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28 Apr 22. France Aims to Reconquer Its Industrial and Technological Sovereignty. In France, the events of the last few years, from the “Gilets Jaunes” protests to Covid-19 lockouts to the war in Ukraine, have had an important effect on political stances.
One word, in particular, is now making headlines: “souveraineté” (sovereignty). Once mostly used as a concept in political theory, it tended to become a politically contentious term in the 2000s and 2010s, when it was mostly used by radical, often euro-skeptical political parties. In the first round of the 2022 presidential election, it is interesting to note that 77 references to sovereignty could be found throughout the platforms of the five main candidates, ranging from seven references for both President Macron and center-right candidate Valérie Pecresse, to 46 references for nationalist candidate Eric Zemmour.
In 2017, during the previous presidential campaign, references to “sovereignty” were less than half, with just 32 citations, from none at all in the platform of Emmanuel Macron to a maximum of 15 in the program of the radical left candidate Jean-Luc Mélenchon.
The threats resulting from globalized supply chains and the fear of seeing France downgraded in the global value chain, are turning sovereignty into a sort of “miracle antidote” against naivety. In a much more measured way, Louis Gallois, former CEO of Aerospatiale then Airbus, rightly pointed out during a conference organized in April 2021 that while “sovereignty will always be incomplete”, it remains a key prerequisite to “the creation of a balance of power that allows France to speak as an equal to others.”
FDI Screening regulation: the extension of the domain of sovereignty
We take sovereignty here in the strategic realm, focusing on its industrial and technological underpinnings. It is important, for France as for any country, to determine which activities and technologies it should ensure to maintain control over, in view of safeguarding its agency on the international stage and being able to carry out its core missions domestically.
The scope of these “sovereignty domains” has largely varied over the years, tending to widen as shocks of various nature erupted. The evolution of foreign direct investment screening rules is an interesting indicator of this evolution.
The first such law during the last two decades, crafted by Prime Minister Dominique de Villepin in 2005, identified a total of 11 activities, all related to the fields of national defense or homeland security. In 2014, as the sudden buyout of Alstom’s energy branch by General Electric became known to the French public, then Minister of the Economy Arnaud Montebourg published an order extending this law to cover five new domains, among which energy and electronic communications.
Between 2018 and 2020, the current Minister of the Economy Bruno Le Maire further enlarged it to 5 other domains, including AI, space activities and semi-conductors.
It is also worth noting that the EU’s stance has also drastically changed over this period of time: while Commissioner Michel Barnier warned against temptations of “protectionism” in 2014, the EU promulgated in March 2019 a “framework for the screening of FDI into the Union”, encouraging all member states to create such laws and cooperate through exchange of information when necessary.
The widening of FDI screening law in France
Identifying critical needs
While implementation of FDI offers an important defensive tool, a more proactive approach consists in identifying the critical dependencies likely to be leveraged by adversaries to reduce the agency of France.
Here again, French governments have adopted a widely-encompassing approach, through the designation of 12 “Secteurs d’importance vitale” in 2006. As part of this policy, around 250 organizations were designed as “vitally important operators” (OIV), notably obliging them to establish special protection plans and disaster recovery plans for their most critical assets. While the aim of the present article is not to reproduce these lists of sectors and organizations, nor to give an exhaustive account of the most critical elements of France’s industrial sovereignty, three rules can be highlighted.
First, it is necessary to secure the supply of goods and raw materials required to sustain industrial production at the national level. As demonstrated by the consequences of the war in Ukraine, as well as preexisting shortages, metals like titanium, palladium or lithium, but also critical components such as semi-conductors, can easily be used by suppliers against their adversaries. Second, highly complex systems, requiring advanced skills and massive R&D investments, must not rely upon foreign expertise. For instance, the fact that the Rafale is powered by the 100% French-made M88 engine is instrumental for the French Air Force to operate in full autonomy; not to mention that it is an inherent selling point in several export markets. Third, governments and manufacturers must be wary of seemingly insignificant components which could submit them to extraterritorial foreign export regulation, such as the US’ ITAR and EAR, exports being critical to the French aeronautical firm’s business models as well as French foreign policy.
Establishing corporate and government responses
Discussing these orientations, a top-level French aerospace industry executive recently outlined some of the strategies put in place regarding sovereignty requirements. A key point is the vertical integration of the most vital elements in the supply chain. The recent acquisition of Aubert & Duval by Airbus and Safran, in order to secure their supply of nickel superalloys, answers both threats related to the supply of components from abroad, and with the risk of falling under foreign export laws.
The diversification and multiplication of sourcing is another important part of such strategies, while not always easy or even possible to implement, as illustrated by Airbus’ challenge to find alternative sources of titanium supply in the face of sanctions against Russia (but there again, there are ways to mitigate the dependency). The French government is supporting these actions, through the deployment of various policies, such as innovation support schemes, in order to further the array of skills mastered on its territory (e.g., “ASTRID” for the funding of defense innovation, or MAMA to limit Titanium use).
International cooperation programs and “strategic partnerships” throughout the globe also help where the multiplication of supply sources is harder to achieve. European defense industrial cooperation programs constitute the prime example of such a strategy for France, aiming to structure a web of “selected” interdependencies.
The limits to this approach
While A&D companies’ policies of vertical integration and diversification are undoubtedly the path forward, a lot of political obstacles remain in the way of the government’s strategy, as often highlighted by debates around ESG criteria for the funding of the defense industry.
The path of European industrial cooperation, in particular, is always complex and raises several controversial issues – including but not limited to IP rights, worksharing, sourcing or re-export-rules – that are yet to be resolved. One example is the future combat air System discussed between Spain, Germany and France. While Safran managed to keep its leadership on the most complex and critical parts of the engine against its German MTU and Spanish ITP counterparts, such an agreement is yet to be found between Dassault Aviation and Airbus regarding the main fighter design.
Sharing knowledge and know-how with coopetitors sometimes counter-intuitively appears as a way to safeguard French sovereignty, it remains a red line for manufacturers, which legitimately fear for their competitive edge.
The issue of export control is also critical, with Germany pushing for extensive rules, which some fear could restrict sales of future European defense systems to NATO countries only. Protection from ITAR and EAR rules has also been the object of a political struggle, with France pushing for the creation of a program designed to produce the concerned parts onshore, but so far without success.
As a political and economic concept, sovereignty is often contentious. Just imagine how tricky it gets when you drop down a level, to concrete industrial and technological issues. (Source: special to Defense-Aerospace.com; posted April 28, 2022)
26 Apr 22. France: Le Pen rejects call for ‘union of the right’ ahead of parliamentary elections, minimising threat of policy uncertainty. On 26 April, Marine Le Pen, leader of the far-right Rassemblement National party and runner-up in France’s presidential elections, stated that she remains against any form of “party alliance” ahead of France’s parliamentary elections in June. Speaking after being criticised by far-right rival Eric Zemmour for her electoral loss to incumbent President Emmanuel Macron, Le Pen’s decision to refuse Zemmour’s call for a ‘union of the right[-wing parties]’ is likely to reduce the risk of a far-right union challenging President Macron’s parliamentary majority in June. With the far-right vote to remain split, Macron’s ‘La Republique en Marche’ (LREM) is likely to retain its majority in the forthcoming legislative elections, and although gains by left-wing socialists under Jean-Luc Melenchon are expected, substantial governmental instability that prompts policy uncertainty for firms is unlikely. (Source: Sibylline)
26 Apr 22. Spain: ‘Catalangate’ threatens government stability and elevates threat of protests. Spanish authorities confirmed today (26 April) that they will launch a “full investigation” into allegations by rights organisations that Catalan activists and politicians have been targeted by phone-hacking software, potentially involving the Pegasus spyware developed by the Israeli NSO Group. The news follows a statement made last week by Spanish Prime Minister Pedro Sanchez that his office was uninvolved in any alleged use of spyware against opposition politicians. The allegations, put forward by research group Citizen Lab, suggest that pro-independence activists, journalists, and politicians from Catalonia may have been targeted by Pegasus spyware between 2015 and 2020. If found to be true, the allegations are extremely likely to spark a major political rift between Spain’s coalition parties and pro-independence Catalan groups, with the potential for domestic unrest in Barcelona and the wider Catalan region rising accordingly. (Source: Sibylline)
26 Apr 22. France: Incumbent President Emmanuel Macron wins second term with substantial majority, mitigating risks of government instability and regional tensions. As of 25 April, incumbent French President Emmanuel Macron has won approximately 58 percent of votes from the second round of the presidential election yesterday, 24 April, granting him a substantial majority over far-right challenger Marine Le Pen, who gained approximately 41 percent of the vote. Whilst the final figures may change as the remaining votes are tallied throughout the day, Le Pen’s public concession to Macron late on 24 April heralds a second term for the president and suggests the post-election period will not see substantial instability or unrest. The re-election of Macron will allay the threat of government instability at a critical juncture in European politics with the ongoing war in Ukraine, and will maintain France’s pro-EU trajectory, thereby reducing the risk of regional tensions with its European partners, minimising policy risk to firms in France. (Source: Sibylline)
25 Apr 22. UK named world’s fourth-biggest defence spender in 2021.
A new report says the UK moved into the world’s top five military spenders in 2021 as the US remains the biggest spender by some distance.
The UK was the world’s fourth-largest spender on defence in 2021, according to a new report.
The annual report by the Stockholm International Peace Research Institute (SIPRI) also revealed that for the first time ever, global military expenditure exceeded $2trn.
The top five highest-spending nations together accounted for 62% of all global defence spending, it said.
According to SIPRI, the UK was the fourth-largest spender on defence worldwide in 2021, up two places from the previous year, accounting for $68.4bn – a 3% increase from 2020.
The UK was one place ahead of Russia in fifth with Moscow spending $65.9bn – a rise of 2.9%.
The US has remained the world’s biggest defence spender by some distance, spending $801bn in 2021 – a fall of 1.4% from 2020.
The report also detailed that in Europe, where military spending has increased 19% since 2012, just eight out of the continent’s 26 nations that form part of NATO met the 2% gross domestic product (GDP) target on defence spending.
Nine European nations hit the GDP target in 2020, the report says.
SIPRI says the UK is the second-largest spender on defence across NATO, behind only the US.
Meanwhile, Ukraine’s military spending grew by 72% between 2014 and 2021 and has increased by 142% since 2012.
This upward trend was interrupted in 2021 when Ukraine’s military spending fell by 8.5% to $5.9 bn – 3.2% of the country’s GDP.
Elsewhere, the UK, US and Australian trilateral security agreement – AUKUS – announced last year contributed to Australia’s defence expenditure increasing by 4% from 2020 to $31.8bn. Since 2012, Australia’s military spending has increased by 42%.
The top 10 countries with the highest military expenditure in 2021, according to SIPRI, were:
- United States $801bn
- China $293bn (estimated)
- India $76.6bn
- United Kingdom $68.4bn
- Russia $65.9bn
- France $56.6bn
- Germany $56bn
- Saudi Arabia $55.6bn (estimated)
- Japan $54.1bn
- South Korea $50.2bn
SIPRI was established in 1966 and conducts research into conflict, armaments, arms control and disarmament. Its annual reports on global military expenditure provide analysis based on open source information. (Source: forces.net)
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