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11 Dec 07. The European Commission has published its Defence Package – a Directive on Defence Procurement, a Regulation on intra-Community transfers and a Communication outlining its vision for the European defence equipment market. This is the latest in a series of steps at the European level to seek to develop a more open and competitive defence market in Europe.

Commenting on the publication of the European Commission’s ‘Defence Package’ SBAC’s Chief Executive Ian Godden said: “The UK already practices open defence procurement and it is good to see that the Commission is seeking to encourage greater competition across national borders in Europe. This package is in the very early stages of development and UK industry hopes this will be a process that results in greater efficiency in defence procurement across Europe. Industry is keen to play its part in shaping the proposal and it is important that the right balance is struck between the benefits of open markets and the retention of national industrial defence capability.”

“Industry is concerned to ensure that the proposed Directive has the effect of encouraging investment in Research & Development and will be paying close attention to this aspect of the proposals.”

SBAC will be meeting with the Commission on Friday 7 December to understand the proposals more fully.

Background to the Announcement

In July 2006 the European Defence Agency launched its Code of Conduct for Defence Procurement. The Code is an intergovernmental regime that operates on a voluntary basis and is designed to introduce transparency, and with it peer pressure, into governments’ procurement decisions. It applies to those areas covered by Article 296 of the EU Treaty – a provision that dates from the 1950s and allows governments to derogate from public procurement rules in the defence sector for various reasons including national security. Under the Code, governments publish contract opportunities on EDA’s online Bulletin Board, countries are required to base contractor selection primarily on economic grounds and regular reports analysing adherence to the Code are released.

This EDA initiative was followed in December 2006 by a European Commission Interpretative Communication which uses existing EU case law to seek to limit the range of circumstances in which governments can invoke Article 296. Simultaneously, the Interpretative Communication recognised that the EU’s procurement directives do not deal with some genuine specificities in defence markets – hence today’s publication of a draft Directive that applies exclusively to defence procurement.

The Defence Package

The Commission’s Defence Package has three elements, the most significant of which is the draft Directive on Defence Procurement (and it will remain a draft instrument until it is agreed by the EU Council and European Parliament). The Directive seeks to set procurement rules, deemed suitable for the defence sector, on those areas of the European defence market that fall outside the scope of Article 296, but are not covered by the EU general procurement directive.

The general aim of the Commission Directive is to enforce open procurement in those markets in Europe that remain protected. The UK already has an open acquisition process so any extension of this across Europe can only be of benefit to British industry.

However, there are also some concerns. This is new territory for the Commission and there is a question mark as to whether the Directive would be properly and fairly enforced throughout Europe to ensure a level playing field for all. And there is also unease over R&D. In order that incentives for the creation of high value-added employment and IPR are not undermined, defence R&D should be clearly, and in its entirety, excluded from the terms of the Directive. Without such an exclusion Europe’s defence technological and industrial base could begin to decline as

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