Publication: Business Report Date: 2005-11-22 Reporter: Sapa Reporter:

EU Opens Up Internal Defence Market

 

Publication 

Business Report
Date

2005-11-22

Reporter

 Sapa

Web Link

www.busrep.co.za

 

Ministers sign code of conduct freeing cross-border arms trade within Europe

Brussels - EU defence ministers had adopted a plan to open up their E30 billion (R240 billion) arms industry to increased cross-border competition, diplomats said yesterday.

The new code of conduct is voluntary and non-binding, but it marks a breakthrough for the EU after decades of trying to persuade nations to relax the protection of their tightly guarded national defence markets.

Governments have been able to protect their national defence industry champions because military contracts have been largely excluded from EU legislation that has ripped down barriers to trade within Europe in other sectors. EU officials say more than half the annual spending on new military equipment in Europe lies outside EU free market rules.

By allowing companies to compete more in each other's markets, the EU hopes to secure lower costs for Europe's tight defence budgets and encourage a restructuring of the fractured industry so it becomes more competitive on world markets.

The code of conduct is to take effect in July. EU nations will have until April to decide if they want to take part. Denmark has opted out and officials said Spain also had doubts, but the other 23 members are expected to sign up.

Ministers adopted a report on efforts to fill shortfalls in Europe's military arsenal by 2010. They noted progress in developing mechanised infantry units and field laboratories for use in chemical or germ agent attacks, but persistent gaps remained in areas such as helicopters, transport planes and missile defence.

Ministers said a review of the requirements put more emphasis on rapidly deployable forces that could be used in natural disasters, terrorism and regional conflicts. Under the new arms market system nations commit to posting defence contracts on an internet bulletin board open to companies from all EU nations who could then compete for it.

Although the rules are not legally enforceable, officials said nations would face considerable peer pressure to allow free competition from other EU firms. The EU will monitor application of the system to ensure governments are sticking to the rules.

Experts say they expect a more open defence industry to encourage the development of pan-European companies that would pool research and compete with US rivals.

However, analysts warn that it could take some time before Europe's defence ministries from the main arms producers, such as the UK, France, Germany and Italy, move away from trusted national suppliers.

Seven of the world's 10 biggest defence firms are American. The US top four - Lockheed Martin, Boeing, Northrop Grumman and Raytheon - had a combined revenue from defence of $105.4 billion (R700 billion) last year. That is more than double that of the four biggest European defence companies BAE Systems, European Aeronautic Defence & Space, Thales and Finmeccanica.

With acknowledgement to Sapa and Business Day.