Speech by Mr Fernando Díez Moreno, Secretary of State for Defence, Spain

Speech by Mr Fernando Díez Moreno, Secretary of State for Defence, Spain

BASIC DOCUMENT ON A EUROPEAN ARMS POLICY (EAP)

NON PAPER

1. BACKGROUND

The June 4, 1999 Cologne European Council declared, in Annex III to its conclusions, that:

"We likewise recognise the need for making a sustained effort to strengthen the industrial and technical basis of defence which, as we want, has to be competitive and dynamic. We are resolved to promote the restructuring of European defence industries in the countries concerned. By perseverance we shall progress towards closer and more effective collaboration in the defence industry. We shall strive, through continuous progress - to the extent deemed appropriate by the Member States - towards the harmonisation of military requirements in the planning and procurement of weapons."

At the same time, the December 11, Helsinki European Council stated in Annex IV to the Conclusions, that:

"The Member States have welcomed with satisfaction the recent advances made in restructuring the European defence industries, which constitute a major step forward and contribute to strengthening the industrial and technological basis of European defence. This development requires an intensification of the efforts to achieve new progress in harmonising military needs and in the planning and procurement of weapons, to the extent considered appropriate by the Member States."

Finally, the Mandate given at the Laeken European Council, held in that city in December 2001, provided that, during the Spanish Presidency, cooperation in the armaments field should be strengthened in the way that Member States considered appropriate.

2. PREVIOUS DISTINCTION

In discussing the European Arms Policy (EAP), a distinction must first be made between the European Arms Policy and the European arms industry. This duality exists in other fields and industrial sectors. Thus there is a European Industrial Policy and a European industry; there is a European Energy Policy, and some energy industries.

The distinction between them lies in the fact that the European Union is able to define an Arms Policy, whereas European industry is subject to market regulations.

3. THE SIGNIFICANCE OF THIS DOCUMENT

The intention of this document is that it should be a first step in the formulation of a European Arms Policy. It was Robert Schuman who said that, "Europe will not be made at a single stroke, nor through global construction. It will be built by taking specific steps, by first of all creating de facto solidarity."

Therefore, the aim is to formulate a number of general premises - or bases, basic criteria and rules of behaviour, which constitute the framework, but not the mandate, for the definition of the EAP. The implementation of each basis will have to be achieved through taking measures agreed by consensus and in the processes demanded by the realities of each situation. These bases will have to serve as guidance criteria for governments and industry, but in no case will they be procedures with an immediately binding effect.

4. THE EUROPEAN WEAPONS INDUSTRIES

It cannot be stated at this time that there is a European industry; rather, it is the sum of the national industries, with very complex financial stakes that include holdings in American capital and capital of other non-European countries.

This complexity or division is the result of the history of each country and of market requirements. There is a great difference in the levels of integration between the areas of aerospace and of land and naval forces. Each country has its own industrial weapons policy.

Therefore, talking about the European Weapons Industry is, to a certain extent, purely rhetoric or a euphemism. There is an industrial armaments sector in each country, as there are other industrial sectors.

5. THE GROUNDS OF THE EAP

The existence of an EAP is a long-term objective which will have to tread a path that will also be long. Speaking of the European Economic Community, Schuman said, as was mentioned before, that it would have to be built step by step. That objective will never be fulfilled if the first step is not taken, and the bases proposed in this document aim only to be a first step.

Therefore it is matter of pointing out which problems are common to the different countries, for the purpose of formulating an Action Programme that the governments can undertake under the European Security and Defence Policy (ESDP). Thus, the following bases have been formulated:

1. The EAP as an instrument of the CFSP.

The EAP cannot be left out of the CFSP, and even less so once the CFSP has defined its objectives.

At the same time, the Capabilities Conferences held in Brussels during the months of November 2000 and 2001, have made it possible to ascertain what contributions each country is willing to make, and also what the deficits and shortfalls of the EU as a whole are with a view to fulfilling the Headline Goal.

It seems obvious that the EAP should be prepared in the medium and long term to make up such deficits and shortfalls, in such a way that it can become an instrument in the service of the CFSP, and not the other way round, as has been happening in not a few countries in which industrial policy is governed by industrial needs or interests, rather than the interests of a national or European defence policy.

Therefore, the first basis must recognise the instrumental value of the EAP vis-à-vis the CFSP, and its subordination to the interests and objectives of the latter, and not the other way round.

The European Arms Policy (EAP) is only conceivable within the ESDP if it is directed towards fulfilling its objectives, especially the Headline Goals and the Petersberg missions, thereby constituting one of its supports. The European Arms Industry (EAI) must be at the service of the ESDP, and not the other way round.

2. The guiding principles

The EAP must be based on guiding principles that reflect what has come to be the usual practice in governments' behaviour.

The principle of voluntary compliance means that this policy cannot be imposed on any Member State, but rather must be the result of an agreement between all of them.

The principle of transparency means that, in the same way as occurs in other industrial sectors, the armaments industry is subject to the rules of competition and to market regulation.

The principle of cooperation translates the mandates of the Cologne and Helsinki European Councils, as well as that received from Laeken for the Spanish Presidency.

The principle of coordination with other organisations or industries is obligatory, bearing in mind the EU's transatlantic links with other non-European countries, especially the United States.

The EAP must draw its inspiration from the principles of voluntary compliance, transparency, cooperation and coordination with other organisations, especially NATO. The European Arms Industry (EAI) must bear in mind the relations and links with the US arms industry.

3. The development of capabilities

The Capabilities Conferences held in Brussels in the months of November 2000 and 2001 not only determined the capabilities contributed by each country with a view to fulfilling the Headline Goal, but also the deficits and shortfalls.

It is necessary, as was made clear at meetings of the National Arms Directors (NADs), to draw up a methodology to enable these shortfalls to be made up, and to determine the priorities and difficulties according to whether they are short-, medium- or long-term. The drawing up of this methodology undoubtedly constitutes a significant part of the definition of the EAP.

Within this methodology, the weapons programmes that are under way in the different countries will have to be taken into account, as well as the possible off-the-shelf acquisitions, the new programmes that it will be necessary to launch and the need to enhance the European technological and industrial bases with these programmes.

Within the EAP, a methodology must be approved for making up the shortfalls detected in capabilities at the conferences that are convened, making a distinction between the short, medium and long term for making up the deficits.

A) Short and medium term, in accordance with the principle of cooperation:

• bearing in mind the programmes under way;
• coordinating off-the-shelf procurement;
• launching new programmes.

B) Long term, in accordance with the principle of independent decisions:

• strengthening the European technological base;
• harmonisation of the common capabilities requirements.

4. The harmonisation of operational requirements

One of the tasks that has been performed in the field of cooperation is that of harmonising operational requirements, especially C4 and inter-operationality Systems.

Approval of this task of standardisation is also significant within the EAP.

It is very technical, which makes slow processes of approximation necessary if the EU is to make progress towards fulfilling the CFSP objectives.

Until now the NADs have been carrying out this work, which they should confirm in order to enable Guidelines to be formulated in such a way that, without being binding in nature, they are able to serve as a guide for industry.

The EAP must formulate Guidelines of a non-binding nature for the weapons industry, in which maximum harmonisation of operational requirements is sought, profits arising from economies of scale are generated, and overlapping and duplication are avoided.

5. The accounting categories for arms investments

Under the current SEC-95 system, adopted by EURSTAAT, investments in weapons systems are classified as "intermediate consumer products".

This classification means that, for purposes of national accounting - in other words, in order to compute the public deficit of each country - the amount of the investment in arms is computed at its full value in the financial year in which it is received, independently of the years that preceded their manufacture, the years in which they were paid for and charged to the budget, and the years of useful life of these systems.

This gives rise to the absurdity that the budget for a financial year contains predictions for arms investments consistent with those for the previous and subsequent financial years, and that the public deficit for that year shoots up as a result of receiving units of weapons systems, which are computed for these purposes at their full value.

That would require a speciality in the computing of investments in the national accounting that takes into account all the concurrent circumstances.

The EAP must define the criteria for financing the costs of the ESDP and must seek financial formulas and accounting criteria that are more appropriate for arms investments.

6. Coordinating R+D investments in Defence

One of the spheres of the EAP in which the results could be more visible is that of the coordination of R+D investment budgets.

The distance separating the EU from the US in these matters seems to be insurmountable, but it is undeniable that if the European R+D projects were to be co-ordinated, that distance would be reduced and at the same time overlapping and duplication would be avoided.

European R+D policy in civilian spheres, as well as the R+D programmes approved by the EU, constitute a valuable precedent for formulating this policy, which will bear in mind objectives such as the establishment of technological bases, promoting an increase in investments, and fostering dual technology use.

The EAP must lay down criteria for coordinating R+D investments in defence, in order to:

• establish the technological bases for common capabilities;
• avoid dispersion and duplication;
• promote increased R+D budgets;
• promote dual-use technologies.

7. A single Arms Agency

The existence of a large number of agencies, bodies and fora for meetings related to the EAP, which are institutionalised to a greater or lesser extent, leads to dispersion or duplication of efforts that in turn reduces the effectiveness and efficiency of the work of the national representatives and the practical results of this work.

Experience of this diversity makes it advisable to work towards the long-term goal of a single European Agency for managing the procurement of common systems.

This final objective could likewise be reached in intermediate stages during which there were single agencies for specific sectors, such as, for example, long-distance logistical transport.

At the same time, current experiences could be used as hypotheses for work or points of reference for future and progressive integration.

The EAP should set itself the medium-term goal of having a single European Arms Agency that would incorporate or recast the many currently existing fora and agencies such as the LoI, OCCAR, WEAG, etc. Until that became possible, progress could be made in setting up European sectoral agencies in, for example, air transport.

8. Agency for common weapons use

Apart from the single agency for weapons procurement referred to in the foregoing basis, an agency (or pool) for common weapons use could constitute an objective.

The high cost of weapons systems and means of transport will make the shared use of capabilities progressively more frequent.

A European agency could be responsible for achieving this common use, or even acquiring ownership of the capabilities, in order to place them at the disposal of the countries that need them.

Through the EAP the foundations could be laid for the use of weapons in common by several countries, including through a specific agency.

9. The European interest in industrial transactions

Market regulations have led to a very complex industrial situation with regard to share holdings and industrial stakes. Not only do European industries hold shares reciprocally, but complex weapons programmes are also subject to this multiple industrial participation, in which non-European industry also participates.

While respecting market regulations, the EAP's interest lies in declaring that any merger, or acquisition of industrial stakes, has as its objective the improvement of prices, the quality of the products, and of efficiency, but in no case the elimination of competition.

The policy of mergers or acquisition of industrial stakes must be directed at avoiding duplication and improving efficiency, and not at eliminating competition. Within the ESDP, the EAP must be viewed as an ally and not as an enemy.

10. Role of the NADs in the EAP

The NADs, in accordance with the powers that they have in each country, have been holding periodic meetings in which they discuss different issues, such as those related to the standardisation of weapons systems' requirements, which constitutes an essential step in the joint operational capability of the armies of each country.

The experience gained at these meetings must be taken advantage of by the EAP, bearing in mind not only the technical specialisation of the NADs, but also their experience in contracting, their knowledge of the industry and their judgment and global perspective, not only national, but also international.

Therefore, the EAP must recognise a degree of institutionalisation in the role played by the NADs and, at the appropriate time, put it to use as technical and consultative support for the responsible bodies of the ESDP.

Ten: The EAP will have to specify the criteria in order to confer greater operational capability on the meetings of the NADs and define the role that they must play in support of the Council of Defence Ministers and as a group of experts for consultation regarding the implementation of the ESDP.

Madrid, 5 March 2002