Select Committee on Defence Appendices to the Minutes of Evidence


Memorandum from the Defence Manufacturers Association (28 November 2000)

  You sought DMA comments for the Defence Committee on the European Framework Agreement signed at Farnborough in July 2000.

  As you may know, the major sections of the Agreement were considered by multi-national groups, which included UK Defence Industry representation. A number of the individuals involved were from DMA member companies. Notwithstanding this involvement in the detail of the Agreement, the Association has some reservations.

  We generally welcome the concept of an Agreement which provides a Governmental framework within which companies considering mergers, joint ventures and acquisitions in Europe can establish and develop their business. The Framework, as drafted, however, is so heavily caveated throughout as to allow for national interpretation (a let out) in most of its key clauses. For example, the terms of Article 4, paragraph 1, referring to the "maintenance of strategically important assets, activities and skills" allows for the protection of national capabilities rather than encouragement of cross-border competition. The effectiveness and fairness of this will depend on all signatories agreeing upon a similar "interpretation". This issue will be of particular concern to UK SMEs that seek the most open possible market.

  The Preamble refers to the 1997 Agreement on the restructuring of the aerospace and defence electronics industries. It is worth noting that the latest Agreement is likely to be more problematical and cause greater concern than the first amongst the excluded, smaller nations of Europe which, whilst not having viable aerospace and defence electronics sectors, have a significant defence industrial capability in more traditional areas: shipbuilding, armoured vehicles, ammunition, etc. We are also concerned at the thesis that this will "contribute to the construction of a common European security and defence policy" and would prefer the concept of an "identity within NATO" rather than "policy".

  We welcome the recognition that the creation of transnational Defence Companies (TDCs) is a matter "for industry to determine" but note that the creation of BAE SYSTEMS and EADS has already reduced the significance of the Agreement for the United Kingdom. Of equal, and possibly greater importance for us, could be the Declaration of Principles with the US.

  We are particularly interested in the articles in Part 3 relating to Export Procedures. Article 13 is significant in proposing the creation of a list of "permitted export destinations" for co-operative armament programmes. This seems directly to conflict with current UK Strategic Export Control policy, which requires that all exports are considered on a case-by-case basis. We have pressed Government, unsuccessfully, for some time to establish permitted destination lists for a wide range of defence exports. We believe that UK policy here should be consistent. We would, of course, welcome any outcome of the Agreement that simplified the transfer of defence equipment between the Party nations.

  We have been and remain concerned about Article 34 with regard to "juste retour". A similar proposal to seek a "global" rather than an "individual" project return, has been made for the operation of OCCAR. We advocate the elimination of "juste retour" in principle and are not persuaded that the concept of a "global" return can be sensibly policed or achieved.

  Article 37, relating to the transfer of technical information could, if wholeheartedly pursued in Europe, risk the willingness of the US to share technology with the UK in cases where they would not wish it to be divulged elsewhere.

  Article 39 refers to the disclosure of Government-owned technical information in relation to the creation of a TDC. Much of this information resides in DERA (soon to be privatised) or is jointly owned by Government and Industry. Industry would wish to see mechanisms put in place to protect its own IPR and make provision for the protection of all UK information in the event of a TDC subsequently failing or being broken up. We accept that these concerns are mitigated by the clauses of Part 8 concerning the Protection of Commercially Sensitive Information. All these clauses imply, however, the creation of a significant bureaucracy and bureaucratic process to monitor, police and control them. This will not be welcome for industry.

  We have long advocated greater Harmonisation of Requirements in Europe (Part 7) but here, more than in any other section of the Agreement, there should be clear reference to the NATO context. European requirements must be compatible and inter-operable with those of the non-EU NATO nations.

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