EDIP - EuroDefense network's letter to the EU
Some comments on the proposal of the European Commission for a regulation establishing the European Defence Industry Programme and a framework of measures to ensure the timely availability and supply of defence products (‘EDIP’)
Lettre de Jacques Rosiers, président du Réseau EURODEFENSE au Conseil européen, à la Commission européenne et au Parlement européen sur les résultats des travaux du Groupe de travail EWG30 du réseau EuroDéfense sur EDIP.
Some comments on the proposal of the European Commission for a regulation establishing the European Defence Industry Programme and a framework of measures to ensure the timely availability and supply of defence products (‘EDIP’)
The Commission’s proposal published on 5 March 2024 establishing the EDIP and a framework of measures to ensure the timely availability and supply of defence equipment' is rooted in the serious shortcomings of current defence procurement practices in Europe. It includes very useful proposals, which deserve simple and urgent implementation but sometimes stumbles over a counterproductive lack of readability, clarity, and even relevance, in terms of proportionality, focus, governance and speediness of the answers proposed.
1. Indeed, certain serious shortcomings of current defence procurement practices in Europe having negative consequences for the European Strategic Autonomy, require urgent corrective measures:
In simple terms, instead of spending more, better and more together as European, the Members States, who are in charge according to the EU Treaties, spend not enough and in inappropriate non-European ways:
-Insufficient demand is currently partially addressed by strongly increased defence budgets. European industry should be stimulated to increase production capacity. Long-term delivery contracts or other forms of guarantee are necessary to achieve this.
• Fragmentation of the demand, which even consolidated, is notably insufficient. It can be countered by stimulating intergovernmental (notably regional) cooperation between Member States purchasing identical capabilities in shared contracts. Compensation or industrial participation requirements fragmenting supply should be countered to consolidate capability development and production. The Eurodefense/EDTA proposal ‘Clustering the EDTIB’ is an effective model to contribute to achieve this.
• National preference fragmenting supply, illustrated by still too few structuring cooperative programmes, themselves handicapped by the lack of convergence of national approaches to exports. The latter could be achieved by stimulating ALL members States to sign up to the Trilateral Agreement, originally signed by FR, GE and SP.
• And if not, preference very often granted to American solutions, by denying non- national European ones, or even partly national/partly European solutions.
• The corrective initiatives that have been wisely devised to correct these shortcomings, such as the Permanent Structured Cooperation and the EDA or OCCAR, have been misused or under-exploited by the Member States, lacking of the needed political will.
The Commission is legitimately seeking to help correct these wrongdoings.
2. The Commission proposes to create financial incentive instruments and procedures to encourage the protagonists to correct these drifts and to stimulate the European cooperation:
• The augmentation of substantive incentive mechanisms to support European defence solutions and innovation excellence over non-EU solutions is indeed an absolute must.
• The establishment of a list of available capacities in Europe would encourage the recourse to European solutions, when domestic solutions are not suitable, whether in terms of quality or volume. The list will also encourage EU industry to grow towards lacking capacities…
• The VAT exemption for cooperative programmes and group purchases would correct an unfair advantage offered to US solutions using NATO procurement tools.
• The establishment of a European legal mechanism of the FMS type (EMS easing G to G approach) would facilitate and accelerate intra-European acquisitions but export potential to third countries as well.
• The recognition of the responsibility of Member States in terms of exports, accompanied by an incentive to agree on more harmonized approaches between the states associated by state and/or industrial programs in cooperation: the Commission would have every reason to publicly recognize that its call is exactly in line with the dynamic set in motion by the Trilateral Agreement concluded by France, Germany and Spain, and which are about to be joined by the Netherlands, Great Britain, Italy and Sweden and ideally by all Member States.
3- Counterproductive lack of readability, clarity, or even relevance:
• Readability:
Globally speaking, the wording of the 75-page draft regulation is complex and will not ease the adhesion of the experts and of the Member States.
• Clarity obliges: The management raises a lot of questions:
. The proposed SEAP (' the Structure for European Armament Programme') is the heart of the system and yet lacks a clear definition! For example, we do not know if a SEAP could be in charge of several projects or has to be established project by project. And, we wonder why not simply appeal to OCCAR, which seems to comply with all the management criteria required and has already fix agreements with the Commission in the frame of the EDF. The Commission’s reticence to recourse to existing instruments conducts to costly administrative duplication.
. Do we need the Seal of Excellence label for good proposal but finally not selected due to lack of EDIP budget available?
. What is an EDPCI (European Defence Project of Common Interest)? Definition? Consequences? Its definition by a minimum of 4 Member States seems artificial, when such an EDPCI would represent an indisputable added value, if focalized on infrastructures of critical interest for the 27 Member States- Galileo or IRIS 2 like-for which technical innovation and financial rational impose a globalised approach.
. What are the 'Key Market Actors': what is the definition? consequences?
• Governance Relevance?
We can wonder about the relevance of this regulation, whose inspiration consists in introducing a sovereign power to the Commission in an area reserved for the Member States and which responds to the emergency neither of the Ukrainian situation nor of the matching of the capacity gaps of the Member States themselves.
. Recital (18) judiciously recalls the specificity of the defence industry: "Given the specificities of the defence industry, where demand comes almost exclusively from States, which also control all acquisition of defence-related products and technologies, including exports, the functioning of the defence industry sector does not follow the conventional rules and business models that govern more traditional markets."
. But the draft regulation transfers important powers to the Commission(presidency and Secretariat of the DIRB (Defence Industry Readiness Board; SEAP labelled by the Commission,...) and constantly refers to the legal basis of its authority, competition in the sense of the single market: hence a propensity to highlight small and medium-sized enterprises, and the denial, by not mentioning it, of the cardinal objective of promoting the creation and sustainability of European champions with critical mass on the relevant scale alone, that is to say, worldwide.
The Intellectual Property Rigths (IPRs) of the industry have to be fully respected, if we want to attract more private fundings to support the European sovereign industry. The solidity of a European subcontracting chain that is not dependent on the outside presupposes the existence of European integrators who are themselves competitive on the world market. European defence programmes must promote consolidation, integration into distributed centres of excellence and export capacity. Any Community measure in the field of defence equipment must promote this trajectory. How can we not formulate it clearly and encourage it for good?
. Security of supply must be a central objective of the EU, but the fact being that Europe lacks everything, at least in terms of volume, the listing of critical products seems to become an artificial exercise, without change of scale in the financial eforts of the Member States. The needed prioritisation belongs to the Member States and the list of the critical products will derive from it. Therefore, the proportionality of the response of the Commission's own budgetary instruments to the shortcomings identified cannot be satisfied.
Hence the proposal of some Member States to set up a European loan of 100 billion euros to begin to respond to the scale of the problem: European loan to obtain the best possible financial terms with implementation by each Member State by virtue of the distribution key deliberated by the European Council and not by the Commission. This approach is clearly supported by the Draghi Report.
. Community funding can only be seen as a necessary adjuvant to encourage better spending, by spending more.
.Finally, the delays of negotiation of such a regulation, especially after an electoral period, do not allow to match neither the urgency of the situation in Ukraine, matter of weeks or even days, and not years nor of the capacity gaps of the Member States themselves. From this point of view, the existing inter-governmental instruments studied for it, such as the EUMS (for the definition of capability needs), the EDA (in each of its missions defined by the Treaties, notably for the definition of the capacity needs), PESCO, but also OCCAR, a procurement tool available to any non-member State wishing to join it, should be called upon to intervene in the fullness of their mandates. The use of these instruments would allow to better answer to the urgencies: but now is the time for the Member States to demonstrate their political will to spend more, better and together.
o O o
The proposed governance of EDIP should stimulate Member States to fully exercise their competences and responsibilities in each project on a case-by-case basis, taking advantage of existing instruments. And only if and where necessary, developing new instruments and methods in an agile manner could make sense, as long as it’s not adding undue bureaucracy and costs.
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