Explanatory Memorandum to COM(2007)765 - Simplifying terms and conditions of transfers of defence-related products within the EC - Main contents
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| dossier | COM(2007)765 - Simplifying terms and conditions of transfers of defence-related products within the EC. |
|---|---|
| source | COM(2007)765  |
| date | 05-12-2007 |
In all Member States, the export of defence related products (including comprehensive military equipments as well as sub-systems, components, spare parts, technologies …) is subject to national licensing schemes. The European defence market is consequently fragmented into 27 national licensing regimes which diverge widely in terms of procedure, scope and required delays, despite coordinating efforts between a limited number of Member States.
This patchwork of licensing schemes not only imposes a significant administrative burden on companies, but also induces significant lead times – up to several months. These burdens nowadays clearly appear to be out of proportion with actual control needs: license applications for intra-Community transfers are indeed hardly ever rejected.
Furthermore, defence industries and EU governments cannot fully rely on their supply chains because of the legal uncertainty resulting from the need for individual authorisation of transfers.
These divergences constitute a major impediment to industrial competitiveness, and a considerable obstacle to the emergence of a European Defence Equipment Market (EDEM) as well as the functioning of the Internal Market.
The objective of this proposal is to reduce these obstacles to the circulation of defence-related goods and services (products) within the Internal Market, and to diminish the resulting distortions of competition, by simplifying and harmonizing licensing conditions and procedures. In view of the specific features of the defence market and the need to protect national security, it is not proposed to abolish licensing requirements but rather to replace them by a streamlined system of general or global licenses, to which individual licensing would remain the exception. Such system would provide guarantees as to the reliability of the recipient to respect restrictions prescribed by the Member State of origin. This would make an important contribution to:
- strengthening the European defence industry’s competitiveness, by facilitating its specialisation and by favouring industrial cooperation throughout the EU;
- improving security of supply of European defence products (purchases and maintenance) for Member States.
Groups of Member States, and the European Union, have tried to address these issues by the following ad ho c or partial arrangements:
- Defence ministers of six Member States signed in 1998 a Letter of Intent (LoI, followed up by the Farnborough Agreement in 2000), which aimed i.a. at facilitating the restructuring of the European defence industry via inter alia common measures with regard to export procedures. The agreement committed the signatory nations to applying simplified export procedures to transfers. No further Member State has subsequently joined the LoI.
- In the framework of the Common Foreign and Security Policy, the Council adopted in 1998 a Code of Conduct on Arms Exports in order to strengthen cooperation between Member States and to promote convergence with regard to exports of conventional weapons. Furthermore, the Council is preparing to adopt the updated Code as a common position based on Article 15 of the EU Treaty.
- Recently, the Member States created a European Defence Agency whose goals include the 'support to the creation in liaison with Commission, as appropriate, of an internationally competitive European Defence Equipment market, providing further impulse and input to the development and harmonisation of rules and regulations affecting the European defence market, particularly by an EU wide application of rule and procedures adapted from those negotiated in the Letter of Intent (LoI) Framework Agreement process'.
The Agency's Steering Board adopted a regime for a Code of Conduct applicable from July 2006 on defence procurement under situations covered by Article 296 TEC. This Code of Conduct encourages inter alia subscribing Member States to simplify intra-Community transfers and transits of defence goods and technologies.
Following 50 years of European integration, the Commission proposal recognises that, provided certain conditions are met, intra-community transfers no longer pose the same threat to national security as exports to a third country or a region in crisis. Presently, transfers within the EU are processed in a similar way as exports to third countries, effectively assimilating Member States to third countries. By dealing with the risk of undesired re-export in a clear manner, the EC proposal aims at reinforcing mutual trust, and so paves the way for simplified transfers within the EU.
According to a study carried out for the European Commission in 2005 entitled “ Intra-Community Transfers of Defence Products ”[1], the direct i and indirect i cost of obstacles to intra-community transfers amount to € 3.16 billion/year. The processing of licences has a direct cost of € 434 million/year while indirect costs have been estimated at € 2,73 billion/year. Although it is very difficult to assess benefits stemming from smoother industrial cooperation and from greater security of supply for Member States, it is widely acknowledged that industrial cooperation is hampered by the existence of separate national licensing regimes. Pan-European defence companies also face difficulties in cross-border cooperation between different plants because of diverging licensing regimes.
The proposal follows the line proposed by the Commission in its 2003 Communication on industrial and market issues “Towards an EU Defence Equipment Policy”[4].
The Community has not yet adopted secondary legislation in the area of the proposal.
This proposal belongs to a defence package consisting of: an umbrella communication and two legislative initiatives, on public procurement and on transfers of defence-related products respectively.
- Facilitating transfers will complement the proposal on defence procurement: indeed, open defence markets presuppose a reasonable expectation from the buyer that ordered products will be delivered without undue administrative obstacles. Furthermore, although licences are hardly ever refused, the 'theoretical' possibility that such refusal may take place is an incentive for Member States to prefer sourcing military equipment from a national producer rather than from (possibly more advantageous) European competitors. Facilitating intra-community transfers contributes to making the defence procurement directive more effective and help to enhance the openness of defence markets of Member States.
- Common Foreign Security Policy (CFSP): Whilst having as primary objective the completion of Internal Market for defence products, the initiative will also contribute to achieving CFSP objectives, such as improving the security of supply of Member States armed forces, as well as industrial policy objectives, such as the promotion of a strong European Defence Technological and Industrial Base (EDTIB). Improved industrial cooperation should generate economies of scale (and therefore lead to more “value for money” defence equipment), thus allowing Member State armed forces to maximise the effectiveness of their defence equipment investments.
- Lisbon agenda: the latter consideration links up to the Lisbon objectives such as strengthening the international competitiveness of European (defence) industries and secure employment in Europe.
- LoI: The proposal is compatible and complementary to ongoing work in LoI. It will indeed provide the necessary common tools that could subsequently be further developed on an inter-governmental basis.
Consultation methods, main sectors targeted and general profile of respondents:
From March 2006 to September 2006, the Commission organised a public consultation. This was followed between September 2006 and July 2007 by three rounds of workshops with industry and Member States. Throughout the preparatory phase, the Commission services had close contacts with a variety of stakeholders: industry representative bodies (notably the Aerospace and Defence Association - ASD), non-governmental organisations, local authorities and company representatives.
Throughout the consultation process a page on the DG ENTR website has been regularly updated providing all the relevant documents.
Summary of responses and how they have been taken into account:
An open consultation was conducted over the internet from 21 April 2006 to 15 September 2006. The Commission received 25 responses. The results of this consultation are available on the Europa web site: ec.europa.eu/enterprise/regulation/inst_sp
Scientific/expertise domains concerned:
The necessary expertise on transfers of defence products has been fully assured during the process of consulting and assessing the views of stakeholders.
Methodology used:
The consultants who made the initial study, and provided elements for the Impact Assessment Study, worked in close collaboration with experts in export control from industry and national administrations. They also regularly conferred with experts from the ASD and academics. Furthermore, the Commission services frequently requested the opinion of experts from industry and from the Member States on specific matters.
Main organisations/experts consulted:
Defence industries represented in ASD, individual companies, academics, national competent authorities.
Summary of advice received and used:
Initial comments from the industry and from Member States pointed to the following principal options:
- relinquish the option of a central computerized traceability system;
- take the Council's Common Military List (CML) as the scope of the directive;
- retain the requirement of national licensing: promoting a licence-free zone in the EU would go beyond what is achievable in the present context (no common foreign policy and incomplete political integration). However, the Commission was advised that it could help in promoting a simplified and harmonised licensing system;
- promote the certification of companies receiving defence related products as a means to assure Member States of the reliability of the company as regards the respect of export limitations after the transfer.
Means used to make the expert advice publicly available:
Opinions collected from industrial and Member State experts were made available on the Europa web site: ec.europa.eu/enterprise/regulation/inst_sp
The Commission carried out an impact assessment to back up this proposal. The report is accessible on the Europa website:ec.europa.eu/enterprise/regulation/inst_sp
The impact assessment examined two possible options: no policy change, or a legislative initiative. Consideration of a third possibility, non-legislative action, quickly showed that its likely effects on national 'hard-law' licensing regimes would be insignificant. Such an option would not substantially differ from current national practices and was therefore assimilated into the option “no policy change”.
"No policy change" would involve relying on possible intergovernmental arrangements to lighten the administrative burden of extensive licensing. However, past intergovernmental agreements have shown little success, and their restriction to only few Member States could potentially undermine the twofold objective of fostering security of supply for all Member States and exploiting the full range of Europe's competencies and niche capabilities, in particular those competencies that are to be found in the new Member States.
Within the broad range of possibilities of legislative action, the option of creating a licence-free zone and managing the issuing of intra-community transfer licences at EU level was considered, but was finally discarded because of the current lack of a common foreign policy and insufficient political integration between Member States.
The other examined legislative option was to simplify and approximate national licensing schemes and regulatory practices through the progressive development of general and global licences, on the one hand, and security and confidence-building measures such as certification of defence companies and guarantees as to the respect by companies of export limitations, on the other.
Bearing in mind that simplification could make progress only if strong security guarantees were provided, the impact analysis suggested that the best combination would be:
- to provide for global and general national licensing in order to best address the variety of transfers and the differing sensitivities of defence products;
- to promote general licensing in cases where security concerns (in particular as regards the prevention of undesired re-export) were under control: transfers to EU governments, transfers to certified companies and where appropriate transfers relating to intergovernmental cooperation programmes.
Contents
- LEGAL ELEMENTS OF THE PROPOSAL
- BUDGETARY IMPLICATION
- 1.1. Grounds for and objectives of the proposal
- 1.2. General context
- 1.3. Existing provisions in the area of the proposal
- 1.4. Consistency with the other policies of the Union and international cooperation
- 2. CONSULTATION OF INTERESTED PARTIES AND IMPACT ASSESSMENT
- 2.1. Consultation of interested parties
- 2.2. Collection and use of expertise
- 2.3. Impact assessment
- 3.1. Summary of the proposed action
- 3.2. Legal basis
- 3.3. Subsidiarity principle
- 3.4. Proportionality principle
- 3.5. Choice of instruments
- 5. ADDITIONAL INFORMATION
- 5.1. Simplification
- 5.2. Review/revision/sunset clause
- 5.3. European Economic Area
This proposal aims at simplifying and harmonising transfers of defence products within the EU. The approach is twofold:
- concerning simplification, the proposal requires Member States to grant general and global licences for intra-EU transfers and individual licensing should be kept for exceptional circumstances;
- concerning harmonisation, the proposal requires Member States to establish systems of general licences for two types of transfers of defence related products: transfers to governments in any other Member State; transfers to recipients in other Member States certified in accordance with the common criteria in the directive. Furthermore, Member States are required to determine for each licence the terms and conditions of its use, in particular as regards the defence related products covered and their possible uses as well as reporting obligations of companies using the licences.
In order to accompany the progressive development of general and global licences with guarantees for the protection of national security, the proposal includes two elements to foster confidence between Member States, in particular as regards the respect by companies of export limitations attached to transfers by the originating Member State:
- Member States would have to certify according to common requirements those companies who wish to source according to general licences issued in other Member States;
- When applying for an export licence, companies would have to confirm to their competent authorities that they respect the export limitations issued by the originating Member States.
This proposal should also be seen as a contribution to achieve greater openness of defence markets between Member States. The use of general licences for defence related products procured from suppliers established in another Member State will greatly improve security of supply in a EU-wide supply base.
Article 95 of the EC Treaty.
As explained in the interpretative communication adopted by the Commission in the public procurement context i, Treaty provisions on free movement of goods apply in full to these products. The Community has thus an exclusive competence for the organisation of the conditions for free circulation by harmonising the conditions of licensing for the transfer of defence-related products within the European Community. In particular as regards the creation of mutual confidence, it is necessary to provide the authorities of the country of origin with guarantees as to the respect of export limitations by the destination companies. By common measures designed to ensure the respect of export limitations by companies, administrative cooperation and control at external frontiers, the proposal will provide a significant added value. In addition to administrative cooperation, it is likely to increase the level of mutual confidence among Member States, which is a prerequisite in defence and security matters.
As previous experience suggests, action led solely at Member State level is unlikely to provide a level playing field in a timely manner. Some Member States have taken actions to facilitate the circulation of defence products and intergovernmental cooperation work is ongoing in the LoI framework between the six major defence producing Member States. However, the benefits of purely national initiatives have been reserved to exporting companies in the Member States concerned and they have not been able to address the problems of these companies to improve the security of cross-frontier supply with components. A simple extension of such agreements to further Member States might face substantial difficulties.
At the same time, the degree of intervention of the Community does not exceed what is necessary to achieve the Community objectives. As long as the proposed measures secure mutual confidence between Member States, there is no need for centralised decisions on licensing of products or for further harmonisation of common external policies. Subsidiarity is safeguarded by the respect of policy decisions by Member States in the framework of their defence and foreign policies and their coordination within the CFSP.
The proposal complies with the proportionality principle for the following reasons:
The proposal will reduce work for national authorities and industry by substituting general and global for individual licences as far as possible. While it will require the establishment of certification procedures in all Member States, most large companies in the defence sector are to a large extent already scrutinized by national governments in view of the sensitivity of the sector - for example, through compliance programmes or similar supervision. Normal monitoring activities of national authorities will continue.
The proposed instrument is a directive.
Other means would not be adequate for the following reasons:
Member States are primarily responsible for the simplification of licensing. In providing Member States a larger leeway as to the best way to set up global and general licensing, a directive also better takes into account the specificities and the acute sensitivity of defence matters. A directive is therefore the best-suited instrument.
The proposal has implications for the Community budget flowing from the following new tasks:
- to cooperate in Council work in view of the update the Annex of the Common Military List;
- to report on the measures taken by Member States to implement the provisions of this directive;
- to report on the functioning of the directive and its impact on developments of the European defence equipment market and the European defence technological and industrial base;
- to organise the work of the Cooperation group (below);
- to monitor of the compliance of procedures and methods of cooperation between Member States and use its powers if necessary.
The abovementioned tasks could require additional staff and technical assistance as detailed in the financial sheet annexed to the proposal for a directive.
The Commission envisages the creation of a Cooperation group composed of Member States representatives and chaired by a representative of the Commission. The tasks of the group will be to examine any issue concerning the application of this directive which may be raised either by the chairman or by a representative of a Member State and, inter alia to evaluate:
- implementing measures in each Member State based on a Commission report;
- the use of the safeguard clause;
- measures which should be taken by Member States to inform operators of their obligations under this directive;
- and to provide guidance concerning licence forms.
The proposal provides for simplification of administrative procedures for public authorities, and simplification of administrative procedures for private parties.
The proposal will reduce national authorities’ workload by bringing down the number of licence applications.
For defence companies, the proposal will greatly reduce the burden associated to licence applications.
The proposal includes a review clause.
The proposed act concerns an EEA matter and should therefore be extended to the European Economic Area.