EU resolves to free up defence market

Aerospace manufacturers are cautiously welcoming a voluntary deal struck between European Union countries to open defence contracts to competition.

Defence ministers passed the Intergovernmental Regime to Encourage Competition in the European Defence Equipment Market (IRECEDEM) in Brussels last week, establishing a voluntary code under which defence procurement will be opened up to cross-border competition. Currently, defence and security contracts are exempt from European anti-trust laws that ensure any European company can bid for contracts in any EU country. The European Defence Agency (EDA), created last year to co-ordinate defence procurement, had been pushing for a reversal of this exemption, but says the code of conduct, although voluntary, is a “major breakthrough”.

Several countries use the exemption to award contracts to national champions without a transparent tender process, says Nick Whitney, EDA chief executive, and the agency says about half of all contracts are not subject to single-market rules. “At the moment there is an assumption that defence contracts have no competition, unless there are special circumstances. This reverses the natural assumption and from now on we’ll start from the assumption that competition rules will apply. There are exemptions, but countries will have to account for exemptions.”

The Aerospace and Defence Industries Association of Europe (ASD) has been pushing for more co-ordinated defence procurement and greater competition in defence contracts. However, together, Europe’s four largest countries – France, Germany, Italy and the UK – spend about E160 billion ($187 billion) a year on defence, about one-third of that of the USA (see chart below).

The code of conduct’s reporting structure allows the EDA, which will administer IRECEDEM, to collect accurate data on which countries apply the code.

Source: Flight International