European Defence Procurement Integration: How to Handle Article 296 EC Cicero Foundation December 2005- Paris Dr. ARIS GEORGOPOULOS University of Dundee,

European Defence Procurement European Defence Procurement Integration: Integration:

How to Handle Article 296 ECHow to Handle Article 296 EC

Cicero FoundationCicero FoundationDecember 2005- ParisDecember 2005- Paris

Dr. ARIS GEORGOPOULOSDr. ARIS GEORGOPOULOS

University of Dundee, United KingdomUniversity of Dundee, United Kingdom

Public Procurement in the Defence Public Procurement in the Defence Sector: Competition Despite Article 296 Sector: Competition Despite Article 296 EC?EC?

OUTLINEOUTLINE

• Background InformationBackground Information

• Current Initiatives Current Initiatives

• Examination of Article 296 ECExamination of Article 296 EC

Background InformationBackground Information

What is the definition of Defence Procurement?What is the definition of Defence Procurement?

• Lato SensuLato Sensu Defence Procurement= The acquisition by the Defence Procurement= The acquisition by the authorities in the defence sector of the various kinds of goods and authorities in the defence sector of the various kinds of goods and services they need for performing their dutiesservices they need for performing their duties

i.e. paperclips, furniture, cleaning services, tanks, submarines, i.e. paperclips, furniture, cleaning services, tanks, submarines, Aircraft etc. Aircraft etc.

• Stricto Sensu Stricto Sensu Defence Procurement = The acquisition of Defence Procurement = The acquisition of Armaments Armaments

i.e. materials intended only for military purposes (also known as i.e. materials intended only for military purposes (also known as war-like materials, “hard defence” materials)war-like materials, “hard defence” materials)


Dual-use goodsDual-use goods = Products used for both military and non-military = Products used for both military and non-military purposespurposes

i.e. military ambulances, motorcycles, IT etc.i.e. military ambulances, motorcycles, IT etc.

Dual use goods Dual use goods do not falldo not fall within the within the strict definition strict definition of Defence of Defence ProcurementProcurement


Some Figures:Some Figures:

• Aggregate spending on defence equipment among the EU Aggregate spending on defence equipment among the EU 15 in 1999, 2000 and 2001 = approximately $ 92 billion15 in 1999, 2000 and 2001 = approximately $ 92 billion

• EU aggregate Defence Expenditure less than half of the USEU aggregate Defence Expenditure less than half of the US

• Due to market fragmentation EU Member States should Due to market fragmentation EU Member States should increase their expenditure to a level higher of that of the US increase their expenditure to a level higher of that of the US (at least 10%) in order to achieve comparable results with (at least 10%) in order to achieve comparable results with the US the US


Why is there fragmentation in the European defence market?Why is there fragmentation in the European defence market?

Defence Market Defence Market Market of the Market of the tools of sovereigntytools of sovereignty

Article 296 EC allows MSs to derogate from the EC Treaty Article 296 EC allows MSs to derogate from the EC Treaty provisions in the field of armaments production and tradeprovisions in the field of armaments production and trade

• This is mirrored in the current Public Procurement This is mirrored in the current Public Procurement Directives [Articles 3 Supplies Directive, Article 4 (1) Services Directives [Articles 3 Supplies Directive, Article 4 (1) Services Directive]Directive]

ANDAND

the New Public Procurement Directive [Article 10, see also the New Public Procurement Directive [Article 10, see also Annexes IV and XII as well as the explanatory Memorandum] Annexes IV and XII as well as the explanatory Memorandum]


Main manifestations of protectionism in national defence Main manifestations of protectionism in national defence procurement:procurement:

• Restriction of Restriction of market accessmarket access

• Requirement for Requirement for industrial compensations-offsetsindustrial compensations-offsets (either as (either as a condition for participation of foreign companies or as a condition for participation of foreign companies or as award criterion)award criterion)


Need for more competition in defence procurement?Need for more competition in defence procurement?

• Economic imperatives :Economic imperatives :

Need for increasing the competitiveness of European Need for increasing the competitiveness of European Defence firmsDefence firms

Need for rational use of the limited resources allocated to Need for rational use of the limited resources allocated to defence and avoidance of duplicationdefence and avoidance of duplication


Need for more competition in defence procurement?Need for more competition in defence procurement?

• Political/strategic imperatives:Political/strategic imperatives:

Support of the Support of the credibilitycredibility of the ESDP by a healthy of the ESDP by a healthy European defence industrial baseEuropean defence industrial base

Current Initiatives Current Initiatives

Council Council Establishment of the European Defence Agency Establishment of the European Defence Agency (EDA) (2004)(EDA) (2004)

IntergovernmentalIntergovernmental character (participation of the character (participation of the Commission in the Steering board without voting rights)Commission in the Steering board without voting rights)

active in the area of collaborative projects in armaments active in the area of collaborative projects in armaments and military Research and Technologyand military Research and Technology

Current Initiatives Current Initiatives

Commission Commission Green Paper on Defence procurement (2004) Green Paper on Defence procurement (2004)

Some of the Questions posed by the Green Paper? Some of the Questions posed by the Green Paper?

• Is the existing public procurement regime suitable for Is the existing public procurement regime suitable for armaments acquisitions?armaments acquisitions?

• Would it be better to introduce a Defence Procurement Would it be better to introduce a Defence Procurement Directive?Directive?

• How should Article 296 EC (ex Article 223) be construed? How should Article 296 EC (ex Article 223) be construed?

Examination of Article 296 ECExamination of Article 296 EC

Some clarifications…Some clarifications…

Is the abolition of Article 296 EC a necessary condition for Is the abolition of Article 296 EC a necessary condition for the attainment of competition in defence procurement?the attainment of competition in defence procurement?

Short answer:Short answer:

NO NO


Article 296 EC establishes a Article 296 EC establishes a right right not an obligation.not an obligation.

No legal requirement for coordinated action or No legal requirement for coordinated action or reciprocityreciprocity

Example: Belgium and …UKExample: Belgium and …UK

Thus the real issue is the Thus the real issue is the political willpolitical will of the Member States. of the Member States.


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


Commission’s position :Commission’s position :

Article 296 EC is subject to a proportionality test similar to Article 296 EC is subject to a proportionality test similar to other Treaty exemptions (Article 30 EC etc)other Treaty exemptions (Article 30 EC etc)

(Some) Member States’ position:(Some) Member States’ position:

Article 296 introduces an automatic en bloc exemption. Article 296 introduces an automatic en bloc exemption.


Article 296 (1b) EC:Article 296 (1b) EC:

Any Member State may take such measures as Any Member State may take such measures as it considersit considers necessary for the protection of the essential interests of its necessary for the protection of the essential interests of its security ….. the production of or trade in arms, munitions security ….. the production of or trade in arms, munitions and war material: such measures shall notand war material: such measures shall not adversely affectadversely affect the conditions of competition in the common market the conditions of competition in the common market regarding products which regarding products which are not intended for specifically are not intended for specifically military purposesmilitary purposes


Observations:Observations:

• Wording and Wording and ratio legis ratio legis of Article 296 EC of Article 296 EC wide discretion wide discretion

• However NOT automatic exemptionHowever NOT automatic exemption

• The use of Article 296 is subject to the scrutiny of ECJ but The use of Article 296 is subject to the scrutiny of ECJ but the intensity of the latter is considerably lowerthe intensity of the latter is considerably lower


Not a classic proportionality testNot a classic proportionality test

Instead….Instead….

Test of manifest unsuitability Test of manifest unsuitability

In a nutshell:In a nutshell:

Is the Emperor naked? (As opposed to “Is the Emperor Is the Emperor naked? (As opposed to “Is the Emperor dressed properly”)dressed properly”)


Examples of manifestly unsuitable national measures for Examples of manifestly unsuitable national measures for achieving essential security objectives:achieving essential security objectives:

Indirect offsets (i.e. indu strial compensations not related to Indirect offsets (i.e. indu strial compensations not related to defence)defence)

VAT exemption on Defence equipment imports VAT exemption on Defence equipment imports


The position of the European Court of Justice (so far):The position of the European Court of Justice (so far):

Case 186/01Case 186/01 Alexander DoryAlexander Dory

C-252/01C-252/01 Commission v. BelgiumCommission v. Belgium

C-414/97 Commission v. SpainC-414/97 Commission v. Spain

ConclusionsConclusions

Competition in Defence cannot be forced on Member States Competition in Defence cannot be forced on Member States through the “tranquiliser” of an ECJ restrictive interpretation through the “tranquiliser” of an ECJ restrictive interpretation of Article 296 ECof Article 296 EC

Member States seem to realise the responsibility linked with Member States seem to realise the responsibility linked with the wide discretion the wide discretion

Non legally binding Agreement /Code of conduct on Non legally binding Agreement /Code of conduct on defence procurement November 2005defence procurement November 2005

Thank YouThank You

Dr Aris GEORGOPOULOSDr Aris GEORGOPOULOS

Lecturer in European LawLecturer in European Law

University of DundeeUniversity of Dundee

School of LawSchool of Law

Dundee DD1 4HNDundee DD1 4HN

ScotlandScotland

United KingdomUnited Kingdom

Email: Email: [email protected]@dundee.ac.uk

Tel: +44 (0) 1382 344636Tel: +44 (0) 1382 344636

Fax: +44 (0) 1382 226905Fax: +44 (0) 1382 226905

Documents

European Defence Procurement Integration: How to Handle Article 296 EC Cicero Foundation December 2005- Paris Dr. ARIS GEORGOPOULOS University of Dundee,