (IT-II) (art. 62 – Iozia)

DANEV (BG-I) (art. 62 – Behar)

D'SA (UK-III)

GENDRE (FR-II)

van IERSEL (NL-I)

KOTOWSKI (PL-III)

METZLER (DE-III)

SCHALLMEYER (DE-II) (art. 62 – Ott)

VOLEŠ (CZ-I)

Experts:

Mrs Cathy NOGUEZ (for the Rapporteur), Thales Alenia

Space, Director for European Affairs, Brussels Office

*

* *

On 5 December 2007 the European Commission decided to consult the European Economic and

Social Committee, under Article 262 of the Treaty establishing the European Community, on:

The Communication from the Commission to the European Parliament, the Council, the European

Economic and Social Committee and the Committee of the Regions:

“A Strategy for a stronger and more competitive European Defence Industry”

COM(2007) 764 final.

The Section for the Single Market, Production and Consumption, which was responsible for

preparing the Committee's work on the subject, adopted its opinion on …

The rapporteur was M r. Marius – Eugen Opran RO) - I r.(G .

At its ... plenary session, held on … (meeting of ...), the European Economic and Social Committee

adopted the following opinion by ... votes to ... with ... abstentions.

*

* *

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I. CONCLUSIONS

1. Currently, the EU MS have under development a numerous different National Military

Projects 1 underway (89 for the main categories of Armaments, comparing with US DoD /

DARPA only 27 major projects), often motivated by Regional economic needs instead of a

solid commitment to either serious Military Capability or Economic Efficiency, leading to the

European Market fragmentation, unnecessary duplication and often poor interoperability.

2. A Continuous Degrading of European Armed Forces and - to make matters worse, the

reduced State of Capability and Readiness leads to the derogation of the European Defence

Technological and Industrial Base (DTIB), allowing Foreign Competitors to gain ground on

us almost every year, further complicated by Defence Inflation and low levels of Military

Expenditure, particularly for the small and medium-sized MS - and some of the larger ones,

not least Spain, Italy and Germany, each spending merely between 1.1% and 1.8% of their

GDP on Defence.

3. In the actual circumstances, the Europeans are increasingly less able to

contribute anything of real substance to the Transatlantic Partnership, reducing the

effectiveness of NATO and producing an environment more conductive to American

unilateralism.

4. Restructuring the Defence Industry in accordance with the Lisbon Strategy represents the

actual major task conditioning Survivability and Global Future of the EU Defence Industry.

5. First of all that means to set up a real European Defence Equipment Market (EDEM), in

accordance with the full set of specific requirements unique for this special domain:

5.1. Strict Rules framing the Production and the Sales – this sensitive matter being entirely

under the MS decision, outside the scope of the Community competence (referring first to

the Third - Countries Export Operations);

5.2. Secret Character of the Activities, imposing severe constraints on the Access to Information;

6. Technological Excellence Level of the Products, requested by the Beneficiary in order to

successfully accomplish their missions.

7. The Public Procurement activities should be done according with a Common Set of Rules,

accepted by all MS in order to have a better utilisation of the allocated funds and to

strength the DTIB - by:

1 The EU MS Armed Forces are currently using 4 different models of Main Battle Tank, more than 20 different

Armoured Vehicles models, two types of Jet Fighters produced in the same country - one of them under simultaneous production in all four countries of origin of the joint developers. We have more than 20 different Armoured Vehicles models under development, in the same time – by contrary – the activities regarding the development of a new 5th-Generation Jet Fighter, Ground-to-Air Laser Weapons or Reactive Protection of the Army Combat Vehicles are totally missing!

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7.1. Defining an European Common Model for the Public Procurements (as a “Template”) in

the field of Defence and Security, accepted by the all MS;

7.2. Developing the right Benchmarking procedures specially dedicated to evaluate the

contribution of the both Codes issued by the EDA, despite of the fact that the aspects

regarding the Security of Supplies was not included;

7.3. This problem was corrected by the Commission with the new Defence Package, introducing

both the Security of Supply and the Security of Information - as Selection Criteria.

8. The process of DTIB Reinforcement can be supported too by setting up:

8.1. A strict and efficient Community control of the Foreign Investments in the area of EU

Defence Industry, in order to avoid illegal access to the latest technologies developed by

the EU Defence industry companies;

8.2. A harmonised Common Politics in the field of the Golden Share Practice (not included as

individual aspect in the Strategy proposal of the Commission) imposed by some EU MS as a

mandatory condition for the privatisation process of the Defence Industry. This condition,

practically never used by the governments after privatisation, creates a false motivation for

the foreign investors to offer acquisition prices much lower than the real market price.

9. Links with the Lisbon Strategy: The future industrial policy for the European Defence

Industry can fully fulfil the following aspects emphasized by the Lisbon Strategy for growth

and jobs:

9.1. Building up the Internal Market and improving European and National Regulations; 9.2. Encourage knowledge and innovation by promoting more investment in R&D:

• In line with the Lisbon goal, the Defence Industry should increase research investment

with the aim of approaching 3% of Total Defence Expenditure (TDE) 2;

• EU Member States could increase the efficiency of research spending if they pool

research activities and work more closely together - for example, through the

Commission and through the European Defence Agency (EDA);

• Furthermore, it could be considered to promote the use of Synergies between Civil and

Military Research. It is probable that the European Security Research Programme will

co-finance technology developments which might lead to Dual - Use applications,

mutually increasing the knowledge and innovation about civil and military technologies;

2 Whereas the United States spends 3.3% of TDE on defence R&T, the EU MS together spend only 1.1%

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9.3. More and better Jobs: The development of new defence technologies, especially the

increasing complexity of defence systems, will require excellent technological skills and a

well trained workforce. A European defence industry able to respond to all future military

needs will require a special human resources politics, including important investments in

the continuous professional training of its own personnel.

10. An industrial policy for the defence sector will emphasize the need for Member States and

industry to better coordinate the national programmes, work more together and ensure

that all capabilities are available which are needed for a European Security and Defence

Policy (ESDP). This cooperation would ensure the best use of available resources and the

identification of new technologies and products needed for future defence missions.

Note: According with the actual political status, two Western non-EU countries – Switzerland and Norway 3 -

both of them having highly developed defence industry national sectors and also officially recognized

as traditional partners of the EU and of NATO in various projects, can not participate as members to

the creation of EDEM. This situation can push these countries - like an unique alternative option - for

a more stronger alliance and cooperation with US defence industry, including facilities for a massive

implementation in Europe of the American companies in order to compete the new – born EDEM on

its home location. It is the role of the Community Institutions to keep away EU from this potential

threat by direct negotiations followed by political decisions. A similar case for discussion and

evaluation is Israel.

11. In order to lift the actual barrier blocking the R&D joint programs, the Council by the EDA

should fill up the actual existing gap between various national politics of the MS by setting

up a new “List of the Military Products” considered to be of general common interest for

the Community’s members. Of course, the Council by EDA should start work on issuing the

new “Euro-Armaments List” only after applying and being officially mandated by the EDA’s

Ministerial Steering Board (EDA-MSB).

12. Subject of the unanimous approval of the new “Euro-Armaments List” by the assembly of

the MS, it will be the role of the EDA to define the technical & operational requirements for

the Future Generation of Euro-Armaments to be designed and manufactured under the

brand “Made in EU” – with the support of a team of independent experts from all MS.

13. To have a successful “Euro-Armaments” Programme, after the Commission, the Council by

EDA and the MS will decide on the rules regarding the Rights of Intellectual Property

defending the Intellectual Property Rights of the Industrialists on the new-developed

3 On May 26, 2008, the EU Defence Ministers agreed to allow non-EU member Norway to participate in the

Regime on Defence Procurement, under which governments and industry voluntarily commit to more open cross-border competition for defence equipment contracts. The decision was taken at a ministerial Steering Board meeting of the EDA, to which all EU members except Denmark belong. “We are delighted that Norway will be participating in the Regime, which will help our efforts to open the EDEM and further strengthen our DTIB”, said Head of the Agency Javier Solana. Norway has an Administrative Arrangement for cooperation with the EDA. Although not a member of the EU, it participates in its European Security and Defence Policy (ESDP) in many ways, contributing troops to ESDP operations and forming part of the EU Nordic Battle Group.

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Know-How and the effective Business Management Principles, the EDA R&D allocated

budget should be exponentially increased. Informally, the Ministers of Defence of the

Member States (MS) proposed, as a short-term target, 2% of the R&D European Defence

expenditure - Euro 500M based on actual expenses. The ministers mentioned also the

possibility of increasing the budget limit to EUR 900 M, or 2% of the credits contracted for

the development of new equipments and technologies

II. MILITARY AND POLITICAL ASPECTS AND THEIR IMPACT ON THE SECTOR

14. The roots of actual critical situation was all realised a long time ago, starting during the Gulf

War in 1991, raising again after the subsequent Bosnian and Kosovo wars and culminating in

the ongoing intervention in Afghanistan, where many European militaries have found it

difficult to interoperate with the American troops - or even with other European countries

contingents.

15. Indeed, facing the ongoing rise of China, India and Russia, alongside a myriad of regional

powers like Brazil and Iran, the need of a strong and militarily capable European Union has

never been greater, despite of the fact that the power of the individual power of its Member

States - even UK and France - is in a steady albeit relative decline. Also, the European’s

influence in Washington has been reduced, due to the growing Asian-Pacific orientation of

the US, but also because of the widening gulf of power between the two sides of the

Atlantic.

16. As one of its major priority, the French Presidency of the European Council (01.07. –

31.12.2008) drove forward the European Security and Defence Policy (ESDP), first of all by

redrafting the still into force 2003 document 4. Also, the European Parliament's defence and

security subcommittee is currently preparing its own document on ESDP.

17. The drive to enhance Europe's military capabilities was partly responsible for the St. Malo

Agreement between the UK and France in 1998, the aim of which was to provide for a

greater level of European military cooperation with NATO. The conditions may now be right

for the UK and France to take European defence integration on to a new plane, opening the

door for all MS to fulfil the requirements that have to be met by the members of EU defence

forces.

18. Referring to EU military capabilities, EU High Representative for the Common Foreign and

Security Policy, Javier Solana noted at the informal meeting of EU defence ministers in

Deauville on 1 October 2008, that the European Union urgently needs national action to

overcome current shortcomings. This will only be possible if Member States make informed

decisions on specific projects. Over the past few months there have been some interesting

proposals by the Member States, with the active support of the EDA, mainly on helicopters,

4 Compiled in 2003 by Robert Cooper and Javier Solana.

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strategic transportation, air-sea cooperation, space, military naval observation and maritime

mine clearance.

19. In his speech at the High-level conference on EU - NATO relations (Paris, 7 July 2008), NATO Secretary General Jaap de Hoop Scheffer pointed out that many EU members accept the need for a closer EU-NATO relationship and agree that a strong ESDP is becoming increasingly necessary from a transatlantic perspective. In the same speech he tabled a proposal for specific cooperation between the two organisations on a joint strategic airlift project bringing together the A400M and the C17.

20. Some politicians already expressed their support for the solution that the way forward is for

we Europeans to band together in the European Union, which should then become a

member of NATO in its own right, replacing the current twenty-odd European Members.

III. PROPOSALS

PROPOSAL 1: The Committee considers that the Council, the Parliament, the Commission,

the Council and the EDA - SBMF should promote during 2009 – 2010, a full set of political,

financial and economic measures enforcing the EU Defence capabilities – in order to:

���� eliminate the actual distressing factors discontinuing the healthy growth of the

European Defence Industry – mainly: (a) Market fragmentation between different

manufacturers of the same category of armaments; (b) Unnecessary duplication of the

R&D activities; (c) Often poor interoperability between different national contingents,

members of the European Joint Task Force (or similar);

���� In the same time, improving at the level of the all Member States: (a) The Defence

Capabilities; (b) The Armaments Manufacturing Capacities 5.

PROPOSAL 2: The Committee requests to the Commission and the Council mandatory

represented by the EDA to define during 2009 a EU Common R&D Defence Programme

“DEFENDING THE FUTURE!” - approved by the highest level political organs: the Council,

the Commission, the High Representative for CFSP and – the most important – by the EDA -

SBMF. In order to promote and to accelerate the European R&D cooperation in the area of

Defence projects, the main task of the new approach should be to define the List of the

Military Products considered by the all MS as representing the highest priorities – “THE

EURO-ARMAMENTS LIST”. The main goals which motivated that are represented by the

necessity to achieve the minimal requirement of standardisation and interoperability

among the EU military capabilities.

5 It’s embarrassing that when European nations – with almost 2 million men and women under arms – are only

able, at a stretch, to deploy around 100 thousand at any one time. EU countries have around 1,200 transport

helicopters, yet only about 35 are deployed in Afghanistan. And EU member states haven't provided any

helicopters in Darfur despite the desperate need there.are deployed in Afghanistan. And EU member states

haven't provided any helicopters in Darfur despite the desperate need there.

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21. The Committee strongly recommends to the EDA – SBMF to urgently set up and approve the

level of the obligatory annual contribution of the MS 6 – as percentage of the National

Defence R&D Budget allocation - to the EDA Common Fund for the R & D activities.

European nations – with almost

PROPOSAL 3: During the next Czech Presidency, the Committee requests to the Council, the

Commission and the EDA – SBMF:

���� to express their firm position regarding the definition and the implementation of the

Euro-Armaments concept;

���� to set up a new Strategic Document on the EU Common Policy on Euro-Armaments :

(a) Identifying the Challenges and defining the needed Operational Capabilities;

(b) Establishing the Targets for National Investments in R&D, production and training –

in order to upgrade the Combat Level of our Armed Forces;

(c) Establishing the concrete actions for an efficient Cooperation between the MS;

(d) Supporting the backing up of the Strategy with Political Drive;

� ���� to organize during the 2-nd qt./2009 the 1st

EU Forum on Euro-Armaments – as a large

� debate with the participation of the governments, industrialists, trade unions &

� organised civil society.

22. If the Euro-Armaments concept is approved by the EDA-SBMF, the Committee considers that

a possible Road Map for the Euro-armaments R&D programme setting out concepts and

possible stages could be represented as follows:

a. EDA: using the EDA CAPTECH database, selecting and appointing the EDA Independent

Experts Group (IEG) of 27 people (27 EU MS – Denmark + Norway) – one expert from

each country;

b. IEG: setting up the list of armaments included in the category of "Euro-armaments" to

be developed jointly and to become operational within all EU MS Armed Forces; defining

the Technical and Operational Requirements (TOR);

c. EDA: sending the proposed list of Euro-armaments and the TOR to the military joint

staffs of all MSs for evaluation and comments;

d. EDA: receiving the comments and requests of each MS declaring their interest in

participating (or not) in a specific Euro-armament project, taking needs into account and

establishing the final order and schedule for developing Euro-armaments;

e. IEG: modifying initial TOR in accordance with amendments received from the MS;

6 The Ministries of Defence of the MS already approved last year, like short-term objective, an annual contribution

of each country representing 20% of the National Defence R&D allocated budget, the financial estimation being close to EUR 500 M.

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f. EDA: selecting priorities for Euro-armaments in accordance with the existing budget;

g. EDA: establishing the optional share of national financial contributions for each Euro-

armaments project in accordance with MS expressions of interest;

h. IEG: preparing tender documents;

i. EDA: launching the tender procedure to select the integrator – company/JV - in charge

of drawing up technical documentation and developing the project demonstrator for

each type of Euro-armament project;

j. IEG: technical and operational evaluation of bids;

k. IEG: field test and evaluation of the demonstrator, before taking any final decision on

starting industrial production to meet firm orders by MS;

l. IEG: preparing tender documents;

m. EDA: as proprietor of the intellectual rights of the project and of the demonstrator, the

Agency will select the system manufacturing integrator by a tender procedure;

n. IEG: technical and operational evaluation of bids.

PROPOSAL 4: The Committee considers that the Parliament, the Council and the

Committee should set up a special EU INTER-AGENCY COMMITTEE FOR THE CONTROL OF

THE FOREIGN INVESTMENTS IN THE AREA OF EUROPEAN AEROSPACE AND DEFENCE

INDUSTRY – a EU adapted version of CFIUS 7.

���� Its task: to reviews the Community security implications of foreign acquisitions

of the EU companies or operations 8.

7 The Committee on Foreign Investment in the United States (or CFIUS) is an inter-agency committee of the United

States Government that reviews the national security implications of foreign acquisitions of U.S. companies or

operations. Chaired by the Secretary of the Treasury, CFIUS includes representatives from 12 U.S. agencies,

including the Defense, State and Commerce departments, as well as (most recently) the Department of

Homeland Security. CFIUS was established by Gerald Ford's Executive Order 11858 in 1975. Ronald Reagan

delegated Presidential oversight to CFIUS by his Executive Order 12661 in 1988. 8 A Russian consortium owns +6% percent of EADS common stock. Analysts expect the Russian consortium of

banks and aircraft companies to increase their ownership of the EADS to at least 10% of common stock. Given

the current low share prices, the politically-controlled Russian banks will probably increase their holdings of this

stock. When evaluating the various political and economic issues, EADS management should consider the fact

that an increased Russian share holding might well empower its high-level officials, resulting in additional

demands on the Airbus Board.

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PROPOSAL 5: The Committee considers the Organisation for Joint Armaments Co-operation

(OCCAR) created by France, Germany, Italy and the UK to be a precursor of a genuine

common armament agency/programme management agency, and recommends that

Council start consultations with all Member States regarding their position on a possible

official merger/joint cooperation between this organisation and the EDA, as envisaged in

the joint action that created the EDA. This would allow new programmes to start aimed at

developing a new generation of major European armament systems to be used jointly by all

Armed Forces and Security Forces of the EU Member States. The Committee is putting

forward this proposal in good faith, and understands that implementation is ultimately

solely a national responsibility.

23. Regarding the position expressed by some international politicians supporting EU to

become a member of NATO in its own right and replacing the current twenty-odd European

Members of NATO, the Committee believes that this option is not of actual interest for the

moment!

a. Of course, this requires much Political Solutions, not least a decision by the so-called

“Neutral Member States” like Austria and Ireland to take a firm position;

b. The EESC thinks that this solution will also necessitate considerable Institutional Changes in

Brussels and a certain Transfer of Powers between Member State capitals and the

European capital should be actually postponed …

c. … but can be considered like a goal for the New Generation of Young Politicians and

Military Experts can work towards!

24. Finally, the Committee much appreciates the official public position expressed on 30 May

2008 by the Council on current and future problems of the EU defence industry and agrees

that this document should be included within the Commission's strategy as a basis for key

guidelines to be followed by the future action plan for the sector 9.

IV. THE EU DEFENCE INDUSTR IS STILL COMPETITIVE?

25. The answer is “Yes” – but does face a large number of constraints:

25.1. The European Market remains fragmented, each MS trying to preserve its status of “Donor

of Orders” and “Protector” of its own National Defence Industry;

25.2. In fact, the so-called Competition with the US is an asymmetric one, because of the Gap

between the levels of the Budgetary Allocations and of the Lack of Reciprocity regarding

the Market Access.

9 PRESS RELEASE, 2871st Council meeting on Competitiveness (Internal Market, Industry and Research), 29-30 May

2008. par. 3.3. http://data.ellispub.com/pdf/EN/2008/Council/100733.pdf

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TABLE 1: Duplication of R&D activities and programmes in the EU Member States

(Source: UNISYS 2005, page 104)

AIRCRAFT Research Cost

(Billion Euro)

Expected Output

(Units)

EUROFIGHTER 19.48 620

GRIPEN 1.84 204

RAFALE 8.61 294

JSF (US) 19.34 3003

TABLE 2: Combat Aircraft research costs

(Source: UNISYS 2005, page 105)

TYPE OF DEVELOPED SYSTEM EUROPE USA

LAND SYSTEMS

Main battle tank 4 1

Armoured Infantry Fighting Vehicle 16 3

155 min howitzer 3 1

AIR SYSTEMS

Fighter-strike 7 5

Ground attack – trainer 6 1

Attack helicopter 7 5

Anti-ship missile 9 3

Air-air missile 8 4

SEA SYSTEMS

Frigate 11 1

Anti-submarine torpedo 9 2

Diesel submarine 7 0

Nuclear-powered submarine 2 1

TOTAL 89 27

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Table 1: Comparison between EU and USA in the area of Defence Expenditures

General - for the FY2006.

Table 2: Comparison between EU and USA in the area of Defence Expenditures –

Reform - for the FY2006.

10

Europe means 26 EDA participating Member States. 11

Euro/US Dollar exchange rate is based on average for 2006 rate of 1,2556. 12

Authorized strengths of all active military personnel; includes non- MoD/DoD personnel in uniform who can

operate under military command and can be deployed outside national territory.

European - US Defence Expenditure - General

Europe 10

US 11

Total Defence Expenditure € 201 Bn € 491 Bn

Defence Expenditure as a % of GDP 1,78% 4,7%

Defence Expenditure Per Capita € 412 € 1,640

European - US Defence Expenditure - Reform

Europe

US

Military Personnel 12 1,940,112 1,384,968

Civil Personnel from Military 484,827 699,520

Defence Spent per Soldier € 103,602 € 354,898

Investment (Equipment Procurement and R&D) per

Soldier € 20,002 € 102,489

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