Select Committee on Defence Minutes of Evidence


Memorandum Submitted by the Ministry of Defence (1 December 2000)

INTRODUCTION

  1.  On 6 July 1998 the Defence Ministers of France, Germany, Italy, Spain, Sweden and the United Kingdom signed a Letter of Intent (LoI) designed to facilitate defence industry restructuring in Europe. The LoI set up six working groups to examine the main areas where government was committed to identifying proposals to remove some of the barriers to restructuring.

  2.  A Framework Agreement signed on 27 July 2000 at the Farnborough Air Show consolidates the results of these working groups, and will establish practical measures which respond to concerns that have been expressed by both government and industry. The Agreement builds on the principles set out in the LoI and will pave the way for more effective defence equipment and industrial co-operation in Europe.

  3.  The "Framework Agreement" is so named because it literally creates a legal framework in international law within which the six governments may co-operate. This is not just a matter of organisation: agreement is required on the principles and policies that will govern co-operation between the six nations. The Agreement sets out specific measures in each of the six key areas: security of supply; export procedures; security of classified information; treatment of technical information; research and technology; and harmonisation of military requirements. It also initiates work to develop further measures to enhance co-operation, which will be recorded in subsidiary arrangements under the Agreement.

BACKGROUND

  4.  European defence companies must remain competitive in the world market to ensure their survival and commercial well being. Without consolidation and rationalisation our relative competitiveness will suffer and export markets will be lost. Much has been achieved already. BAE SYSTEMS, itself a product of the former BAe and GEC-Marconi, has extensive cross-border links in Europe, such as its joint ventures—Matra BAE Dynamics, Alenia Marconi Systems and Thomson Marconi Sonar—and its investments in Saab and STN Atlas Electronik. Other major examples of such consolidation are the formation of the European Aerospace & Defence Systems company and the acquisition of Racal by the French Company Thomson-CSF. But much scope for restructuring remains.

  5.  It is not the role of government to prescribe the form of the new companies, alliances and joint ventures that emerge from this process—although we are not a disinterested party. It is primarily for industry to decide what organisation is required for commercial success. Governments can assist the process, however, by removing obstacles that could hinder industry's efforts to restructure and co-operate. This Agreement represents the commitment of the six governments to smooth the path towards a restructured and correspondingly stronger European defence industry.

  6.  Against a background of limited defence resources all six LoI governments recognise the need to co-operate in the procurement field if they are to fulfil their equipment aspirations. The measures contained in this Agreement are designed to ensure that when we co-operate with our partners, we will do so more efficiently and effectively, and that many of the obstacles which previously hindered Government-to-Government co-operation will be removed.

DETAILED MEASURES

  7.  Security of Supply. It is increasingly evident that a national industrial base which supplies the full range of defence products is no longer sustainable. So, although there are no strategic concerns about transfers of military goods and technology between the six LoI governments for their own use, governments need confidence that security of supply will be effective, not just in present circumstances, but in a wide range of future contingencies. Accordingly, this Agreement commits the governments to work together to ensure that the new industrial environment does not prejudice national security interests. The six governments recognise that this is an area where they will have to use the Agreement to broaden and deepen existing arrangements for achieving assurance of supply.

  8.  Security of Classified Information. The Agreement will introduce new simplified security provisions for exchanges of classified information between governments or their defence industries, which nevertheless maintain the security of that information, even when industry is restructuring across national borders.

  9.  Export Procedures. Defence exports are important for the maintenance of a strong and competitive European defence industry, and ensure that national requirements can be met more economically from extended production runs. The Agreement commits participating governments to introduce simplified arrangements and procedures for export licensing, and for transit documentation approved by participating governments. The proposed arrangements will not dilute existing national export controls and exports will continue to be conducted within the ambit of the EU Code of Conduct on Arms Exports. The MoD is confident that the new arrangements will benefit industry considerably, both in terms of assurance of supply, and reduced bureaucracy. For example, the Global Project Licences will govern transfers between Parties in the context of approved co-operative programmes, meaning that companies will not require separate licences for individual transfers associated with such programmes.

  10.  Research & Technology. There is wasteful duplication of research funding in Europe. The Agreement tackles this by fostering co-ordination of joint activities to increase the advanced knowledge base and thus encourage technological development and innovation. It builds on experience gained in existing European multilateral research and technology fora and seeks, inter alia, to create a climate in which nations can establish projects more quickly and efficiently than at present.

  11.  Treatment of Technical Information. Excessive restrictions on the movement of technical information between governments and their defence industries can reduce the potential to advance the knowledge base and can inhibit innovation and the development of new products. This Agreement tackles this by establishing clear principles for the disclosure, transfer, use and ownership of technical information.

  12.  Harmonisation of Military Requirements. The Agreement commits the countries to further work on improving the harmonisation of military requirements—an essential prerequisite to better equipment co-operation. A key aim will be to start the process earlier through co-operative equipment planning, and identification and formulation of common military requirements rather than to attempt to harmonise already mature "national" requirements.

  13.  MoD is committed to press ahead with the detailed implementation of the measures under the Agreement, which is consistent with our aim of improving equipment and industrial co-operation in Europe. Answers to the Committee's specific questions on the framework Agreement are attached at Annex A.


 
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