ESC Summary Tbilisi - 2017 Spring Session

ESC 151 ESC 17 E Original: English

NATO Parliamentary Assembly

SUMMARY

of the meeting of the Economics and Security Committee

Metekhi, Hotels & Preference Hualing Tbilisi Tbilisi, Georgia

Saturday 27 May 2017

www.nato-pa.int June 2017 151 ESC 17 E ATTENDANCE LIST

Chairperson Faik OZTRAK (Turkey)

General Rapporteur Jean-Marie BOCKEL (France)

Rapporteur ad interim, Sub-Committee on Transatlantic Economic Relations Lilja Dögg ALFREDSDOTTIR (Iceland)

President of the NATO PA Paolo ALLI (Italy)

Secretary General of the NATO PA David HOBBS

Member delegations

Belgium Brigitte GROUWELS Philippe MAHOUX Olga ZRIHEN Canada Leona ALLESLEV Joseph A. DAY Czech Republic Vaclav KLUCKA Estonia Kerstin-Oudekki LOONE France Jean-Luc REITZER Germany Karin EVERS-MEYER Andreas GEISEL Greece Konstantinos KATSIKIS Georgios KYRITSIS Hungary Gabor STAUDT Iceland Aslaug Arna SIGURBJÖRNSDOTTIR Jon Steindor VALDIMARSSON Italy Maurizio MIGLIAVACCA Raffaele VOLPI Latvia Ivans KLEMENTJEVS Lithuania Ausrine ARMONAITE Luxembourg Nancy ARENDT KEMP Netherlands Harry van BOMMEL Sultan GUNAL-GEZER Franklin van KAPPEN Menno KNIP Norway Christian TYBRING-GJEDDE Poland Michal SZCZERBA Portugal Luis Pedro PIMENTEL Romania Remus Adrian BORZA Mihai Valentin POPA Slovenia Matej TONIN Spain Emilio ALVAREZ Guillermo MARISCAL Gabino PUCHE Turkey Osman Askin BAK United Kingdom Lord HAMILTON of EPSOM United States Mike KELLY James SENSENBRENNER

2 151 ESC 17 E Associate delegations

Armenia Edmon MARUKYAN Mikayel MELKUMYAN Austria Hubert FUCHS Reinhold LOPATKA Azerbaijan Gudrat HASANGULIYEV Bosnia and Herzegovina Nikola LOVRINOVIC Finland Eero HEINALUOMA Georgia Sofio KATSARAVA Montenegro Genci NIMANBEGU Serbia Zarko MICIN Dragan SORMAZ Ukraine Iryna FRIZ

Regional Partner and Mediterranean Associate Member Delegations

Algeria Moustafa DJERDALI Abdelkader KEMOUNE Jordan Zeinab AL-ZUBAD Morocco Mohammed AZRI Youssef GHARBI

European Parliament (EP) Jozo RADOS

Speakers Kakha GOGOLASHVILI Director of EU Studies, Georgian Foundation for Strategic and International Studies Marshall BURKE Assistant Professor, Department of Earth System Science, and Fellow, Center on Food Security and the Environment, Stanford University Dick ZANDEE Senior Research Fellow, Netherlands Institute of International Relations, “Clingendael”

International Secretariat Paul COOK, Director Anne-Laure BLEUSE, Coordinator Constance HUBERT, Research Assistant

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I. Opening remarks by Faik Oztrak (Turkey), Chairperson and adoption of the draft Agenda [071 ESC 17 E]

1. The draft Agenda [071 ESC 17 E] was adopted.

II. Adoption of the Summary of the Meeting of the Economics and Security Committee held in Istanbul, Turkey, on Saturday 19 November 2016 [025 ESC 17 E]

2. The summary of the meeting of the Economics and Security Committee held in Istanbul, Turkey, on Saturday 19 November 2016 [025 ESC 17 E] was adopted.

III. Consideration of the Comments of the Secretary General of NATO, Chairperson of the North Atlantic Council, on the Policy Recommendations adopted in 2016 by the NATO Parliamentary Assembly [049 SESP 16 E]

3. The Chairperson Faik Oztrak called for consideration of the Comments of the Secretary General of NATO on the Policy Recommendations adopted in 2016 by the NATO Parliamentary Assembly [049 SESP 16 E]. The members of the Economics and Security Committee had no comments.

IV. Presentation by Kakha GOGOLASHVILI, Director of EU Studies at the Georgian Foundation for Strategic and International Studies, on an Assessment of the Georgian Economic Reform Agenda

4. The Speaker highlighted the dedication of Georgia to Euro-Atlantic and European integration. The rising resilience and stability of the country as well as the improving business environment are an apparent consequence of these commitments. The financial crisis, however, curbed economic growth and development, while the external shocks of 2015 partly destabilised the Georgian currency. One of the principal challenges the country confronts today is its current account deficit, although this is projected to decrease. More broadly economic optimism appears to be waning in the region. Georgia has received no guarantees of eventual of EU membership, and it continues to trade both with CIS countries 32% of its total trade against 28% with EU members. Regional development remains essential to Georgia’s long-term economic prospects and also represents a critical path to achieving broader stability in the region.

5. The government remains dedicated to market reform and its reform agenda, “Strategy 2020”, has three primary goals: a. Rapid economic growth, including poverty reduction b. Inclusive economic growth c. Wider engagement in economic development

6. Georgia’s Association Agreement is understood to be a critical pillar of this reform effort, the country’s broader development and it is obviously critical to its long-term ambition to accede to the European Union. Georgia’s Deep and Comprehensive Free Trade Area (DCFTA) removed tariff duties between Georgia and the EU. Although there are no immediate prospects for joining the EU, Georgia is looking at functional ways to integrate with the European trading bloc.

7. Georgia has constructed an efficiency rather than an innovation based economy but it aspires to move quickly into the innovation phase, in part, because it has no natural resources to underwrite development and job creation.

8. In the discussion Ausrine Armonaite (LT) asked about political attitudes towards Georgia’s economic links with Russia and its subsequent absence of support to sanctions that followed the aggression against Ukraine. Ivans Klementjevs (LV) enquired about Georgia’s slow economic 4 151 ESC 17 E growth compared to the objectives of the Strategy 2020. Lilja Dögg Alfredsdóttir (IS) asked about the potential negative spill over of Georgia’s current account deficit on the domestic currency. Reinhold Lopatka (AT) enquired about the future of Georgia/NATO relations, and the partnerships with small and medium countries such as Austria.

9. The Speaker stressed that no European or Atlantic partner has pressured Georgia to cut economic links with Russia. To do so would pose additional economic and security burdens on Georgia. Georgia did not reach the 5% growth rate projected for 2016. Growth that year stood at 2.7%. Growth is now picking up and is projected at a 4% growth for 2017.

10. Georgia is vulnerable to external shocks because of its current account deficit. The Georgian economy depends continues to depend on remittances to bolster its foreign exchange reserves. The influx of remittances has at times led to currency appreciation that undermines the export sector so many economists suggest that the country needs to become less reliant on the earnings of Georgians living abroad. The unemployment rate is 11%. The risk of a Dutch disease exists, and Georgia must move away from dependency from remittances.

V. Presentation by Marshall BURKE, Assistant Professor, Department of Earth System Science, and Fellow, Center on Food Security and the Environment, Stanford University, on Potential Economic Consequences of Climate Change and Climate Change Mitigation

11. Marshall Burke opened his presentation by noting that global temperatures have risen roughly 1°C since 1900, and as long as significant amounts of greenhouse gas are emitted, temperatures will continue to rise. The Speaker explored how changing temperatures would condition social and economic outcomes. He outlined four areas where change would be consequential:

a. Agriculture: the possibility of crop failure grows as average temperature rises. b. Conflict: Rigorous statistical studies suggest that higher temperatures are associated with more conflict. Civil war statistics in sub-Saharan Africa for example suggest that violent conflict increases by 5 to 20% as temperatures rise. This could also be linked to crop yields because in unseasonably hot years, harvests are less bountiful, social and political tensions rise and conflict is an apparent manifestation. c. Migration: hotter temperatures can trigger migration surges. One 2017 study by Missirian and Schlenker (not yet published) demonstrates that a 1°C increase in temperatures led to a 10% increase in asylum applications in the EU. d. Economic output: cold countries have higher GDP growth when temperatures are warm, and hot countries have lower GDP growth when temperatures are warm. The latter countries lose one point of growth for every +1°C increase. An average of 13°C appears to provide the most favourable temperature for GDP growth.

12. Lord Hamilton of Epsom (UK) suggested that high CO2 levels can bolster plant growth and that this effect might outweigh other negative impacts on crop production of higher temperatures. He also pointed out that birth rates rather than temperature changes might have a greater impact on migration flows. [A1] Professor Burke replied that scientific evidence demonstrates that any benefits to plant growth triggered by higher CO2 levels would be more than offset by temperature increases.

13. Ivans Klementjevs asked whether the international community should take a more radical approach to decreasing emissions, as the Paris Agreement seems insufficiently ambitious. Professor Burke replied that Greenland and the High North more broadly is the world’s most rapidly warming region and is currently warming at twice the rate of the rest of the world. The Norwegians chose Svalbard as the location for the Seed Bank because the assumption had long been that the permafrost in that remote Arctic Archipelago would never melt. In fact, it flooded in 2017 because of rapidly rising temperatures. Professor Burke also noted that the old image of China and India simply as large polluters has changed substantially. Both countries have 5 151 ESC 17 E confronted public discontent with terrible pollution and the governments have been compelled to look for alternatives to coal powered electricity. They are moving very quickly to integrate renewable energies into their respective national energy mixes. This transition will moderate their production of greenhouse gases.

14. Christian Tybring-Gjedde (NO) challenged Professor Burke’s characterisation of climate change as unambiguously human induced. Professor Burke replied that although other factors could be driving climate change, there is a welter of evidence pointing to the role that human activity has played in driving these changes over the last two centuries.

15. Lilja Dögg Alfredsdóttir noted that climate change impacts are very visible in Iceland. She asked the Speaker for ideas on how policymakers might best send clear message to their constituents about policies aiming to cope with the challenge. The reality of temperature rise must be embraced in order to bring the discussion to cost-benefit calculations and mitigation measures.

16. Osman Askin Bak (TR), Rapporteur for the STC report on Food & Water Security in the Middle East and North Africa, asked for the Speaker’s comments on mitigation measures to be taken in the MENA region. There are two basic things to do in the face of temperature rise: mitigate (reduce emissions) or adapt to the climate change we think is going to occur. Technology transfer is going to be essential to adaptation. The COP21 was mainly focused on adaptation within the countries that are the main emitters.

17. James Sensenbrenner (US) suggested that NATO should not be involved in the climate change debate as doing so only emphasises differences between the United States and Europe. He noted that the developing world needs energy and that coal may be its best alternative, citing China as an example. He added renewable energy cannot generate sufficient energy to drive a large economy. Professor Burke agreed the developing world needs to electrify but noted that coal has posed serious environmental problems in China. We have seen dramatic changes in China because of the consequences of coal.

18. Edmon Marukyan (AM) asked about what course of action governments need to take to cope with the challenge. Professor Burke suggested that the first order question is: do the benefits outweigh the cost of taking a particular action? The second question is: what is the cheapest way to achieve the desired ends? The answers depend on which particular country is posing the question. There has been a technological revolution in natural gas, which is now replacing coal. This conversion has already sparked a massive reduction in CO2 emissions. But more will have to be done in the future to curtail the pace of climate change.

19. Faik Oztrak asked if there was an opportunity to tax countries for their emissions. [A] The estimates of the degree to which climate change will affect global output are that the impacts will grow over time. Much depends on the degree to which the international community reduces greenhouse gas emissions. There are strong political views on the merits of employing tax policy and this continues to divide politicians and societies.

VI. Presentation by Dick ZANDEE, Senior Research Fellow, Netherlands Institute of International Relations, Clingendael, on Putting Europe’s Defence Industrial Base on a Stronger Footing and the Implications for Burden sharing

20. Dick Zandee discussed the state of the European Defence Industry. Despite the widespread notion that the industry is struggling, turnover trends are very positive, with a steady increase in the past few years thanks to expanding exports. With a €102.3 billion turnover and about 430,000 employees in 2015, the European defence industry constitutes a significant investor in innovation and R&D. The current outlook for collaborative procurement in Europe, however, is not very positive, and falls well short of previously agreed targets.

21. The main challenges faced by the industry are: a. Fragmented markets and a lack of level playing fields; 6 151 ESC 17 E

b. Relatively low although now rising defence budgets; c. An ageing work force and shortage of skilled labour; d. A lack of common export control regulations; e. ‘National preferences’ that tend to override normal market norms. This is particularly apparent in the land warfare and naval sectors; f. High-tech industry is historically concentrated in Western Europe; g. Uncertainty about the export markets, as traditional client states begin to produce hardware both for their own markets and for the export sector.

22. It is worth considering the role of three different sets of actors:

1) The customers or governments: Defence budgets are on the rise again, which promises increased defence investment in the future. Clusters of defence project cooperation, such as a number of UK-France projects made possible through the Lancaster Treaty, offer one way to increase scale and drive down costs. Pooling & Sharing has the advantage of producing common interoperable equipment among Allies.

2) Industry: It is obviously a key actor and it too confronts a range of important challenges. The old pattern of spin-offs from defence industry is less common today as commercial firms produce spin in technology that turns out to have military applications. Trans-national defence industrial mergers will also play a key role in encouraging greater trans-border defence cooperation in Europe. KMW in Germany and Nexter in France are now jointly producing tanks and there will be challenges and opportunities to provide life cycle support for these systems.

3) The EU: The European Commission has emerged as a key player in building a more integrated European defence market. Its regulatory authority in this sector was once virtually proscribed, but directive 81 on procurement has created new opportunities for building a pan European defence market. But implementation of this directive has been disappointing. Europe is a long way from reaping the fruits of a common defence market. There have been interesting advances on the investment side, however. The Commission has its own research programme for civilian use, and is coordinating work for dual-use technologies under Horizon 2020.

23. The European Commission will soon begin investing funds in defence research and technology (R&T) (€90 million for 2017-2020). The “European Defence Fund” is slated to cover investments between 2021 and 2027. If realised, the EU will become the 4th most important research investor in the EU and the programme will add 25% to European defence research expenditure.

24. Jean-Marie Bockel (FR) noted that the European defence industry is at a crossroads. He asked the Speaker what would be the most significant obstacle to adopting common standards to cope with interoperability problems. He also wondered whether efforts to reduce protectionism in Europe could increase access to the US defence market. Finally, he asked the Speaker about the consequences of Brexit for Franco-British defence cooperation. Mr Zandee responded that Brexit will not have a direct impact on the Lancaster House agreement simply because this arrangement is independent from the EU. This important defence partnership will continue to develop, he added. These types of voluntary cooperative arrangements may be the best way forward as the partners are willingly engaged and there are fewer states involved making the cooperation less complex. He also noted that a range of demand and the supply matters need to be addressed: military staffs need to agree on common requirements and a more consolidated European defence industry is essential. The naval sector will likely take longer that other defence industrial sectors given its current fragmentation. Despite the absence of a European defence operational level, much can be achieved through procurement cooperation. The question on the transatlantic defence market is politically sensitive. The Buy American Act is unlikely to go away; indeed, protectionism is likely to increase under President Trump and this will impinge upon trans-Atlantic defence trade.

25. Mike Kelly (US) pointed out that the challenge does not only regard conventional defence spending but also terrorism and asked where the money would come from if the R&T budget of the European Commission had to increase by 25%, as Allies already struggle to meet the 7 151 ESC 17 E

2% requirement. Mr Zandee made a point of clarification and said that it is important not to conflate more investment in R&T and the 2% issue that is high on the NATO agenda. The 2% issue is the target for overall defence spending. Of defence spending in Europe, only 1.2% is spent on R&T. Member states will also have to increase their national R&T budgets as part as their overall increase in defence spending. Both have to happen. The focus must remain on defence capabilities and some dialogue will be needed among member states, the European Commission, and the European Defence Agency (EDA).

26. Leona Alleslev (CA) asked how the health of an industrial base is best measured, and whether parliamentarians have any leveraging points to incentivise countries to agree to purchase common equipment with the understanding that this will shape the industrial base. She also questioned whether the notion of burden sharing should take into account the amount of investment into the industrial base. Mr Zandee replied that it is important to consider what the industrial base produces, and this, in turn, should be defined by what equipment is needed to carry out core missions. What is needed should thus be premised, in part, on what NATO and the EU agree are critical priorities. That can be translated into key technologies and capacities that industry should produce. Industry should be capable of producing, maintaining, updating, and upgrading equipment that has collectively been deemed essential. There are very evident European industrial shortfalls in this regard. Space is one of these and here Europe continues to rely on the United States. There are incentives to improve this situation, including Commission funds for research.

27. It is difficult to imagine an equal distribution of funds because the defence industrial landscape in Europe is dominated by the larger member states. Smaller countries tend to have relatively smaller defence industries operating lower in the supply chain. The question is: how to construct a system in which those countries that receive fewer funds derive important benefits nonetheless? One way is to ensure that larger countries open borders – directive 81 encourages multinational contracting which is one way to share the wealth. But this should be premised on commercial logic. Many small and medium sized firms (SMEs) have little experience in cross- border operations. They will have to learn to be more active internationally, maybe through clusters or umbrella organisations.

VII. Summary of the future activities of the Sub-Committee on Transatlantic Economic Relations (ESCTER)

28. Faik Oztrak noted that the Sub-Committee Chairperson, Francis Hillmeyer could not be present at the session. He noted that Lilja Dögg Alfredsdottir (IS) has agreed to serve as SubCommittee Rapporteur on an interim basis after the Rapporteur of the Sub-Committee, Ossur Skarphedinsson, left the Icelandic Parliament.

29. Members of the ESCTER took part in a seminar in Svalbard regarding security challenges in the High North. It was followed by a day of consultation in the Parliament in Oslo with members of the PCTR. The second Sub-committee visit will be to Canada, from 11-15 September 2017.

VIII. Summary of the future activities of the Sub-Committee on Transition and Development (ESCTD)

30. Menno Knip (NL) thanked the Rapporteur Richard Benyon for his draft report on the economic and political situation in the Western Balkans.

31. He noted that the Sub-Committee will visit Serbia from 12-15 June 2017 and will participate in the Rose Roth Seminar which will take place in Ljubljana in November.

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IX. Consideration of the draft Report of the Sub-Committee on Transition and Development Economic Transition in the Western Balkans: An Assessment [074 ESCTD 17 E] by Richard BENYON (United Kingdom), Rapporteur, and presented by Menno KNIP (Netherlands), Chairperson of the Sub-Committee

32. Menno Knip presented the draft report on behalf of Richard Benyon, who was not able to attend the Spring Session. He opened his remarks by stating that the Western Balkans remains an area of special concern for NATO, adding that since the 1990s there has been a sustained effort to support the consolidation of democracies and to build market economies. The transition from a centrally planned to liberal market economies and from authoritarian toward more plural governance systems has been difficult and in a number of cases not entirely completed.

33. Political, ethnic and sectarian tensions remain as well as persistent problems of poor governance, political instability, opportunist interventions by outside powers and widespread corruption. Both the European Union and NATO have supported peace and stability in the region, but there is more work ahead. The global financial crisis, Europe’s current identity crisis and uncertainties about US foreign policy priorities have contributed to a dangerous political vacuum and unleashed economic uncertainty in the Western Balkans. This has impinged somewhat on economic growth and complicated reform efforts. It has also created a fertile environment for those opposed to Western Balkan integration into Euro-Atlantic structures, including external actors like Russia.

34. The speaker mentioned the structural economic weaknesses of the region’s economies. Reforms have unfolded too slowly and these are not fully embraced by all communities. This, in turn, has hampered economic progress and this has only poisoned the political environment.

35. The draft report concludes that the Euro-Atlantic community should revitalise the partnership it has struck with these countries. Democracy, good governance and free markets are the only viable option for this region, and it is the responsibility of the Euro-Atlantic community to continue to advocate for this broad vision. The narrow populist option offers neither a way out of the region’s problems nor a means to build long term stability.

36. Menno Knip told the Committee that he would share their remarks and comments with Richard Benyon.

37. Dragan Sormaz (RS) expressed his strong opposition to the draft report which he characterised as “absolutely unacceptable”. He highlighted the differences between Ulla Schmidt’s report adopted in Istanbul in 2016 and the current draft report. He pointed to a mistake regarding the number of chapters in the accession process to the EU, 35 instead of 33. He also rejected the assessment of escalating tensions with Kosovo, and reminded the Committee that the EU was Serbia’s main partner, not Russia. The draft report did not mention economic progress made in the country, as well as progress in terms of regional cooperation. He called for the report to be reviewed by the autumn and re-written to be “accurate, balanced and thoughtful”.

38. Konstantinos Katsikis (GR) asked for the correction of the name “Macedonia” to “FYROM” on page 5, paragraph 16 of the draft report as well as on page 16, paragraph 57.

39. Maurizio Migliavacca (IT) noted that many of the matters in the report are not purely economic. Southern European countries, he added, are dealing with a range of issues that do not concern Russia. He noted that it is difficult to generalise on sensitive questions like those pertaining to religion.

40. Genci Nimanbegu (ME) agreed that the draft report was harsh on a region that was still at war 10 to 20 years ago. He fully agreed with many of the conclusions of the report and particularly the need for the EU and NATO to support for peace in the region.

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41. Lord Hamilton of Epsom expressed his support to the draft report. He was however concerned that the EU has been less focused on the Western Balkans than it has been in the past. He offered to give several written amendments to the Secretariat.

X. Consideration of the draft Report of the Sub-Committee on Transatlantic Economic Relations Assessing and Mitigating the Cost of Climate Change [073 ESCTER 17 E] presented by Lilja ALFREDSDOTTIR (Iceland), Rapporteur ad interim

42. Lilja Alfredsdottir opened her remarks by noting that 137 countries had ratified the Paris Agreement on climate change as of March 2017, a range of countries accounting for 82% of global emissions. The report explores some of the economic costs and trade-offs linked to climate change and climate change mitigation and accepts the scientific community’s consensus that climate change is underway and that it poses compelling environmental, economic, social and security challenges.

43. The goal of the comprehensive Paris agreement includes: a. To hold the increase in the global average temperature to below 2°C and limit temperature increase to 1.5°C above pre-industrial levels b. To enhance climate resilience and trigger more environmentally sustainable economic development c. To find ways to finance the transition to an economy that is ever less dependent on greenhouse gas emitting energy and climate-resilient development.

44. Signatories have pledged to mobilise $100 billion a year to help developing countries make progress in their emissions reductions. The G7 established a parallel fund of $420 million in Climate Risk Insurance. But studies suggest that the international community as a whole would have to spend $1.1 trillion a year by 2030 to reach the Paris Agreement targets.

45. Research points to significant economic costs if the rate of climate change remains on its current path. The OECD, which has conducted one of the most comprehensive studies on climate change’s economic impact, suggests that left unchecked, climate change could cost the global economy between 1%-6% of global GDP by 2060, the largest impact being the result of falling crop yields and reduced labour productivity. Poorer states would be more affected than richer ones, which have the financial and technological resources to at least partly adapt and which could even experience slight gains in income.

46. Actively working to mitigate climate change can thus bring benefits. It will certainly provide an impetus for renewable and clean energy industries. Once these technological changes have achieved a kind of critical mass, it may well be possible that the world will embark upon an era of far cheaper and cleaner energy. New energy industries are generating increasing numbers of jobs.

47. Today, the cost of carbon emissions is not fully reflected in the price of energy commodities. There are compelling arguments for states to adopt measures to ensure that prices reflect their true opportunity costs possibly through carbon taxation. There is a strong economic argument to account for such externalities in energy pricing.

48. The draft report looks at climate change and climate change mitigation from an economic perspective rather than as a scientific or political matter. Of course, the economics is charged with political implications, but national legislators and governments obviously have a duty to come to grips with the economic consequences of this phenomenon.

49. Christian Tybring-Gjedde questioned whether it is accurate to characterise human induced temperature rise as a scientific fact and asked if NATO should be looking at matters related to climate change. Ms Alfredsdottir replied that research is fact-based, even though there has been warmer climate in the past. She also noted that the NATO Parliamentary Assembly has long explored environmental and economic issues and that the Assembly’s mandate is broader than that of NATO. 10 151 ESC 17 E

50. Lord Hamilton of Epsom wondered if there was an explanation to the shrinking of the Arctic ice cap while the Antarctic icecap is expanding and questioned the global impact of climate change. He also expressed concern regarding the loss of competitiveness of developed countries going for renewables compared to developing countries using cheaper energy sources. Ms Alfredsdottir suggested that the Antarctic is likely warming but at a slower than the Arctic. She added that there are both costs and benefits linked to the use of renewable energy and the equation is changing. She noted that Iceland has been exporting renewable energy technology to China.

51. James Sensenbrenner (US) expressed concern that an issue such as climate change is taking the focus away from NATO priorities such as security and the fight against terrorism. He called for NATO to leave climate change talks to other organisations. Ms Alfredsdottir reiterated that environmental and economic issues long been part of the Assembly’s agenda and that these issues have important security dimensions.

52. Philippe Mahoux (BE) encouraged the Committee to keep up its work on climate change despite global warming sceptics and underlined the necessity to tackle these issues to take care of future generations. He urged members not to ignore the warnings of scientists. Ms Alfredsdottir suggested cooperation in the Arctic Council has been excellent, especially on matters pertaining to climate change. Scientific cooperation has been a vital element of this effort. The effects of climate change are significant, which is why the Artic Council has produced legally binding agreements on Search and Rescue and new regulations to reduce the risk of oil spills as shipping in the High North increases as a result of ice melt.

53. Harry van Bommel (NL) asked if the Paris Agreement would lose all effect if the U.S. withdrew from it. He also suggested that in the report the relation between climate change and conflict be made more obvious in order to underline its relevance for NATO. Ms Alfredsdottir indicated that without the U.S., China and India could be very reluctant to meet their commitments, but it would be mistaken to say that this would kill the agreement. She agreed that the report could report a broader discussion on the security implications of climate change.

54. Maurizio Migliavacca (IT) asked to set the report in a broader framework as climate change is only one of the challenges ahead. Several related issues including making oil supplies available to developing economic and growing interest in opening new Northern maritime routes. Ms Alfredsdottir replied that there are some potentially positive elements related to climate change including possibly new maritime routes. But she cautioned that even in this case, there are myriad risks. Iceland has positioned itself for greater maritime traffic in the region but increasingly sees risks to these changes and this is leading to a degree of rethinking.

XI. Consideration of the draft General Report The State of Europe’s Defence Industrial Base [072 ESC 17 E] by Jean-Marie BOCKEL (France), General Rapporteur

55. Senator Bockel told the Committee that a strong industrial base is vital to acquiring the capabilities needed to ensure deterrence and collective defence. To face a rapidly changing defence market, European Allies must modernise their defence industrial and technological base, a market with a €96 billion turnover that employed 400 000 people in 2012. In addition to low defence budgets for investment and procurement, the main challenges are the relative lack of common norms, poor coordination on matters pertaining to procurement and the strategic diversity of European countries. This structural fragmentation widens the gap with the US defence market.

56. Despite common European initiatives led by the EU, the Union itself is not a consumer of defence products as defence remains a national matter. The EU is thus not at the centre of efforts strengthen cooperation in the defence industrial sector. Since the NATO Warsaw Summit, defence budgets have begun to rise, but challenges remain. R&D budgets, for example, plummeted by 21% between 2006 and 2013. Greater cooperation will be vital to rebuilding capacity in this field, even more so as Britain, a key military power, has decided to leave the EU. 11 151 ESC 17 E

57. He also noted that strengthening transatlantic defence market ties could also help lower costs and improve interoperability. Failing to modernise and consolidate Europe’s industrial base would render increased defence spending less efficient.

58. Georgios Kyritsis mentioned that Greece supports the establishment of EU market criteria in the defence sector particularly for those areas areas in which Europeans are positioned to conduct joint security policy and defence operations. He especially highlighted the importance of Southern Allies such as Greece and Italy in conducting operation in Kosovo or in Libya.

59. Christian Tybring-Gjedde asked if it is realistic to expect large western countries such as France of the UK to forgo their respective defence industrial autonomy and thereby make themselves dependent on the production of other countries.

60. Ivans Klementjevs noted that national defence markets in small countries are simply too small to survive, and this poses certain dilemmas for countries along NATO’s Eastern borders. European countries need to ensure similar standards to benefit from joint regional production efforts and avoid losses of $2.4 billion per year due to market inefficiencies. He also mentioned the importance of cooperation in the wake of Brexit.

61. Mr Bockel replied that no European national army alone can ensure national defence. Multilateral approaches are essential to security on the continent. Greater coordination in defence equipment purchases and production is essential. Realistic targets, however, are needed. Not everything can be done collectively but more can certainly be done.

62. As for the specific needs of and challenges confronted by small countries – the Baltic States are highly committed to collective security, but they have not simply been waiting for an umbrella to protect them. Small countries have a part to play in building a European defence industrial base. These are important partners and stakeholders. The EU should go further down engage smaller countries. Larger countries have greater geopolitical responsibilities as a result of the size of their defence establishments, but all countries must contribute to the collective efforts. The efforts made by Baltic States in specific fields are large (Lithuania for cyber defence) and simply because they are “small countries” does not marginalise their importance to collective European defence.

XII. Any other business

63. No other business was raised.

XIII. Date and place of next meetings

64. The Sub-Committee on transition and development will meet in Serbia from 11 to 15 June. The Sub-Committee on transatlantic economic relations will visit Canada from 11 to 15 September. The full Committee will meet at the annual session in Bucharest, Romania from 6 to 9 October.

XIV. Closing remarks

65. The Chairperson thanked the Georgian delegation, all participants, the interpretation team and the staff of the Georgian Parliament and the NATO PA. ______