19.06.2015 source SEDE
Are exports made to countries outside of the European Union (EU) impeding European cooperation in armaments? Although the numbers vary significantly from one country to another, the European Defence Technological and Industrial Base (EDTIB) now collectively derives an important share of its collective turnover from extra-EU export sales. Accordingly, EU Member states devote important political, financial and administrative resources to support and promote their national producers in major competition overseas. The current scarcity of common European programmes, and the limited impacts of recently introduced legislation designed to harmonize national defence procurement rules and to facilitate intra-EU transfers, could indicate that extra-EU exports are detrimental to European cooperation on weapons projects. This negative effect would primarily come from introducing greater levels of competition between European companies creating greater tensions, which are not conducive to cooperation on the EU level. The study finds that there is indeed a correlation between competition for major foreign markets and difficulties of intra-EU cooperation but makes the analysis that extra-EU exports are more a symptom of structural constraints faced by major suppliers, such as the weakness of defence spending in European countries, and the persistence of fragmentation and duplication of production capabilities.
The impact of extra-EU exports on European armaments cooperation
The interrogation at the heart of this study is whether the importance of the European defence industrial and technological base (EDTIB) extra-EU exports in its turnover has consequences on European cooperation in armaments. The EDTIB derives a significant share of its collective turnover from export sales and EU Member states devote important political, financial and administrative resources to support and promote their national producers in major competition overseas.
This situation has led to the proposition that competition between Member States to gain market shares overseas and have become a handicap in establishing an integrated European defence market. Implied here is that this dynamic leads Member States to prioritize the international markets at the expense of European joint initiatives.
Approach to evaluating the consequences of extra-EU exports on European armaments cooperation
In order to assess the importance of extra-EU exports in the European DTIB turnover, the study first investigates the origin of the turnovers of the 6 countries of the Letter of Intent (LoI), namely France, Germany, Italy, Spain, Sweden and the United Kingdom, to which Poland, as an emerging European supplier, was added. It is largely recognized that the LoI countries concentrate the core of European defence production capabilities expressed both in quantitative (turnover) and qualitative (range and diversity of defence specific capacities) terms. It demonstrates the importance of extra-EU exports varies between 18% (Germany,Poland) and 43% (Italy) for the year 2012, and that sales to markets outside of the EU represent a significant share of their turnover.
Second, the study presents the support and guidance mechanisms implemented by the LoI countries plus Poland to support their companies’ extra-EU export efforts. This part shows that Member States devote significant financial, administrative and political resources to help their ‘national defence champions’ win major sales abroad. Considering the fact that some of these countries are involved in cooperation programmes, States are sometimes faced with the choice of either supporting a domestic made system, or one produced in cooperation. In other cases, promotion resources help a multinational company compete with itself on a foreign market by supporting a national subsidiary of a company based in another country.
A third part of the report explores the ineffectiveness of the European Common Position (CP) on arms exports in harmonising export rules and guidance at the European level. Using the recent debate surrounding the sale of Mistral command and power projection ship to Russia, it demonstrates that one of the main goals of the CP – to create a more level-playing field by eliminating differences of restrictiveness in national export legislation – was not achieved.
The relationship between extra-EU exports and cooperation
There are indications of a strong correlation between, on the one hand, the importance of extra-EU exports for EU Member States and especially for LoI countries and on the other hand, difficulties of European cooperation between companies and between Member States. Competitions for extra-EU markets often involve several European suppliers, which are supported in different ways by their states in these contests.
Multiple examples presented in the report indeed show that this rivalry fosters tensions and hostility between European actors, which, in turn, has a negative impact on European cooperation in the field of armament.
However, this report did not uncover evidence to support the idea that extra-EU defence exports are actually causing the challenges currently displayed by European defence production cooperation.
Examination of past armament collaborations or competitions suggest that there is no automatic link between frictions and mistrust among suppliers with either exports or cooperation. Therefore, the importance of foreign sales may be a symptom of deeper-seated features of the European defence market.
The structural drivers of extra-EU exports
The domination of national logic in European defence and the weakness of European defence spending would explain both the ‘race to export’ by individual countries and the reluctance to engage in cooperation programmes. The general weakness of European defence expenditures over the past 15 years contrasts starkly with the general growth observed in the rest of the world. This has led both companies and Member States to turn to these extr-EU markets to counteract weaker domestic sales. Since the issue of the fragmentation and duplication of defence production capabilities across European countries remain, competition between European producers in foreign market seems inevitable. In turn, the high stakes and intensity of these competitions warrant significant Member Sates support.
Note RP Defense: read Armaments Co-operation Strategy