European Defence Procurement Integration: How to Handle Article 296 EC Cicero Foundation December 2005- Paris. Dr. ARIS GEORGOPOULOS University of Dundee, United Kingdom. Public Procurement in the Defence Sector: Competition Despite Article 296 EC?. OUTLINE Background Information
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Dr. ARIS GEORGOPOULOS
University of Dundee, United Kingdom
Examination of Article 296 EC
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)
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
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
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]
the New Public Procurement Directive [Article 10, see also Annexes IV and XII as well as the explanatory Memorandum]
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)
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
Need for more competition in defence procurement?
Support of the credibility of the ESDP by a healthy European defence industrial base
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
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?
Is the abolition of Article 296 EC a necessary condition for the attainment of competition in defence procurement?
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.
Is competition in the defence sector possible without the support of the Member States? Through a narrow interpretation of Article 296 EC perhaps?
Commission’s 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.
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 notadversely affectthe conditions of competition in the common market regarding products which are not intended for specifically military purposes
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
Not a classic proportionality test
Test of manifest unsuitability
In a nutshell:
Is the Emperor naked? (As opposed to “Is the Emperor dressed properly”)
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
The position of the European Court of Justice (so far):
Case 186/01Alexander Dory
C-252/01Commission v. Belgium
C-414/97 Commission v. Spain
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