Alarm bells have been ringing in certain European ministries. Proposals now under discussion would bring defence-related trade under the auspices of the single market and diplomats are worried. I gather that France is calling for a legal opinion on whether European single market legislation can apply to defence-related products –  just a few weeks before the French take over the presidency; an EU intergovernmental committee on arms exports demands to be consulted on the proposals; and an argument breaks out in the European Parliament because the defence sub-committee must have its say.
 
The European Commission has been struggling for years to create a single market for  Europe’s defence-related industries. A great idea, everyone agrees. Why should the defence sector – and the taxpayer – be denied the benefits of an EU-wide defence procurement market based on a common licensing system for cross-border trade?

It should mean more competition, lower prices, quicker delivery, common standards. In other words a more efficient European defence industry and better value for money.

But defence is no ordinary sector. For decades the Commission shied away from any attempt to tackle the defence trade issue. It was a no-go area – a minefield indeed.  Member states needed only to quote Article 296 of the Treaty to claim exemption from single market rules for virtually all deals with defence and security connotations.

Much has changed. A common security and defence policy requires defence capabilities which in turn require a stronger European industry. The position of EU defence companies has weakened in relation to US competitors. The cosy relationships between defence ministries and their national suppliers have faded or vanished. And the European Court of Justice has narrowed the scope for use of Article 296.

The Commission has moved steadily in building the case, but there is evident resentment in some quarters that it should be pushing its nose into areas which have until now been governed mainly by inter-governmental agreements and foreign policy considerations. What’s more, the new legislation would further narrow the scope for governments to favour certain strategic industries. I recall President Sarkozy’s commitment to protect eleven key sectors.
 
The Council of Ministers and the European Parliament are working on two proposals submitted by the Commission last December, the first extending the principles of public procurement to defence products and the second outlining a generalised licensing system to replace the individual licences currently issued by member states for any defence-related export to another EU country. (For the current informal procurement arrangements see here).

The Commission’s proposals are being considered in the Council by the Internal Market group, but a note issued by the Council’s Working Party on Conventional Arms Exports (COARM) reveals a deep-seated concern that foreign policy considerations are being overlooked.

Take this for instance: “The export of defence products constitutes a strong political act at the heart of member states’ foreign policy. Consequently, exports of defence products to third countries must remain within the competence of member states, both in terms of export regulation and export policies”. Tough talk indeed. COARM demands that it be involved in examining the new proposals.

The current licensing system for defence sales does seem absurdly cumbersome. Governments issue individual licences by company and by transaction for sales to another EU country. According to the Commission’s impact assessment some 11,500 such licences have been requested each year since 2003. Not one has been refused.
 
But exports outside the EU are COARM’s biggest concern.  Defence goods or components might be re-exported, maybe years after they were delivered to another EU country. COARM insists that the original country of export should still be able to impose conditions on the sale and continue to exercise control long after the goods have been sold. And it is clear that foreign policy considerations will be of fundamental concern. Just consider the sensitivity of certain sales to Burma, China or various African countries.

COARM uses the Commission’s impact assessment as its reference point and maybe this is not surprising, as the Commission’s assessment is studiously cautious on the foreign policy implications of the proposals.

The French have filed specific questions to the Council’s legal service: whether single market legislation is appropriate for armaments? Whether the EU might intervene in export of weapons to third countries? And whether intergovernmental co-operation could continue once European laws were in force? (The Code of Conduct on defence exports, for instance, is an agreement between governments).

Heide Rühle, the European Parliament rapporteur in IMCO, the internal market committee, has asked for similar legal guidance, but became distinctly irritated when the parliament’s defence sub-committee SEDE also asked for legal support – none of their business, she said. Her committee chair, Arlene McCarthy, even questioned whether the French government might be interfering with the work of her committee.
 
So there are big issues at stake. There will no doubt be moves to protect some national sensitivities, but it looks as if the new legislation will go through, and is likely to have far-reaching implications for Europe’s defence sector.