title: Opinion of the Economic and Social Committee on the 'Communication from the Commission to the Council, the European Parliament, the Economic and Social Committee and the Committee of the Regions - Implementing European Union strategy on defence-related industries'

eurovoc_concepts:
EU policy
action programme
arms industry
defence policy
industrial restructuring

text: 14. 9. 98 EN Official Journal of the European Communities C 284/115 Opinion of the Economic and Social Committee on the ‘Communication from the Commission to the Council, the European Parliament, the Economic and Social Committee and the Committee of the Regions — Implementing European Union strategy on defence-related industries’ (98/C 284/18) On 4 December 1997 the Commission decided to consult the Economic and Social Committee, under Article 198 of the Treaty establishing the European Community, on the above-mentioned communication. The Section for Industry, Commerce, Crafts and Services, which was responsible for preparing the Committee’s work on the subject, adopted its opinion on 3 June 1998. The rapporteur was Mr Mobbs. At its 356th plenary session (meeting of 2 July 1998), the Economic and Social Committee adopted the following opinion by 68 votes to 20, with 17 abstentions. 1. Conclusions There is an essential the 1. 1. expression of a European political will for a Common Foreign and Security Policy (CFSP) and for the recog- nition of the European Defence Industry as a vital component of such a policy. requirement for 1. 2. The harmonisation of Operational Requirements is a cornerstone of future progress towards a European Defence Equipment Market. In parallel, harmonisation of acquisition procedures, regulations and standards for defence equipment is required. The formation of a European Armaments Agency to manage common activities would obviously also have advantages. 1. 3. To sustain an effective operational capability, European Armed Forces require high technology, cost effective equipment at a price that nations can afford. Europe should not become dependent on third countries in the area of defence equipment, for political, technical and economic reasons. is therefore essential to It maintain a modern, efficient and competitive Defence Industry in Europe as a vital component of its security provisions. 1. 4. To sustain the European Defence Industries’ ability to support a future European CFSP, a European Defence Equipment Market must be established. This will be the foundation upon which the European Defence Industries can embrace trans-national rationalisation to sustain their global competitiveness. 1. 5. The operation of a European Defence Equipment Market will require the acceptance of industrial/techno- logical interdependence and security of supply between nations. 1. 6. In the long term, the sustaining of the European Defence Industrial Technological Base will require the identification of the critical ‘leading edge’ technologies necessary for this purpose. A centrally administered and funded collaborative R and T process across Europe will also be needed in support. The recently completed first phase of a Western European Armaments Group Science and Technology Study is an example of what work needs to be undertaken. 1. 7. The Governments of the Member States must take positive action now to state the political will for Europe to develop a CFSP, to set objectives, and to allow for the restructuring and rationalisation of the European defence industry. If they are neither prepared nor able to do so, then they must accept full responsibility for the continuing decline of the industry and the increasing reliance by Europe on alternative sources of supply for defence equipment. There are welcomed signs that a number of governments recognise the defence industry problems and are starting to take positive action to assist European industrial restructuring. 2. Background Until recently, the defence-related industries have 2. 1. been an industrial sector with which the Community has not been particularly involved. This has been due to individual Member States viewing defence and national security issues being a national responsibility of the sovereign nations involved, having taken a fairly broad interpretation of Article 223 of the Treaty. In January 1996, the Commission produced its 2. 2. first comprehensive Communication on ‘the challenges C 284/116 EN Official Journal of the European Communities 14. 9. 98 facing the defence industry’ (1). The Committee adopted an Opinion in March 1997 (2). up and attention given to the opportunities offered by the exploitation of dual-use technologies. 2. 3. Whilst this current Opinion will not cover the detailed matters dealt with in the original Commission document, it is nevertheless worth recalling the Com- mission’s primary concerns and those of the Committee. 2. 4. In September 1997, the Commission issued a Communication concerning the ‘European aerospace industry’ (3). In passing it is worth noting that, in Decem- ber 1996, the Commission had also issued a Communi- cation on ‘Space’ (4). The Committee adopted Opinions on both these Communications in January 1998 (5). 2. 3. 1. The end of the Cold War and the break up of the Soviet bloc resulted in a progressive change in the nature of the defence environment. The scenario from which defence requirements are formulated changed and Governments had to adapt to the resultant effects both from an operational point of view and from the point of view of the European defence industry. 2. 5. All of these Communications are timely since: a) the companies concerned are often the same, b) the technologies involved have much in common, and c) the competitive market place problems are often similar even if customer markets and conditions are different. 2. 3. 2. The European defence-related industries are also facing an economic and political context which continues to change and which calls for responses going level. Much restructuring has beyond the national already taken place, with a loss of jobs, on the initiative of individual companies for commercial reasons because of cuts in defence budgets and fierce international competition. Above all, the fragmented nature of the European defence equipment market is a major obstacle to the implementation of a truly European strategy for the Industry. 2. 3. 3. A problem for Governments is to preserve a balance between the political need for a strong and technically competent and independent Industry, which remains a keystone for the existence of a truly indepen- dent European Common Foreign and Security Policy (CFSP), and the need to take economic advantage of the reduction of the military threat to make savings in defence expenditure for the benefit of other high priority social and environmental issues. The Committee in its previous Opinion called 2. 3. 4. for the Commission’s involvement to take account of the industry’s links with security and defence policies, the way in which R&D and production are organised and the reliance on defence ministries for its markets. In addition, in order to maintain jobs and technology levels at a time when demand in the defence market is falling, reconversion and diversification must be speeded (1) Communication from the Commission — The challenges facing the European defence-related industry, a contri- bution for action at European level (COM(96) 10 final). (2) ESC Opinion: OJ C 158, 26. 5. 1997, p. 32. 3. Current position in the 1996 before January 3. 1. The Commission’s first Communication on defence related industries (ibid. Footnote No 1) was published Inter- Governmental Conference. Unfortunately the Treaty of Amsterdam signed in July 1997 did not produce clear decisions on CFSP issues. Therefore the European defence industry, in general, remains compartmentalised and fragmented with small business structures which are unable to respond appropriately to the rationali- zation and concentration processes required. Despite industrial restructuring which is taking place, and which is mainly national with little cross border management involved, the industry has no single politically agreed basis upon which to establish the total restructuring which is necessary if the industry is to compete in the global market place. All this is particularly relevant to competition with the defence industry of the USA where significant restructuring has taken place rapidly ‘with the open and practical support of the Administration (6)’. 3. 2. Present commercial and business pressures, led by the drop in demand for military products, are making (3) Communication from the Commission to the Council, the European Parliament, the Economic and Social Committee and the Committee of the Regions — The European aerospace industry: meeting the global challenge (COM(97) 466 final). (4) Communication from the Commission to the Council and the Parliament: the European Union and space: fostering applications, markets and industrial competitiveness (COM(96) 617 final). (5) ESC Opinions of 28 January 1998: OJ C 95, 30. 3. 1998, p. 6 and 11. (6) COM(97) 583 final, Point 1 (Context), 3rd paragraph. 14. 9. 98 EN Official Journal of the European Communities C 284/117 it vital for the competitive future of the European defence industry for it to rationalise and restructure. At present, this rationalisation and restructuring is being undertaken in response to these commercial and business pressures without necessarily account being taken of the wider future strategic needs of the individual Member States and the European Union as a whole. 3. 3. Over the past 25 years, the European defence industry has concentrated its collaborative ventures on the basis of individual project programmes where nations have shared responsibilities for management, costs, development and production. However this has led to structures which have neither been commercially efficient nor cost effective. For example, whilst the announced intention to proceed with the production of Eurofighter is welcomed, it should be recognised that this project is being undertaken under the process of a co-operative/consortium programme established in the 1980s long before the present concerns for the future size and shape of the European defence industry were seriously under consideration by the Member States and the Commission. Future major European projects of this kind will require central management on a commercial basis and the ‘Airbus Military’ Consortium which is proposed to build the European Future Large (Military) Aircraft (FLA) is one example of the new industrial organisations that will be needed. 3. 4. The call, in December 1997, by the leaders of France, Germany and the UK for a restructuring of the European aerospace and defence electronics industries was the first political move towards a position that will allow the European industries to begin implementing the necessary restructuring. However, it has to be recognised that unless all of the individual Member States fundamentally change their policies and agree on a uniform CFSP and all that this implies, many of the defence industries’ problems will remain and any industrial initiatives will only stand a limited chance of success. Time is short if the industry is to retain its current competitiveness in the World Market for defence equipment. As the Committee stated in its Opinion on the European aerospace industry (ibid. footnote No 5, p. 116) point 3. 15 ‘a new impetus can only come about if the Member States make a serious and joint commitment, agreeing to shared economic objectives and pooling their means for achieving them’. 3. 5. Since, aside from the Council and the Com- mission (the EU), there are many organisations, existing or proposed, who are concerned with the European defence related-industries, the key ones are listed below with a brief description of their role. Further details are contained in Annex 2 (involvement) and Annex 3 (relationship). 3. 5. 1. NATO. No further description is considered necessary in the context of this Opinion. WEU (Western European Union). An organisation dealing with defence and security matters. It was established by the Paris Agreement, signed in October 1954, which modified the Brussels Treaty of 1948. The WEU occupies a pivotal role between the EU and NATO as the only organisation prepared to conduct military operations in the humanitarian, peacekeeping and crisis management fields. WEAG (Western European Armaments Group). An organisation whose function is to co-ordinate armament co-operation activities within the WEU. The objectives of WEAG are: — the more efficient use of resources through, inter alia, the increased harmonisation of operational requirements; — the opening up of national defence equipment markets to cross border competition; — he strengthening of the European defence technologi- cal and industrial base; — co-operation in Research and Development. WEAO (the Western European Armaments Organi- zation). WEAO, created in November 1996, is a new subsidiary body of the WEU. It is the first European armaments body to be created with an international legal personality. It provides a legal framework for such co-operative armaments activities as the WEAG ministers assign to it. OCCAR (Organisme Conjoint de Cooperation en ma- tière d’Armement). Since the conditions to establish a real EAA (European Armaments Agency) are not yet achievable, the Governments of France, Germany, Italy and the UK have decided to create OCCAR as a step towards the formation of an EAA. Its primary objectives are: — the introduction of new optimised programme man- agement procedures; — the harmonisation of operational requirements; — to increase efforts towards the improved competi- tiveness of European industry and technology base in the armaments sector; — to strengthen industrial co-operation; — to ensure in the short and medium term, the support of the armed forces in all circumstances. C 284/118 EN Official Journal of the European Communities 14. 9. 98 EAA (European Armaments Agency). The Declaration on Western European Union, annexed to the Treaty of Amsterdam, provides for a European Armaments Agency as a possible vehicle for future armaments co-operation within the Western European Union. — armaments policy is linked to Community policies, in particular on industry, trade, customs, the regions, competition, innovation and research; — the Action Plan is to be used to develop a European armaments policy; 4. The Commission Communication — the position shall be reviewed after 18 months. The Commission Communication of December 4. 1. 1997 reiterates the concerns originally expressed in the January 1996 Communication (ibid. footnote No 1, p. 116) and observes that in areas such as employment and trade imbalance with the USA, matters are getting worse. The Commission considers that an integrated European market for defence products must be set up using all the instruments at its disposal, and proposes a global approach to implement this strategy: — a proposal for a Common Position on drawing up a European armaments policy in a form suggested by the Commission. Initially, this will specifically cover intra-Community transfers (of defence-related prod- ucts), public procurement and common customs arrangements; — an Action Plan for the defence-related industries. The plan describes areas where immediate action is seen as necessary and for which detailed proposals will be developed by the Commission. 4. 1. 1. The Commission sees these two actions as complementary to each other and intends to proceed with both in parallel. 4. 2. In regard to the Action Plan, the Commission proposes that, without waiting for a new institutional context to be established, action should be taken at once to protect the defence sector’s technological and industrial base. The Commission intends to develop more detailed proposals for action in these areas and calls upon the European defence-related industries and other parties concerned to cooperate in the implemen- tation of the Action Plan. 4. 3. The Commission Communication includes as Annex I a ‘Draft Common Position on Framing a European Armaments Policy (adopted on the basis of Article J. 2 of the Treaty on European Union)’. 4. 3. 1. mon Position are that: Some of the key points of the proposed Com- — account shall be taken of the specific features of the armaments sector; — development of an effective European armaments policy entails using existing Community and CFSP instruments; 4. 3. 2. Included in the Appendix to Annex I is the ‘definition of specific characteristics of the defence- related sector’, drafted by the working party on European armaments policy (POLARM) and approved by the Coreper on 10 December 1996. 4. 3. 3. Appendix are: Some of the key points contained in this — The specific characteristics of the armaments sector, which have been acknowledged since the foundation of the Community, are taken into account by the provisions of Article 223 of the Treaty of Rome. — 90 % of production of EU defence equipment is concentrated in some Member States: France, UK, Germany, Italy and Sweden. — Since governments are the only customers, and in some cases a major owner of defence industries, the market differs from most sectors of the economy. — Production and trade of armaments are subject to governmental authorisation. — Quality-price relationship is not the sole criterion which determines procurement policy. Offset (com- pensation), including industrial co-operation agree- ments, as well as strategic political, economic and security considerations can also be a factor. The main objectives of the Action Plan are to 4. 4. establish the necessary conditions to: — strengthen the competitiveness of the European defence industry; — preserve the Defence Technology and Industrial Base; — favour the integration of European defence tech- nology and industrial base in the general economy to avoid duplication of efforts between the civil and the military areas; — create the necessary preconditions for a European Security and Defence Identity. 14. 9. 98 EN Official Journal of the European Communities C 284/119 4. 4. 1. needed in the following areas; The Commission Action Plan details actions 1. Simplification of Intra-Community transfers. 2. European Company Statute. 3. Public Procurement. 4. RTD. 5. Standardisation. 6. Customs duties. 7. Innovation, transfer of technology and SMEs. 8. Competition policy. 9. Exports. 10. Structural funds. 11. Taxation. 12. Principles for market access. 13. Benchmarking. 14. Enlargement. 4. 4. 2. Finally the Communication includes a detailed target time table for the proposed Action Plan starting in the first half of 1998 and continuing until 2000. 5. General Comments 5. 1. The Committee is pleased to have the opportunity to comment on this Commission Communication as a natural follow-on to the previous Commission Com- munications (the ‘Challenges facing the European Defence-Related Industries’ (ibid. footnote No 1, p. 116) and also ‘The European Aerospace Industry — Meeting the Global Challenge’ (ibid. footnote No 3, p. 116). 5. 2. The Committee generally welcomes the Action Plan. The Committee notes that the Commission con- siders the proposed Draft Common Position and the proposed Action Plan as independent one of the other, even though they are contained in one Communication. The Committee, whilst noting the Commission inten- tions, does not feel that the connection between the Draft Common Position and the Action Plan is suf- ficiently clear within the overall Communication and wishes to see more evidence of this relationship. The Committee considers that the lack of political will and commitments to convergence, restricts the Commission’s room for manoeuvre, even though the Commission considers that the measures contained in the proposed Action Plan should proceed on their own. 5. 2. 1. In the meantime, the Committee is concerned that much of what is proposed by the Commission still requires major decisions and positive actions by Member States. To date, all indications are that such decisions and actions by Member States are ‘noticeable by their absence’. Unless, and until, the Heads of Government of Member States actually take the decisions required regarding defence and security, little progress will be made. Even the December 1997 announcement by the Heads of Government of France, Germany and the UK (see point 3. 4 above), whilst welcomed, was, at best, only the first sign of active realism by the three countries. 5. 3. The magnitude of the problems to be resolved at Government level can be demonstrated. Some Govern- ments/Companies would favour the formation of a European civil/military conglomerate which would be seen as domestic enough in each country to win arms orders from Governments, whilst others would favour a more multisectoral approach. However there are Governments who are unwilling for individual national political reasons, to buy from foreign companies or to harmonise their procurement. In addition, the different legal status of defence companies in Europe may make it difficult to create merged companies which will be attractive to private shareholders. 5. 3. 1. A number of European companies currently have substantial business interests (for example subsidi- aries) in the USA. Therefore there may be circumstances in which these companies may not share enthusiasm for future large scale European rationalisation since this might hamper future prospects for trade with the USA. 5. 4. A key element for progress will be an agreement on a CFSP and a common defence policy. Without this, any proposals by the Commission risk being introduced in a random manner without full regard to the specific characteristics of the defence industry referred to in the Appendix to the Draft Common Position. 5. 4. 1. The Committee realises that some Member States may feel obliged to keep some aspects of defence to themselves. However, the survival of Europe’s inde- pendent defence industrial base will not be possible without some major changes such as: — policies are adopted that recognise that the defence market is global; C 284/120 EN Official Journal of the European Communities 14. 9. 98 — actions are taken to achieve economies of scale; — reduce the number of national champions in line with market requirements; — and the ‘juste retour’ concept is suitably replaced. problems facing the European defence industry — fragmentation of the European defence equipment mar- ket, falling European demand, increasingly fierce compe- tition for export orders, and increasing job losses. However, without the European Commission being given genuine authority by Member States to advance matters, the Commission may well be totally frustrated in its efforts. 5. 5. The Committee supports the Commission’s aim to correct the currently fragmented nature of the defence market in Europe. Many Member States still retain an ability to be self reliant, but this is unlikely to be affordable in the long term. Closer working together and the creation of a European defence equipment market will however be totally influenced by what ever political and institutional framework is agreed by the Governments of the Member States. A real European defence equipment market will comprise a European body responsible for the harmonisation of the oper- ational requirements of the different countries, for defining and agreeing harmonised procurement and acquisition rules, for establishing procedures within a structural framework to ensure competition and the achievement of an effective economic return but avoiding unnecessary duplication of capability. Such a body will require the Governments of the Member States to agree on common economic and military goals. An effective Western European Armaments Group (WEAG) could fulfil these tasks. 5. 6. A European defence equipment market will enable the European defence industry to maintain the technology standards necessary to compete in the world market place and, more importantly, to supply the Armed Forces of the Member States with the high technology, cost effective equipment they need to carry out their tasks. Without this capability, Europe may well become dependent on third countries for the supply of defence equipment with restrictions on freedom of political manoeuvre that this could bring. The maintenance of a modern, efficient and competitive European defence industry therefore becomes a vital component of the security of the European Union. 5. 8. Restructuring within defence-related industries will produce a fewer number of bigger holding (Euro- pean) companies which at an operational level will result in a concentration on project management, system integration and assembly. The nature of subcontracting is changing with 5. 8. 1. an increase in the amount of specialisation and ‘risk sharing’ (partnering). This is likely to continue, albeit ‘industrial risk sharing’ is likely to involve only the major first tier subcontractors. However, there will inevitably be ‘economic effects’ which flow down the supply chain and include SMEs. 5. 8. 2. Whilst recognising that change is inevitable, the Committee is concerned that this shall not be to the overall detriment of those involved, especially SMEs. The Committee recommends there should be Com- mission initiatives into the possible effects on innovation, job security, regional development, planning, financing, etc. 5. 8. 3. ‘As said earlier (point 2. 3. 2), a large number of jobs have already been lost due to industrial restructur- ing. The human resources aspect of the run-down of the European defence-related industry demands particular attention towards alternative job creation opportunities and skill (re)training in order to maintain a high level of technological expertise. This should be investigated by the Commission. ’ 5. 7. An examination of the two relevant Commission Communications of January 1996 and November 1997 shows how little real progress has been made towards constructively addressing the issues originally raised at the beginning of 1996. With the passing of time, a number of the problems identified have become worse. Although the Committee has a number of reservations about the Commission’s proposals, many of the pro- posals offer constructive suggestions for tackling the 5. 9. All major international defence equipment pro- ducing countries endeavour to export their products. A number of European States do so with a fair degree of success and in the process secure a considerable number of jobs and defray the development and procurement costs of new equipment for their own use. The Com- mittee considers that a common commercial policy, in line with the eight criteria approved by the Council in 1991 in Luxembourg and subsequently confirmed in 1992 in Lisbon, might enhance Europe’s exports. 14. 9. 98 EN Official Journal of the European Communities C 284/121 6. Specific Comments 6. 1. The Committee notes the Commission’s 14 areas for specific actions and the Commission view that they can proceed without waiting for agreement on the Draft Common Position (see earlier points 4. 1. 1 and 5. 2. 1). Since several of the line items are also relevant to business areas outside the defencerelated industries, the Committee welcomes many of the proposed actions. For the purposes of this Opinion, the Committee comments only on those items of the Action Plan where the Committee is concerned about the Commission proposals in regard to the defence-related industries. 6. 2. Plan item V. 2. ‘European Company Statute’ Agreement on this subject may well facilitate aspects of the restructuring of the defence industry and this has been endorsed strongly by the Committee in the past. 6. 3. Plan item V. 3. ‘Public Procurement’ Security of supply is a key aspect of this topic. The application of three categories does not seem a practical and realistic approach. The Committee recommends a joint review by the Commission and WEAG. 6. 3. 1. Initially, at least, all actions to open up the market within Europe should be legally defined in order to avoid their interpretation by countries and industries outside the EU as a means of opening up the European market to outside suppliers. Action which opens up the European market to ‘global’ competition must be controlled to ensure the existence of a truly level playing field in the world market (reciprocity). 6. 3. 2. A number of Member States have not yet fully implemented existing Public Procurement Directives. Therefore it may well be unwise to move too far and/or too fast with their complete application into the very specific area of the defence equipment market. A cautious approach may be more successful especially bearing in mind the need to ensure security of supply. 6. 4. Plan V. 4. ‘Research and Technological Develop- ment (RTD)’ arbitrary split between ‘defence’ and ‘civil’ procedures and funding is wasteful and inefficient, particularly in view of the increasing impact of the so-called ‘dual use’ technologies. 6. 4. 1. Although the funding mechanisms for ‘defence’ and ‘civil’ are not the same, ‘defence RTD’ including an element for product development, Europe cannot afford to continue its current funding processes. Whilst it is probable that some dedicated funding for ‘defence development’ will need to be retained at national level, more effort is needed to co-ordinate European expenditure in this area to ensure the best possible value is obtained and duplication between European and national research programmes is reduced to the absolute minimum. 6. 4. 2. It is probable that the amount of money available for research will define what military equip- ment can be developed in the future. The European Commission and the WEAG should jointly examine new arrangements for the co-ordination of civil and defence research activities to ensure the minimum of duplication between these two organisations and maximum return on investment for the Member States. 6. 5. Plan V. 5. ‘Standardisation’ The Committee agrees with the Commission’s intentions to rationalise standards wherever possible in the interests of economy, be this between European Defence Minis- tries, civil and military applications or Europe and the USA. However, when the Committee looked into standards problems (1), it was found that many problems existed in the ‘commercial field’ and that legislation, implementation and enforcement throughout the Union fell well short of expectations. Thus action and results here, however well intended, are likely to be delayed before material benefits are achieved. The recently initiated Commission Study of the present standards situation in the European Union and the USA will, hopefully, clarify the current confused picture and be a move towards a more co-ordinated approach to stan- dards in both the EU and the USA. The Committee notes that there is no reference 6. 5. 1. to the countries of eastern Europe and the former Soviet Union. In view of the European Union’s interest in these countries, further study will be needed on the probable impact on their industries of the introduction of indus- trial standards of Western origin. There is a major weakness in the approach to Research and Technology Development in Europe. The current (1) ESC Opinion on Technical Standards and Mutual Recog- nition: OJ C 212, 22. 7. 1996. C 284/122 EN Official Journal of the European Communities 14. 9. 98 6. 6. Plan V. 7. ‘Innovation, transfer of technology and SMEs’ 6. 6. 1. Support for SMEs should be made available from a wider market than just defence. ‘Offset, juste retour or a suitable alternative (economic return)’ could be made available from market areas other than defence. 6. 6. 2. Measures to promote SMEs should reflect the importance of the sub-contracting sector, which largely involves small businesses and craft undertakings. These must, in order to adjust to defence-market developments and ‘dual-use’ activities, face up to the rapid obsolescence of equipment and invest in quality, training and communication. 6. 6. 3. As a complement to market-access measures, the Committee would, in this context, ask the Com- mission to take action on three fronts: — to foster investment via rapidly accessible financing systems, without being confined to the objective areas of the regional funds; — to strengthen and adapt technological training and facilitate know-how transmission; — to promote access to technology advisers whose remit would cover not only technology but also quality, funding and training. 6. 7. Plan V. 8. ‘Competition policy’ This matter must be considered alongside ‘public pro- curement’. In view of the lack of much open/free competition in Europe for defence products, competition in the defence market will only evolve slowly over the years. Competition Policy may have to recognise and accept the reality of a ‘European champion(s)’ in some groupings (aircraft, engines and equipment, for example) as a pre-requisite for successful world market competi- tiveness. 6. 8. Plan V. 9. ‘Exports’ but has been awaiting the outcome of the initiative under the UK Presidency regarding a ‘ European Code of Conduct’. The Committee is pleased that the Council formally adopted that Code (8/9 June 1998) on arms exports and hopes that Member States will enforce it rigorously. The Committee welcomes the statement that Member States will use their best endeavours to encourage other arms exporting States to subscribe to the principles of the code. 6. 8. 3. As the collaborative development of defence equipment becomes increasingly the usual way of doing such work, the question of the export of defence equipment developed in this manner to countries outside the EU has to be resolved. A proposal that the rules of the nation of the prime contractor and, thus, the ‘final exporting nation’ should be the datum, is one that must be carefully considered. The more stringent export controls which are applied by some Member States must not be jeopardised within the framework of the code of conduct. 6. 8. 4. The obtaining of some major arms export orders is often subject to political pressure on client countries by government authorities in supplier countries. This may even involve direct intervention by Heads of State. The Council and the Commission should recognise that the promotion of exports is a common interest and could benefit from their support. 6. 8. 5. in the continuing general debate on all these issues. The Committee looks forward to participating 6. 9. Plan V. 12. ‘Market Access’ Reciprocity for market access needs greater emphasis. It is a key part of the opening up of the public procurement process (para 6. 3) in order to avoid any uneven playing fields whereby Europe’s defence market offers opportunities to third countries which are not available to European Industry. Reciprocity in this case should include investment opportunities for European companies, the removal of barriers which limit percent- age of foreign ownership, outright foreign ownership, or security restrictions. 6. 8. 1. Dual use. The outcome of the Commission review on the operation of current rules and regulations to see how their operation may be simplified without the need for new legislation is awaited with interest. 6. 8. 2. Conventional armaments. The Committee is aware that the Commission is ready to issue a White Paper on this aspect of defence equipment export policy 6. 10. Plan V. 13. ‘Benchmarking’ The Committee has undertaken work on ‘Bench- marking’ in other contexts and issued Opinions contain- ing comment. Nevertheless the Committee considers that the Commission needs to be clearer in the context of the defence industry and specify exactly what is expected. 14. 9. 98 EN Official Journal of the European Communities C 284/123 6. 11. Plan V. 14. ‘Enlargement’ 6. 12. The Euro Enlargement may offer opportunities as well as problems. The Commission Action Plan must recog- nise that defence and civil markets can well have differing implications and that general economic in political factors can play an important part decisions. The Commission Action Plan does not refer to the Euro (since adopted May 1998). The Committee recommends that the Commission studies a) possible effects which the Euro may have on the activities of the defence-related industries, and b) the possible use of the Euro as an international alternative to the US dollar. Brussels, 2 July 1998. The President of the Economic and Social Committee Tom JENKINS APPENDIX I to the opinion of the Economic and Social Committee 1. At the end of March 1998, the four Airbus Industries (AI) partners (Aerospatiale of France, British Aerospace of the UK, CASA of Spain and Daimler Benz of Germany) presented their reply to the Heads of State Declaration of December 1997 regarding the restructuring of the European aerospace and defence electronics industry. 1. 1. In their report, the AI partners share with the Governments the strategic interest in building a strong European aerospace and defence industry. The report reflects the wide measure of agreement, in principle, between the partners on the formation of a single unified European Aerospace and Defence Company (EADC). But equally it recognises that significant work still has to be done, particularly in the area of ownership. Therefore no timetable is set and the partner studies will continue. The report also recognises the importance of other European aerospace and defence companies 1. 2. in the restructuring process, in particular those of Italy and Sweden. 1. 3. Recent events confirm that the European Defence Industry is expected to be primarily responsible for its own industrial restructuring. However it is evident that the Governments of the Member States play a key role in the development of any defence equipment market and for determining the requirements of European defence. They must accept responsibility for this as there is a limit to what Industry can and should do on its own. 2. The statement on 20th April 1998 by the Defence Ministers of France, Germany, the UK, Italy and Spain reaffirming their will to accelerate consolidation of the European defence industry and their intention to approve a letter of intent in June on means of lifting ‘certain obstacles to industrial restructuring’ is further proof of an increasing desire by some governments to make progress. C 284/124 EN Official Journal of the European Communities 14. 9. 98 APPENDIX II to the opinion of the Economic and Social Committee Membership of Organisations referred to in point 2. 6 COUNTRY Austria Belgium Canada Denmark Finland France Germany Greece Iceland Ireland Italy Luxembourg Netherlands Norway Portugal Spain Sweden Turkey UK USA EU Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes NATO WEU WEAG Yes Yes Yes Yes (Note 1) Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Observer Member Observer Observer Member Member Member Associate Member Observer Member Member Member Associate Member Member Member Observer Associate Member Member Participant Participant Participant Participant Participant Participant Participant Participant Participant Participant Participant Participant Participant Notes: 1. France withdrew from the integrated military structures of NATO in 1966. Otherwise it is a full member of NATO. 2. Under heading for WEU, Bulgaria, Czech Republic, Estonia, Hungary, Latvia, Lithuania, Poland, Romania, Slovak Republic and Slovenia are Associate Partners. 3. This is not an official document. It has been prepared to augment information in point 3. 6. 14. 9. 98 EN Official Journal of the European Communities C 284/125 APPENDIX III to the opinion of the Economic and Social Committee Outline organisation chart to show the inter-relationships between the various organisations mentioned in the opinion of the Economic and Social Committee (NB: This diagram is not an official document. It has been prepared by the rapporteur as an aide-memoire)