the national defence and procurement and procurement defence national the of harmonising purpose the has (CARD) Defence on Review Annual Coordinated The past. in the late too little, too produced that approach voluntary the to of sticking instead projects common realising to states member of commitment the seek to launched was (PESCO) Cooperation Structured Permanent cooperation. defence for European tide in 2017 the initiatives turn to important took Union European the environment, security deteriorating the by primarily Driven happening. from this prevent to needed been has boost political A serious capacities. and industrial technological of key loss the against have warned They programmes. investment new of large lack and the budgets defence declining about complaining have been industries defence of European representatives years several For Introduction European programmes. Last but not least, least, not but Last programmes. European for common opportunities better creating thus states, EU member of the plans on the EDTIB, paying particular attention to Small- and Medium-sized Enterprises. and Medium-sized Small- to attention particular paying EDTIB, the on 2017 of the impact potential initiatives of the an assessment provides Brief Policy This Base. Technological and Industrial Defence European the strengthen to is purpose its time same the at while projects and development research collaborative European aims stimulating at latter the Inparticular Fund. Defence European the and Defence on Review Annual Coordinated the Cooperation, Structured Permanent launching of the by aboost given been has In 2017 cooperation defence European European defence industry? cooperation: to a road the European defenceMore JUNE 2018 impact of the PESCO and CARD initiatives initiatives and CARD PESCO of the impact potential of the an assessment provide will Brief Policy this EDTIB, of the characteristics main of the description abrief After states? member in larger located companies defence prime to suppliers in becoming difficulties great experiencing countries in smaller those in particular (SMEs), Enterprises Small and Medium-sized engage one can How base? industrial European and healthy consolidated amore of realising chances the are What question. central this answer aims to Brief Policy This (EDTIB)? Base Technological and Industrial Defence European well-functioning a creating in and cooperation defence in European leap aquantum to –lead changers game or breakthroughs as labelled commentators many –by initiatives new these Will projects. development and industrial programmes research defence collaborative stimulate up to offering (EDF), Fund Defence European the launched Commission European the € 1.5 billion annually in the 2020s to to 2020s the in annually 1.5 billion
Margriet Drent & Dick Zandee Policy Brief Clingendael Policy Brief
on improving European military capabilities. markets: civilian security has been a growth This is followed by an analysis of the EDF’s sector as a result of increasing counter- potential. The authors then turn to the terrorism activities, the fight against impact of the new initiatives on the EDTIB. transnational crime and the priority given to Particular attention will be paid to SMEs border security in response to the migration and how their engagement in cross-border flows into Europe. industrial cooperation could be improved. Conclusions and recommendations complete The challenges for European defence the Policy Brief. industries are manifold. Staying at the edge of technological innovation is perhaps the most daunting one. Against the backdrop The complexity of the EDTIB of declining home markets large defence companies had to channel their technological Europe’s defence industrial landscape is development to the most promising characterised by a mix of large transnational equipment sales. As a consequence, firms – in particular in the aerospace, European defence industries are not up electronics and missile sectors – and to speed in new technology areas such as nationally-based companies. Fragmentation artificial intelligence, quantum technology still dominates in the naval and land sectors. and micro/nano electronics. They are In statistical terms the EDTIB represents increasingly dependent on innovation in a very small part of Europe’s economic the civilian-commercial sector, such as for base, but it is an important contributor to the use for big data, robotics, blockchain innovation and technological development. technology and advanced materials – all The number of employees is relatively small, of which can also lead to a technological but well educated. In the three largest revolution in military applications. With European countries over half of the defence regard to large drones, Europe has to catch industrial market is purely national. Figure 1 up with the United States and Israel. While provides key data on the EDTIB. the US launched the Defence Innovation Initiative in 20141, Europe has no up-to-date Due to declining demand in Europe over Defence Technology or Innovation Strategy. the last decade or more, large defence companies have adapted their business Anno 2018 an open European Defence strategies. Two major trends were: (i) Equipment Market is still absent. The increasing exports to non-European attempts of the European Commission buyers and (ii) focusing more on dual- to break the deadlock of the national use production. Naturally, the latter is protection of defence industries has failed. only possible when civilian customers Directive 81 on Defence Procurement has – such as border and coast guards, the not resulted in demolishing the barriers. In police, customs and also commercial 2016 the Commission itself concluded that parties – can make use of the same or the percentage of cross-border awarded comparable equipment as their military contracts had remained the same – about colleagues (e.g. for reconnaissance, 10 percent – compared to the period communication, transport, etc.). Regarding before the Directive entered into force.2 exports, France and the United Kingdom Instead, the Commission has focussed its have been successful in stepping up their efforts on creating financial incentives for military sales, predominantly to countries multinational cross-border defence research in the Middle East and Asia. Most analysts consider this success to be a temporary matter as countries like India demand intellectual property rights when buying 1 Originally called the Third Offset Strategy. 2 Report from the Commission to the European military kit from European countries. In due Parliament and the Council on the implementation course they will produce high-tech military of Directive 2009/81/EC on public procurement in equipment themselves. The orientation on the fields of defence and security, to comply with dual-use production has provided both Article 73(2) of that Directive, COM (2016)762 final, large companies and SMEs with expanding Brussels, 30.11.2016
2 Clingendael Policy Brief
Figure 1 Key EDTIB data Turno er in billion eurosa hare of global turno erb i e e ro e er
2 1 Turno er in billion euros Top prime companies c Breakdo n per sectord
ili ry ero ic ce l l ro e r ce le r ce eo r o ly B ro e oll oyce B y e ei e ll er y ir ro efe ce nershipf
E port marketse
e o e e i ol e e P lic ri e Pri e y e i c e ly e r r e r r Employeesg eliance on national marketh
irec ly e loye irec ly e loye ly i r ce
e e er y
a. Aerospace and Defence Industries Association (ASD), f. European Parliament Directorate-General for External Key facts and figures 2015. Policies – Policy Department, The development of b. SIPRI Top 100 arms producing companies a European Defence Technological and Industrial (excluding China), 2016. Base (EDTIB), June 2013. c. SIPRI, 2016. g. Eurostat, SBS Annual detailed enterprise d. ASD, 2015. statistics for industry. e. Eighteenth Annual Report according to Article 8(2) h. European Parliament, 2013. of Council Common Position 2008/944/CFSP defining common rules governing the control of exports of military technology and equipment, 2017/C 153/01.
3 Clingendael Policy Brief
and industrial development programmes, control laws.3 Sales of military equipment which resulted in the EDF (see the section containing Dutch (sub-)systems by prime below on Financing). However, Article 346 companies located in other European of the Treaty still applies. It provides countries, such as France, to non- member states with the opportunity to European customers could create serious call in national security considerations for problems. Prime companies will try to exempting defence industrial orders from avoid such a risk. In Flanders the situation cross-border competition. It is a practice is even more dire. The so-called Van den that is widely used by member states – not Brande Directive of 1999 excludes Flemish primarily for reasons of national security but participation in technology research and rather for economic interests. The European development programmes if these have Commission has already sent several military applications. Thus, Flemish research cases to the European Court to find a legal institutions and SMEs are not in a position to solution. But it will take years before the join cross-border programmes or projects, legal procedures will be completed, not to including those that are (co-)funded by speak of amending the Directive which might the EDF. This is all the more problematic indeed be required. Thus, for the foreseeable as SMEs produce predominantly dual-use future a European defence industrial level technologies, many of which find applications playing field will not come into existence. in military equipment. So, SMEs in countries This is simply a fact of (political) life. like the Netherlands face a double challenge: a level playing field is absent in terms of Small and Medium-sized a real open European Defence Equipment Enterprises Market; but even if that issue were to be In particular SMEs suffer from the absence resolved – which is unlikely to happen in the of a European level playing field to obtain foreseeable future – even then Dutch and access to cross-border markets. Prime Flemish SMEs could still be blocked from companies in larger countries are used operating cross-border due to their strict to cooperating with national supply- national export control regimes. chain companies. It is difficult to change this culture, also because language can become a barrier to conducting business The demand side: the impact with SMEs based in other countries. Also, of PESCO and CARD SMEs are not well equipped to play a proactive role in looking for cross-border defence orders. This requires sustained The other side of the coin to the marketing efforts, human resources for time- consolidation of the European defence consuming tendering procedures and other industry is the demand side where the EU administrative tasks. In most cases this is member states play the largest roles. Higher beyond the staffing capacities of SMEs. available budgets for procurement, a better consolidated demand for defence industrial Another challenge is the lack of a European products and greater synchronisation of the export control regime. If SMEs deliver defence planning cycles would go a long way products to larger companies in other EU towards a healthier EDTIB. countries and these firms sell equipment to third countries, then the national export control regime of the SME host country applies to such exports. Countries such as the Netherlands have very strict export 3 Export control laws can also restrict defence industrial cooperation between prime companies in larger European countries. For example, Germany has a stricter arms export control regime, which could limit bilateral armaments cooperation with France. See: Interview with Dirk Hoke – CEO, Airbus Defence and Space, in Jane’s Defence Weekly, 18 April 2018.
4 Clingendael Policy Brief
CARD 20% of these increased budgets in defence To this effect, in 2016, the EU Global procurement and 2% in research and Strategy (EUGS) called for the “gradual technology.4 In June 2018 the Council is set synchronisation and mutual adaptation to adopt the common set of governance rules of national defence planning cycles and for the projects, as well as a recommendation capability development practices”. This led to sequence the fulfilment of the more in May 2017 to the Coordinated Annual binding commitments and to specify more Review on Defence (CARD) which has a precise objectives. There is a pledge slightly less ambitious objective: “to develop, in the PESCO notification to harmonise on a voluntary basis, a more structured way requirements for capability development to deliver identified capabilities based on projects. Also, PESCO member states have to greater transparency, political visibility and ensure that their industrial policies will avoid commitment from Member States”. A trial run overlaps and that cooperation programmes of the CARD ‘Review’ started in the autumn will demonstrably provide added value on of 2017, leading to a first CARD report in EU territory and have a positive impact on November 2018. A first full CARD‑cycle the EDTIB. will run in 2019-2020. The EDA-run CARD exercise is basically a gap analysis Both commitments and projects will be the of member states’ current capabilities, object of regular assessments. With CARD procurement plans and the priorities and PESCO, each participating member identified in the Capability Development Plan state will be faced with individual reviews. (CDP). One of its largest added values is Despite ‘binding’ commitments, it is however that it also serves as input for identifying the questionable whether any sanctions will potential for cooperative projects between be forthcoming for participating member member states. Some countries are already states that fail to fulfil their pledges. Still, the attuned to finding cooperation potential with combined transparency, peer review and top- other states they have experience in working down pressure from the European Council with, but tend not to look beyond their together constitute a better prerequisite than usual partners. has so far been the case.
The voluntary nature of the CARD exercise It is clear that the first round of PESCO leaves the responsibility for its success to projects did not have much defence the member states’ willingness to contribute. industrial significance. Of the seventeen This requires top-down political involvement projects only a few could be industry- in the CARD process. CARD needs to be fed relevant such as Unmanned Maritime with up-to-date and detailed information, (semi-) Autonomous Systems for Mine not only about current spending and Countermeasures and the Italian-led procurement programmes, but also about Armoured Vehicles project. The absence their longer-term capability plans. Only of armaments projects involving the two then can CARD contribute to mapping largest defence industrial states in the what is needed for the synchronisation and European Union after Brexit – Germany alignment of future capability plans. and France – is striking. Apparently, the two countries prefer to conduct ‘business PESCO as usual’ in a direct bilateral context or In December 2017, a Permanent Structured in multinational programmes with other Cooperation in the area of defence was European partner countries such as Italy and established by 25 EU member states. Only Spain. Protecting national defence industry Denmark, Malta and the United Kingdom interests by applying the traditional principle are not part of PESCO. It has two elements: an agreement on binding commitments and specific projects. Binding commitments are pledges made by member states 4 These targets were already agreed upon by the through yearly National Implementation EDA Ministerial Steering Board in 2007 as collective Plans (NIPs), such as to regularly increase benchmarks. The PESCO decision text also refers to defence budgets in real terms and to invest collective benchmarks.
5 Clingendael Policy Brief
of juste retour5 or industrial work shares Airborne Warfare Systems together.8 could explain this behaviour. Furthermore, When the initiation of the programmes was President Macron’s European Intervention launched, German Defence Minister Ursula Initiative (EII) also points to little French faith von der Leyen underlined that they had learnt in operational cooperation formats in the from their past mistakes: “regardless of how PESCO context. many countries take part, there will be one design, one set of requirements — and no Trend changing on the national specifications.”9 demand side? After the A400M, the Eurofighter and the Best practice can be found with the Benesam NH-90 the order portfolio of the European cooperation, in which the Netherlands defence industries dried up concerning large and Belgium are now harmonising the new programmes. There are, however, signs requirements for the replacement of their of change with France, Italy, Germany and M-frigates and minehunters in a common Spain as launch partners for a European procurement process. Both countries want next generation large drone, including to retain near to identical capabilities to be industrial cooperation between Airbus able to continue to be fully integrated on Defence and Space, Dassault Aviation and maintenance, training and education, workup Leonardo. This proposal, now called the and logistics.10 Key to the success of the EuroMALE2020, is currently in an early Belgium-Netherlands defence cooperation design phase. Moreover, in July 2017, is the trust that already exists on all levels of Germany and France announced at their cooperation and the fact that there are only bilateral summit that they will engage in two countries involved. The lessons learned long-term cooperation on a number of from good practices in defence cooperation significant programmes. Among them were should play a role in designing instruments plans to jointly develop a future-generation for incentivising defence cooperation.11 tank. More concretely, in April 2018 Paris and Berlin agreed on the common military requirements for the Future Combat Air System (FCAS) that is to replace the Eurofighter and the Rafale in the 2040s.6 Dassault Aviation and Airbus Defence and Space are the leading companies in the programme.7 The two countries also signed an agreement to develop Future Maritime 8 Other examples are: France and the UK will continue to work on Future Combat Aircraft Systems with a focus on an Unmanned Combat Aerial Vehicle (UCAV), as well as cooperation on anti-ship missiles through MBDA. Also, Germany and Norway have a conventional submarine 5 The principle of juste retour implies that the programme lined up with the possible participation percentage of the national spending part of of Italy, Poland and the Netherlands. multinational programmes is mirrored by the same 9 Ursula von der Leyen, in: ‘Germany, France present percentage for national industries contributing to new military aircraft plans in Berlin’, Deutsche such programmes. Welle, 26 April 2018, http://www.dw.com/en/ 6 Giovanni de Briganti, ‘France, Germany launch germany-france-present-new-military-aircraft- future fighter and other programs’, Defense plans-in-berlin/a-43554242 Aerospace.com, 27 April 2018, http://www.defense- 10 Dutch Ministry of Defence, ‘Replacement aerospace.com/articles-view/feature/5/192835/ M-frigates’, A Letter to Parliament, 4 May 2018, france%2C-germany-launch-future-fighter.html https://www.rijksoverheid.nl/documenten/ 7 It is envisioned as a complex ‘system of systems’ kamerstukken/2018/05/04/kamerbrief-met- comprising a new-generation fighter aircraft, a-brief-project-%E2%80%98vervanging-m- unmanned combat aircraft, future air-launched fregatten%E2%80%99 missiles, and swarms of small drones, all 11 For further reading, see: Dick Zandee, Margriet interconnected with satellites, other aircraft, Drent, Rob Hendriks, Defence cooperation models NATO networks as well as national and allied – Lessons learned and usability, Clingendael Report, ground and naval combat systems. October 2016.
6 Clingendael Policy Brief
Figure 2 European Defence Fund Until 2020 Post 2020 Research (EU budget) € 90 mlna € 500 mln / yearb Capability development € 500 mlnd € 1 bln / year Co-financing EU budget 20%c Total EU budget € 1.5 bln/year Capability development € 2 bln € 4 bln (member states’ budget 80%) Total EU & member states € 5.5 bln/year
a. Preparatory Action for Defence Research (PADR, 2017-2019) b. European Defence Research Programme (EDRP, 2021-2027) c. There is an additional 10% for PESCO projects d. European Defence Industrial Development Programme (2019-2020)
New financing: on the draft regulation.13 In theory, the the European Defence Fund conditions for drawing from the EDF’s capability window are geared towards the aim of enhancing cooperation between In June 2017 the European Commission member states. According to the proposal launched the European Defence Fund, a project is only eligible for funding if it has following up on earlier proposals made in at least three “undertakings” based in at the context of the European Defence Action least two different member states. Another Plan of the previous autumn.12 The European condition is that there should be agreement Defence Fund has two elements, or on common technical specifications and ‘windows’: one for joint defence research a commitment by member states to jointly and one for joint capability development. produce and procure the final product. In fact, the latter can better be described as Additionally, a proportion of the overall the industrial development phase of military budget should benefit actions enabling the equipment production. Both elements are cross-border participation of SMEs. Finally, in a pilot or forerunner phase before the award criteria will be based on the extent new EU Multi-annual Financial Framework to which they contribute to innovation and (MFF) 2021-2027 starts. Figure 2 depicts the the technological development of defence financial volumes of the EDF. industries, as well as the security and defence interests of the EU. The pilot on technology research – the Preparatory Action for Defence Research – is up and running. The regulation on the European Defence Industrial Development Programme for the years 2019-2020 should be formally approved by the European Parliament and the Council in 13 European defence: Council and European Parliament June. On 22 May the Bulgarian Presidency reach provisional agreement on a regulation reached a provisional agreement with establishing the European Defence Industrial representatives of the European Parliament Development Programme (EDIDP), Council of the EU Press Release 274/18, 23/05/2018. The Press Release refers to a number of amendments to the draft regulation, relating to “the regional and international priorities that should inform the programme, its sources of financing, the eligible entities and eligible actions, and the implementation of the work programme.” As the 12 European Commission, Communication launching text of this Policy Brief was concluded at 30 May the European Defence Fund, 7 June 2017, https:// no further details on these amendments could be ec.europa.eu/docsroom/documents/23605 provided.
7 Clingendael Policy Brief
Theory vs. practice The Commission rightfully steers towards As can be expected, the aim of boosting multinational projects in its conditionality. defence research and ending fragmentation However, it will take time and money for an in the demand and supply of defence industry that has been very much dominated capabilities is in practice fairly complex. by national governmental demand to develop A European Defence Research Programme cross-border partnerships and developing (EDRP, 2021-2027) should be informed new supply chains outside the trusted by an EU defence innovation strategy national suppliers. The question is whether in order to focus on the right research the additional 20 or 30% co-financing will priorities. Such an innovation strategy is outweigh the complications that this entails. lacking. In comparison to the US Defence Similarly, opening up supply chains for SMEs Innovation Strategy ($ 70 bln in 2017), the in other member states is in theory possible, funds earmarked for defence technology but will the instruments of the Commission research in the EU are very low. To what suffice to put a halt to the excessive reliance extent will the EDRP be able to contribute on Art. 346 when the survival of national to a less fragmented defence technological industries and jobs are at stake? research landscape with only a maximum of € 500 mln per year in the budget? Added Interlocking instruments to this, whether the member states and CARD, PESCO and the EDF taken together the European Parliament will agree to the have the potential to coax member states proposed € 10.5 bln14 that is now earmarked into initiating more multinational projects. for the EDF for the period 2021-2027 remains In theory, the various instruments of the uncertain. The debate might be influenced Common Security and Defence Policy by the lack of concrete results in the pilot are geared towards facilitating this with phase. The existing Horizon2020 research the eventual objective of strengthening projects have a poor result in terms of European defence capabilities. The EU Global industrial application. How can one ensure Strategy of 2016 and the Implementation that defence research projects, financed Plan for Security and Defence (November by the EU budget, will have a practical 2016) set the Level of Ambition; the CDP application? A balance will have to be found should prioritise capabilities; CARD can between technological forward leaning and highlight capability gaps and the potential directly applicable projects, in particular for collaboration; PESCO provides a to sustain high-level political support for binding framework for operational and investing European taxpayers’ money in capability cooperation; while the EDF can defence research. provide incentives for relevant research and capability projects. These various The capability window’s problem is that instruments should be interlocking and most procurement plans have already been should strengthen each other to lead to decided upon, which will make it difficult improved European capabilities, supported to find short-term multinational capability by an innovative and competitive EDTIB programmes that are not now already in (see the flowchart below in Fig. 3). the procurement pipeline. For the sake of political and military relevance, the focus has EDA has a pivotal role in knitting the various to be shifted to the medium term for larger initiatives together. It is involved in mapping collaborative projects (possibly those on a the capability requirements through the CDP European Future Combat Air System or a (together with the EU Military Committee/ future tank). Also, the EDF does not account Military Staff), it has a CARD secretariat for the problem of a lack of synchronisation role, is also in the secretariat of PESCO in the defence planning of member states. and is therefore important to make sure that the EDF is capability- and output- driven and not a subsidy instrument for 14 In the MFF period 2021-2027: 7 x € 500 mln an industrial branch. Much depends on annually (EDRP) = € 3.5 bn, plus 7 x € 1 bn the member states and the mandate they annually (defence industrial development) = entrust to the EDA and the extent to which € 7 bn, amounts to a total of € 10.5 bn. the member states themselves are able to
8 Clingendael Policy Brief
Figure 3 Interlocking instruments
P ore e er P ro e c ili ie e el of riori ie i o i e i io co e i i e B
treat these instruments as complementary Potential for defence and interlocking: stove piping in Defence industrial consolidation Ministries has prevented this in the past with different parts of Ministries dealing with matters relating to PESCO, CARD and European defence industries seem to be EDF. Therefore, Ministries of Defence will caught in between the Scylla of national have to adapt their internal structures and protection as a guarantee of a limited procedures for optimising the use of these amount of orders and the Charybdis of new EU instruments. expanding markets through stepped-up multinational armament programmes. More However, none of the larger programmes that common demand through a growing number are in the pipeline have been brought into of European projects, preferably generated PESCO as a project. Nor is it clear whether by CARD and part of PESCO commitments, they will apply for EDF funding (either should lead to increased defence industrial through co-funding for research or through cooperation across Europe. By offering EDIDP financial incentives). Apparently, at financial incentives based on the conditions the moment, member states are sitting on for cross-border technological and industrial the fence and are waiting to see what the development cooperation, the EDF intends added value of either PESCO or the EDF will to stimulate European cooperation in both be. The involvement of the Commission (and demand and supply. But what can industry the European Parliament) in the EDF and itself contribute in order to strengthen the the unproven PESCO framework could make EDTIB, in particular to maintain or acquire member states wary of losing control and of key industrial and technological capacities too complicated bureaucratic hurdles in the that are needed for European strategic precarious early phases of a new capability autonomy? programme. The plea of industries for new, large Another matter that is looming over both multinational programmes was mentioned PESCO and EDF is the third-country before. Most of these new programmes matter. A decision on this contentious have parallel high-political and industrial issue has now been postponed until after cooperation tracks. For the Franco-German- 2018. If no feasible solution is found to Italian-Spanish EuroMALE2020 project an involving non-EU countries in capability industrial consortium has been established programmes, a number of member states consisting of Airbus Defence and Space, could circumvent these EU instruments. Dassault Aviation and Leonardo. For the In particular, catering for the possibility of future tank, Kraus-Maffei Wegmann and United Kingdom research and industrial Nexter have formed a holding company. participation is important to make sure that In shipbuilding the Italian Fincantieri and the PESCO and EDF formats live up to their French Naval Group are investigating the full potential. For the EDIDP a complex potential for a naval alliance. So it seems that formula might apply, requiring, for example, the prime companies are already moving in information from European-based defence the direction of closer cooperation, common firms with non-European ownership on how programmes or even merging. Nevertheless, their contribution to EU-(co)funded projects defence industries in other European will not be detrimental to the EDTIB. countries remain excluded from the large
9 Clingendael Policy Brief
future projects. Many European countries already established project of Norway and will have to procure a future tank to replace Germany. Both countries are considered to the current generation of the Leopard 2 tank be ‘strategic partners’ of the Netherlands and other types. Early involvement in the – thus the submarine cooperation would Franco-German project would be desirable. be embedded in well-functioning, existing Industrial interests, for example to participate defence cooperation formats. For the Dutch in the supply chain, could then be taken into Damen Schelde Naval Shipbuilding company account before the large prime companies an industrial arrangement would have to be have arranged all supplies through their agreed with its German counterpart, TKMS. national chains. Clearly, such a proactive This tripartite submarine project would stance requires at least two conditions strengthen European defence cooperation to be fulfilled: first, governments should through standardisation – thus also opening create and sustain a political framework up huge potential for multinational training, for multinational projects; second, their maintenance and future upgrading – while at industries should be involved from the very the same it would positively impact defence start – the drawing board – to seek the best industrial cooperation. opportunities for their involvement. If such defence industrial clustering could Existing clusters of defence cooperation be done through PESCO and using EDF seem to offer the best chance of success, as (co-)funding, that would be the preferable partners have been working closely together ‘royal route’ to be taken. PESCO commitment to intensify their cross-border military would bind the participating countries and cooperation. The Franco-British Lancaster EU money could assist in the early phases of House cooperation, the Belgian-Netherlands technology research and passing the well- Benesam (naval cooperation) and the known ‘valley of death’ into development and German-Netherlands army integration production. Thus, the best working model for are excellent examples. Paris and London multinational defence cooperation – bilateral have launched common projects on anti- or regional clusters – would be combined ship missiles and on Future Air Combat with EU-level instruments. After all, PESCO Systems. Benesam is the format for the two is an instrument that has been launched neighbouring countries to procure the same by EU member states and which is being successor to replace the M-frigates and used and controlled by the same member the same counter-mine warfare capacity in states. The EDF should benefit the maximum the 2020s. The integration of Dutch tanks amount of member states, but the Fund’s in a German tank battalion – which can provisions allow for money to be spent on only work if the equipment is one hundred projects with different groups of participating percent identical – requires The Hague countries. Defence companies would profit to line up with Berlin and Paris for the from industrial clustering – not only from EDF future tank project.15 In simple terms: bring (co-)funding as such but, more importantly, industry on board in bilateral or regional by increasing their markets. Finally, this clusters that work – this creates the best model of clustering military and defence possibility for persuading industries to work industrial cooperation would strengthen both together across national borders. In that European military capacities and the EDTIB. sense the Netherlands now has another chance. The current conventional Walrus- class submarines have to be replaced by a Conclusions & recommendations successor in the 2020s. Instead of opting for a purely national solution, which will be 1. European defence companies continue expensive and risky from an investment point to face serious challenges, of which of view, The Hague could chose to join the staying on the technological edge is the most daunting. Dependencies on the civilian commercial sector have grown, in particular in areas such as big data, 15 Currently the Dutch Army is leasing tanks from robotics, blockchain technology and Germany in exactly the same configuration. Any replacement of the Leopard 2 by a future advanced materials. tank would thus affect the Dutch tank unit.
10 Clingendael Policy Brief
2. Both larger and smaller EU member states 7. The European Defence Fund (EDF) offers will continue to use Article 346 of the EU financial incentives for collaborative Treaty to exempt defence industrial orders defence research and defence industrial from cross-border competition. Directive development, with substantial amounts 89 has not changed this situation. The of money being proposed for the period absence of a European defence industrial 2021-2027. However, the Commission’s level playing field is a fact of life, which conditions are complex and it seems will prevent the creation of an open that member states are waiting for European Defence Equipment Market in implementation before they will be willing the foreseeable future. to bind larger projects to the Fund’s set of conditions. 3. In particular, Small and Medium-sized Enterprises bear the negative impact of 8. It is essential that CARD, PESCO and the lack of a level playing field as they EDF are treated as complementary by have the greatest difficulties in entering member states in order to generate the cross-border defence markets due to best results in connecting the capability- limited staff and other disproportionate driven demand to defence technological burdens. Culture and language issues and industrial output. Ministries of seem to reinforce the obstacles between Defence might have to adapt their often larger companies and cross-border SMEs. stove-piped structures to treat the three instruments in an interlocking way. 4. National export control regimes can also limit the options for cross-border 9. Existing clusters of deepening defence defence sales if importing countries have cooperation offer the best potential more liberal defence export rules. This for planning common procurement can restrict their own defence sales to programmes. Defence industrial third countries. Thus, countries like the cooperation should be part of that Netherlands face a double challenge: the process from the start. The Belgian- need for a level playing field and for an Netherlands naval cooperation EU defence export regime. programmes for procuring the same frigates and counter-mine warfare 5. The Coordinated Annual Review on capacities may serve as examples. Defence (CARD) and Permanent Structured Cooperation (PESCO) offer 10. The Netherlands should opt for joining the potential for a better harmonisation of the German-Norwegian programme for a demand in multilateral capability projects. next generation conventional submarine Continued high-level political involvement instead of pursuing a national solution will be needed to maximise the chances which will be more expensive and entail of achieving concrete results. a greater risk, as well as reducing the options for the standardisation and 6. Outside the EU context, member states rationalisation of training, maintenance are already establishing new bilateral or and future upgrading. multinational programmes, such as for the EuroMALE2020, a new generation tank and Future Combat Air Systems. In most cases political and industrial initiatives are running in parallel, which is a prerequisite for success.
11 About the Clingendael Institute Clingendael – the Netherlands Institute of International Relations – is a leading think tank and academy on international affairs. Through our analyses, training and public debate we aim to inspire and equip governments, businesses, and civil society in order to contribute to a secure, sustainable and just world. www.clingendael.org @clingendaelorg [email protected] The Clingendael Institute +31 70 324 53 84 The Clingendael Institute
About the authors
Margriet Drent is Senior Research Fellow at the Clingendael Institute’s Security Unit. She specialises in European security and defence with a specific focus on EU Common Security and Defence Policy.
Dick Zandee is Head of the Security Unit at the Clingendael Institute. His research focuses on security and defence issues, including policies, defence capability development, research and technology, armaments cooperation and defence industrial aspects.
This Policy Brief has been commissioned by the Netherlands Ministries of Foreign Affairs and Defence within the PROGRESS framework agreement, lot 4, 2018. Responsibility for the contents and for the opinions expressed rests solely with the authors; publication does not constitute an endorsement by the Netherlands Ministries of Foreign Affairs and Defence.