European Defence Procurement Integration: How to Handle Article 296 EC Cicero Foundation December 2005- Paris

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European Defence Procurement Integration How to
Handle Article 296 ECCicero FoundationDecember
2005- Paris

• Dr. ARIS GEORGOPOULOS
• University of Dundee, United Kingdom

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

• OUTLINE
• Background Information
• Current Initiatives
• Examination of Article 296 EC

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Background Information

• What is the definition of Defence Procurement?
• Lato Sensu Defence Procurement The acquisition
  by the authorities in the defence sector of the
  various kinds of goods and services they need for
  performing their duties
• i.e. paperclips, furniture, cleaning services,
  tanks, submarines, Aircraft etc.
• Stricto Sensu Defence Procurement The
  acquisition of Armaments
• i.e. materials intended only for military
  purposes (also known as war-like materials, hard
  defence materials)

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Background Information

• Dual-use goods Products used for both military
  and non-military purposes
• i.e. military ambulances, motorcycles, IT etc.
• Dual use goods do not fall within the strict
  definition of Defence Procurement

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Background Information

• Some Figures
• Aggregate spending on defence equipment among
  the EU 15 in 1999, 2000 and 2001 approximately
  92 billion
• EU aggregate Defence Expenditure less than half
  of the US
• Due to market fragmentation EU Member States
  should increase their expenditure to a level
  higher of that of the US (at least 10) in order
  to achieve comparable results with the US

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Background Information

• Why is there fragmentation in the European
  defence market?
• Defence Market ? Market of the tools of
  sovereignty
• Article 296 EC allows MSs to derogate from the EC
  Treaty provisions in the field of armaments
  production and trade
• This is mirrored in the current Public
  Procurement Directives Articles 3 Supplies
  Directive, Article 4 (1) Services Directive
• AND
• the New Public Procurement Directive Article 10,
  see also Annexes IV and XII as well as the
  explanatory Memorandum

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Background Information

• Main manifestations of protectionism in national
  defence procurement
• Restriction of market access
• Requirement for industrial compensations-offsets
  (either as a condition for participation of
  foreign companies or as award criterion)

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Background Information

• Need for more competition in defence procurement?
• Economic imperatives
• Need for increasing the competitiveness of
  European Defence firms
• Need for rational use of the limited resources
  allocated to defence and avoidance of duplication

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Background Information

• Need for more competition in defence procurement?
• Political/strategic imperatives
• Support of the credibility of the ESDP by a
  healthy European defence industrial base

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Current Initiatives

• Council ? Establishment of the European Defence
  Agency (EDA) (2004)
• Intergovernmental character (participation of the
  Commission in the Steering board without voting
  rights)
• active in the area of collaborative projects in
  armaments and military Research and Technology

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Current Initiatives

• Commission ? Green Paper on Defence procurement
  (2004)
• Some of the Questions posed by the Green Paper?
• Is the existing public procurement regime
  suitable for armaments acquisitions?
• Would it be better to introduce a Defence
  Procurement Directive?
• How should Article 296 EC (ex Article 223) be
  construed?

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Examination of Article 296 EC

• Some clarifications
• Is the abolition of Article 296 EC a necessary
  condition for the attainment of competition in
  defence procurement?
• Short answer
• NO

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Examination of Article 296 EC

• Article 296 EC establishes a right not an
  obligation.
• No legal requirement for coordinated action or
  reciprocity
• Example Belgium and UK
• Thus the real issue is the political will of the
  Member States.

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Examination of Article 296 EC

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

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Examination of Article 296 EC

• Commissions position
• Article 296 EC is subject to a proportionality
  test similar to other Treaty exemptions (Article
  30 EC etc)
• (Some) Member States position
• Article 296 introduces an automatic en bloc
  exemption.

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Examination of Article 296 EC

• Article 296 (1b) EC
• Any Member State may take such measures as it
  considers necessary for the protection of the
  essential interests of its security .. the
  production of or trade in arms, munitions and war
  material such measures shall not adversely
  affect the conditions of competition in the
  common market regarding products which are not
  intended for specifically military purposes

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Examination of Article 296 EC

• Observations
• Wording and ratio legis of Article 296 EC ? wide
  discretion
• However NOT automatic exemption
• The use of Article 296 is subject to the
  scrutiny of ECJ but the intensity of the latter
  is considerably lower

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Examination of Article 296 EC

• Not a classic proportionality test
• Instead.
• Test of manifest unsuitability
• In a nutshell
• Is the Emperor naked? (As opposed to Is the
  Emperor dressed properly)

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Examination of Article 296 EC

• Examples of manifestly unsuitable national
  measures for achieving essential security
  objectives
• Indirect offsets (i.e. indu strial compensations
  not related to defence)
• VAT exemption on Defence equipment imports

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Examination of Article 296 EC

• The position of the European Court of Justice
  (so far)
• Case 186/01 Alexander Dory
• C-252/01 Commission v. Belgium
• C-414/97 Commission v. Spain

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Conclusions

• Competition in Defence cannot be forced on Member
  States through the tranquiliser of an ECJ
  restrictive interpretation of Article 296 EC
• Member States seem to realise the responsibility
  linked with the wide discretion
• ? Non legally binding Agreement /Code of conduct
  on defence procurement November 2005

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Thank You

• Dr Aris GEORGOPOULOS
• Lecturer in European Law
• University of Dundee
• School of Law
• Dundee DD1 4HN
• Scotland
• United Kingdom
• Email a.georgopoulos_at_dundee.ac.uk
• Tel [phone]
• Fax [phone]