European Defence Procurement Integration: How to Handle Article 296 EC Cicero Foundation December 2005- Paris

1. European Defence Procurement Integration: How to Handle Article 296 ECCicero FoundationDecember 2005- Paris Dr. ARIS GEORGOPOULOS University of Dundee, United Kingdom

2. Public Procurement in the Defence Sector: Competition Despite Article 296 EC? OUTLINE Background Information Current Initiatives Examination of Article 296 EC

3. Background Information What is the definition of Defence Procurement? Lato Sensu Defence Procurement= The acquisition by the authorities in the defence sector of the various kinds of goods and services they need for performing their duties i.e. paperclips, furniture, cleaning services, tanks, submarines, Aircraft etc. Stricto Sensu Defence Procurement = The acquisition of Armaments i.e. materials intended only for military purposes (also known as war-like materials, “hard defence” materials)

4. Background Information Dual-use goods = Products used for both military and non-military purposes i.e. military ambulances, motorcycles, IT etc. Dual use goods do not fall within the strict definition of Defence Procurement

5. Background Information Some Figures: Aggregate spending on defence equipment among the EU 15 in 1999, 2000 and 2001 = approximately $ 92 billion EU aggregate Defence Expenditure less than half of the US Due to market fragmentation EU Member States should increase their expenditure to a level higher of that of the US (at least 10%) in order to achieve comparable results with the US

6. Background Information Why is there fragmentation in the European defence market? Defence Market  Market of the tools of sovereignty Article 296 EC allows MSs to derogate from the EC Treaty provisions in the field of armaments production and trade This is mirrored in the current Public Procurement Directives [Articles 3 Supplies Directive, Article 4 (1) Services Directive] AND the New Public Procurement Directive [Article 10, see also Annexes IV and XII as well as the explanatory Memorandum]

7. Background Information Main manifestations of protectionism in national defence procurement: Restriction of market access Requirement for industrial compensations-offsets (either as a condition for participation of foreign companies or as award criterion)

8. Background Information Need for more competition in defence procurement? Economic imperatives : Need for increasing the competitiveness of European Defence firms Need for rational use of the limited resources allocated to defence and avoidance of duplication

9. Background Information Need for more competition in defence procurement? Political/strategic imperatives: Support of the credibility of the ESDP by a healthy European defence industrial base

10. Current Initiatives Council  Establishment of the European Defence Agency (EDA) (2004) Intergovernmental character (participation of the Commission in the Steering board without voting rights) active in the area of collaborative projects in armaments and military Research and Technology

11. Current Initiatives Commission  Green Paper on Defence procurement (2004) Some of the Questions posed by the Green Paper? Is the existing public procurement regime suitable for armaments acquisitions? Would it be better to introduce a Defence Procurement Directive? How should Article 296 EC (ex Article 223) be construed?

12. Examination of Article 296 EC Some clarifications… Is the abolition of Article 296 EC a necessary condition for the attainment of competition in defence procurement? Short answer: NO

13. Examination of Article 296 EC Article 296 EC establishes a right not an obligation. No legal requirement for coordinated action or reciprocity Example: Belgium and …UK Thus the real issue is the political will of the Member States.

14. Examination of Article 296 EC Is competition in the defence sector possible without the support of the Member States? Through a narrow interpretation of Article 296 EC perhaps?

15. Examination of Article 296 EC Commission’s position : Article 296 EC is subject to a proportionality test similar to other Treaty exemptions (Article 30 EC etc) (Some) Member States’ position: Article 296 introduces an automatic en bloc exemption.

16. Examination of Article 296 EC Article 296 (1b) EC: Any Member State may take such measures as it considers necessary for the protection of the essential interests of its security ….. the production of or trade in arms, munitions and war material: such measures shall notadversely affectthe conditions of competition in the common market regarding products which are not intended for specifically military purposes

17. Examination of Article 296 EC Observations: Wording and ratio legis of Article 296 EC  wide discretion However NOT automatic exemption The use of Article 296 is subject to the scrutiny of ECJ but the intensity of the latter is considerably lower

18. Examination of Article 296 EC Not a classic proportionality test Instead…. Test of manifest unsuitability In a nutshell: Is the Emperor naked? (As opposed to “Is the Emperor dressed properly”)

19. Examination of Article 296 EC Examples of manifestly unsuitable national measures for achieving essential security objectives: Indirect offsets (i.e. indu strial compensations not related to defence) VAT exemption on Defence equipment imports

20. Examination of Article 296 EC The position of the European Court of Justice (so far): Case 186/01Alexander Dory C-252/01Commission v. Belgium C-414/97 Commission v. Spain

21. Conclusions Competition in Defence cannot be forced on Member States through the “tranquiliser” of an ECJ restrictive interpretation of Article 296 EC Member States seem to realise the responsibility linked with the wide discretion  Non legally binding Agreement /Code of conduct on defence procurement November 2005

22. Thank You Dr Aris GEORGOPOULOS Lecturer in European Law University of Dundee School of Law Dundee DD1 4HN Scotland United Kingdom Email: a.georgopoulos@dundee.ac.uk Tel: +44 (0) 1382 344636 Fax: +44 (0) 1382 226905