EUROPEAN DEFENCE AGENCY STEERING BOARD
MEETING, NOVEMBER 2005
Letter from Rt Hon John Reid MP, Secretary
of State, Ministry of Defence to the Chairman
The next European Defence Agency (EDA) Steering
Board meeting is due to take place on 21 November. I am committed
to improving the transparency of EDA-related business, and in
particular the Ministerial level meetings of its Steering Board.
I would therefore like to take this opportunity to inform you
of the main items I expect to be discussed at this meeting. I
also enclose for your information the draft agenda (not printed)
and draft papers that have been circulated by the EDA. The final
papers for this meeting will not be issued by the Agency until
some time after 11 November, thus I am not able to provide these
to you at present.
In addition to the papers that I am enclosing
for the Steering Board, I also enclose the draft Council guidelines
for the 2006 work programmes. However, I must caution that this
document is still being discussed and is likely to be amended
prior to 21 November. I also enclose a copy of the latest draft
of the Code of Conduct on Defence Procurement, which differs only
slightly from the draft I sent you on 25 October.
The substantive elements of the Steering Board
are set out at Annex A.
Annex A
EDA Steering Board (November 2005): Substantive Issues
"A"—POINTS
There are currently two items identified for
agreement by the Steering Board as administrative points, without
discussion at the meeting. The first is the amendment of the Financial
Provisions on rules on procurement. This amendment will bring
the Financial Provisions in line with the modified Financial Regulations
and Implementing Rules of the European Communities. We have seen
the papers very late in the day and are currently assessing them.
I cannot yet say whether I will be in a position to support adoption
of these amended regulations on 21 November.
The second item is for the agreement of a recommendation
from the Steering Board on the 2006 budget. I have attached the
latest budget proposals from the Agency (not printed). I must
caution that negotiations on this matter are still ongoing, with
MoD officials due to attend a meeting on 11 November for further
discussions with EDA staff and Member States. It may still be
the case that this will not be ready for agreement as an "A"
Point on 21 November and that further discussions are required
by Defence Ministers at the Steering Board. I am therefore unable
at this stage to elaborate on Government's negotiating position
on the current budget proposal. However, I can confirm that I
will continue to argue for an Agency that should be a catalyst
for nations co-operating together rather than an Agency that requires
a substantially larger budget such that it could fund a number
of projects centrally.
I should explain the departure from the procedures
as laid down in the Joint Action (JA) establishing the EDA that
we are following this year. The JA allows that, once the Council
has accepted by unanimity a three year financial framework establishing
a legally binding ceiling, the Steering Board may adopt the annual
budget by Qualified Majority Voting (QMV). I explained in my letter
of 25 October that, given the difference in visions for the Agency,
the Steering Board has recommended that the Council will not attempt
to set the three year financial framework as formally required.
The consequence of this is that on 21 November the Steering Board
will be charged with recommending a budget for 2006 for subsequent
adoption by the Council, by unanimous decision.
EUROPEAN
DEFENCE
EQUIPMENT
MARKET
CODE
OF
CONDUCT—A
CODE
OF
CONDUCT
ON
DEFENCE
PROCUREMENT
Following further recent discussion between
the EDA and Member States' representatives on 27 October, the
EDA has issued a further draft of the proposed Code of Conduct
on Defence Procurement. The proposal is consistent with the Government's
aim to encourage more use of open competition for defence equipment
procurements in the EU. With this in mind I intend to support
the introduction of the Code at the Steering Board. In the interests
of providing the Committee with the fullest possible information
on EDA initiatives I also enclose a brief analysis of the EDA's
Code of Conduct proposal, (see Annex B).
LONG
TERM
VISION
I shall support the proposal to develop a long
term capability vision for the EU. I believe that this is an important
piece of work, which should help to inform decisions on capability
development through better understanding of the way requirements
may evolve. However, I shall caution that this work should not
involve political debate on the scope of ESDP, as set out for
example in the European Security Strategy or the Petersburg Tasks.
2005 WORK
PROGRAMME
The Chief Executive will give an update on the
work that the EDA has carried out in 2005. This will draw on an
Information Paper produced by the Agency and which I believe shows
that there has been some considerable success so far. There is
still much to be done in certain areas and I expect discussion
at the meeting is likely to focus on the need for further ad hoc
projects to be initiated. I will argue that we should in the main
wait for these to emerge organically from the EDA capability development
processes. This will allow the EDA to provide evidence based assessments
of proposals, which Member States can scrutinise and decide whether
to take forward.
EDA WORK
PROGRAMME
FOR
2006
The work programme will need to reflect the
resources that the Steering Board allocates for the EDA's 2006
budget. I will seek to ensure that this is indeed the case and
that the work programme is focussed on addressing EU priorities.
The current draft work programme is not exhaustive—we expect
further areas for cooperation to emerge from discussion among
experts in the Research and Technology and Capability groups.
Indeed, I hope to be able to propose on 21 November, in partnership
with France, an EDA ad hoc research programme on light
weight radar systems.
SOFTWARE
DEFINED
RADIO
I will support the Agency's initiative to identify
Member States' future requirements for Software Defined Radios.
I look forward to seeing the output from this work to understand
if there is scope to cooperate with other member States in the
future.
INDICATORS
AND
STRATEGIC
TARGETS
I will support the initiative to collect data
on the set of indicators suggested and develop targets for Member
States' expenditure in certain areas. I look to this work to provide
a sound basis for later discussions on increasing Europe's investment
in defence Research and Technology, as discussed by Heads of State
and Government at Hampton Court on 27 October. However, I will
argue, as I did at the Steering Board at RAF Lyneham on 13 October
that these need to be based on agreed and robust definitions,
to ensure that the data collected is consistent and therefore
useable.
Annex B
European Defence Equipment Market—A Code
of Conduct on Defence Procurement—Analysis
The Code of Conduct (referred to as the "Code"
hereafter) has been developed in response to a perceived lack
of intra-EU competition for those defence equipment contracts—the
majority—that are exempted from EU competition law on national
security grounds.[38]
This situation has led to concerns that European defence industry
lacks the competitiveness to cost-effectively deliver European
defence capability requirements.
The Code approach to encourage greater competition
in defence equipment markets was initially developed jointly by
MoD officials and representatives of UK industry in 2004.[39]
It was taken forward by the EDA as the cornerstone of its work
to create an internationally competitive European Defence Equipment
Market (EDEM).
The overarching principle of the Code is that
suppliers from all subscribing Member States will have an equal
opportunity to compete for and win defence equipment contracts
from other subscribing Member States above a minimum threshold.
The scope of the Code would exclude certain procurements (Research
and Technology services; collaborative programmes; Nuclear technology;
Chemical, Bacteriological and Radiological goods and services;
Cryptographic programmes). In addition, it would provide exemptions
for pressing operational urgency, follow-on orders and where there
are "extraordinary and compelling reasons of national security".
The Code will be voluntary, in that there is no legal sanction
that will be brought to bear on any subscribing Member State who
does not abide by the Code's provisions. Nevertheless, by subscribing
to the Code Member States will be making a political commitment
to comply with its provisions. Individual Member States retain
the right to extend the scope of their competitions to include
countries who do not subscribe to the Code (including of course
non-EU countries) if they so wish.
While the Code has the potential to introduce
greater levels of competition into EU defence equipment markets,
its success will rely on subscribing Member States' willingness
to abide by the provisions of a voluntary instrument. In this
regard, a key feature of the Code will be the EDA's role in monitoring
its operation and reporting to Defence Ministers (through the
Steering Board) on Member States' adherence to the provisions
of the Code. it is hoped that such exposure (and the potential
embarrassment of being seen to disregard the provisions of an
instrument that they agreed to abide by) offers an incentive to
those whose commitment to the Code's requirements might prove
to be sub-optimal in practice.
The Code includes provisions to provide for
mutual confidence in Security of Supply. The Code commits subscribing
Member States to enter into a dialogue with its industry when
another subscribing Member State is reliant on that industry to
meet an urgent operational requirement, and to expedite any relevant
national administrative processes that might otherwise delay supply.
The UK is recognised as having one of the most
open defence equipment markets in the world—in 2004-05 some
73 per cent by value of all UK defence contracts were placed as
a result of competition. In this context, the introduction of
the Code offers the potential for UK industry to gain greater
levels of access to the defence equipment markets of other Member
States than has been the case hitherto.
A decision on whether to introduce the Code
will be taken by EU Defence Ministers when they meet in the EDA
Steering Board on 21 November by Qualified Majority Voting. On
the basis that the decision is taken to introduce the Code, the
measure is expected to come into effect from 1 July 2006. EU Member
States retain the right to "opt-out" of the Code's provisions
if they so wish.
Separately, the European Commission continues
to review the operation of that part of the defence equipment
market in Europe where Member States cannot legitimately invoke
Article 296 and where, therefore, the EU's procurement rules apply.
This follows the Commission's Green Paper on Defence Procurement
(September 2004). The Commission has indicated that it expects
to announce how it wishes to take forward this work during the
next month or so.
Letter from the Chairman to Rt Hon John
Reid MP
Thank you for your letter dated 9 November 2005
and the accompanying documents on the EDA Steering Board meeting
on 21 November 2005. Sub-Committee C considered these documents
at its meeting on 15 November 2005.
SCRUTINY
OF
THE
PAPERS
First, we would like to thank Mr Andrew Mathewson
and Mr Stuart Fraser for their informal advice and explanation
of the documents at the meeting. This advice was extremely valuable.
The Sub-Committee accepted that the relatively small amount of
time available for scrutiny of these documents was due to the
EDA's ambitious timetable for their adoption.
However, we would like to reiterate the point
made in our Report on the EDA (9th Report, Session 2004-05). The
EDA's Steering Board structure means that it effectively acts
as Council when meeting in ministerial formation. Points agreed
on the Steering Board are simply endorsed by the same Ministers
in Council formation. It is for this reason that the Sub-Committee
scrutinises the EDA's Steering Board papers. We urge the Government
to press this point at the meeting on 21 November 2005. The EDA
needs to provide documents to Member States earlier in order to
allow time for parliamentary scrutiny.
THE
VOLUNTARY
CODE
OF
CONDUCT
FOR
DEFENCE
PROCUREMENT
We have concluded that the code represents a
sensible compromise at this stage. Much clearly remains to be
done. We were, surprised to read, in a footnote to your letter,
that the EDA has found that 80 per cent of European defence procurements
were exempted from competition through the invocation of Article
296. The code itself will not solve this problem. It is the EDA's
monitoring function and the peer pressure on the Steering Board
that might make a difference.
We emphasise the vital importance of communicating
the new code to the main stakeholders: industry, including sub-contractors.
The Ministry of Defence has a responsibility to keep all industry
players directly informed of the application of the code.
THE
BUDGET
It is deeply regrettable that the Council has
decided to postpone agreement of a three year financial framework.
Although this framework would only provide a ceiling figure for
the budgetary planning of the EDA, it would provide much needed
medium-term certainty for the Agency.
The proposals for the EDA's budget for 2006
remain modest. While we agree with the Government that the EDA's
role as a facilitator means it does not need a substantial operational
budget, we are concerned that the budget for staff should not
be unduly restricted. We note with concern paragraph 3 of the
2006 draft budget which notes that further reductions or freezing
of staff posts would leave the EDA unable to deliver on decisions
already taken.
THE
LONG-TERM
VISION
While we agree with the Government that long
term capacity planning is important to inform European procurement
decisions the timing for this project is ambitious in the extreme.
We see little reason to have a first draft of the Long-Term Vision
produced by the summer of 2006. The EDA would be wise to conduct
such a project with more thorough consultation and time.
We disagree with the Government that it will
be possible to have a Long-Term Vision document that relates exclusively
to defence capacity requirements in 20 years time without any
reference to the political framework of the ESDP.
We welcome the opportunity to discuss these
matters and others issues relating to the ESDP with Lord Drayson
on 19 January 2006.
Letter from Rt Hon John Reid MP to the
Chairman
You will be aware that the Ministerial Steering
Board for the European Defence Agency (EDA) met in Brussels on
21 November. Prior to this meeting I wrote to you with the agenda,
draft papers and an outline of the likely points of discussion.
I would now like to take the opportunity to inform you of the
outcome of this meeting. I therefore enclose at annex A a commentary
on the 21 November Steering Board. This also picks up on a number
of points raised by you in your letter dated 17 November.
I also enclose the papers (not printed) that
were considered at the 21 November Steering Board. These differ
slightly from the papers I sent to you before the meeting as those
were updated and reissued following an officials meeting prior
to the steering Board, on 14 November.
Following the request from [the Chairman of
the Commons European Scrutiny committee] (letter dated 9 November),
I would like to inform you that I would be pleased to send these
documents and the other documents specified in Article 4 of the
Joint action to the House of Commons Defence Committee. I have
enclosed all the relevant documents with this letter.
2 December 2005
Annex A
Commentary on the European Defence Agency Steering
Board Meeting on 21 November 2005
The following commentary outlines the discussions
that took place on 21 November and picks up on a number of points
raised by Lord Grenfell in his letter dated 17 November.
EUROPEAN
DEFENCE
EQUIPMENT
MARKET—CODE
OF
CONDUCT
ON
DEFENCE
PROCUREMENT
The EDA Steering Board agreed the Code of Conduct
on Defence procurement with a view for it come into effect in
July 2006. I gave this my full support and stated that I believed
the Code should deliver better equipment to our armed forces through
encouraging greater competitiveness within industry.
I should clarify a couple of points raised by
Lord Grenfell. Firstly, concerning the EDA statistic that 80 per
cent of European defence procurements were exempted from competition
through the invocation of Article 296. The statistic of 80 per
cent relates to invocation of Article 296 rather than, per
se, the number of occasions that defence procurements were
exempted from competition. This latter statistic is 54 per cent
(or 41 per cent in terms of value of contracts)—still, of
course a significant number which we are keen to see reduced.
Secondly, with respect to communicating the
new code to industry, the Defence Industries Council (DIC) has
been kept informed of this initiative and on 8 November wrote
to confirm their general support for it. Separately we are ensuring
that the details of the Code are being circulated to UK industry
and we aim to continue a dialogue with the DIC Secretariat at
official level through to the proposed Code implementation date
of 1 July 2006.
EDA DRAFT
BUDGET
The Steering Board made a recommendation to
increase the EDAs budget to €22.3 million (participating
Member States contribution will be €21.5 million the remainder
is made up from tax rebates). The budget includes an increase
in the Agency's operational budget from €3 million to €5
million. However, €1 million of the €5 million operational
budget will be frozen and would require specific authorisation
from the Steering Board before the Agency could make use of it.
There was also agreement to increase the number of staff by 14
posts. However, four of these posts are frozen pending further
information on their requirement by the Agency.
I welcomed the rigorous scrutiny that was given
to the budget proposal and supported the agreement on the budget
and the staff numbers, based on the EDA's proposals, including
the frozen elements. I believe that this strikes the right balance
between ensuring budgetary discipline and making sure that the
EDA's operational budget is not unduly restricted, which could
have left it unable to deliver on decisions already taken. I urged
that there should be maximum transparency of EDA's expenditure.
The Steering Board budget recommendation will
now go to the Council for approval. As you may recall from my
letters of 25 October and 9 November this is necessary due to
absence of a three year financial framework.
DRAFT
WORK
PROGRAMME
The Steering Board agreed the EDA's work programme
for 2006. In the main this consists of follow on work from the
current work programme. However, there are three new areas of
interest: exploring opportunities for broadening Member States
cooperation in strategic lift; fostering cooperation on interoperability
of Space ground stations; and identifying commonalities of requirement
for combat equipment for dismounted soldier.
LONG
TERM
VISION
The Steering Board agreed the EDA proposals
for developing the long term vision. I acknowledge the concern
that was expressed in Lord Grenfell's letter concerning the timelines
that the EDA have set to develop an initial long term vision.
I believe the timelines can be achieved providing there is full
transparency throughout the process. However, MoD officials will
monitor the process carefully to ensure that thorough consultation
takes place in developing this initial long term vision.
I would also like to pick up on Lord Grenfell's
point about reference to the political framework of the ESDP.
It is not the Government's position that the long term vision
relates exclusively to defence capacity requirements in 20 years
time without any reference to the political framework of the ESDP.
However, it is the Governments view that the EDA should develop
the long term vision based on and with reference to the current
political framework of ESDP, ie the European Security Strategy
and the Petersberg tasks. The EDA should not seek to expand its
remit to look at the current scope of ESDP.
SOFTWARE
DEFINED
RADIO
The Steering Board agreed the EDA proposals
for the Agency to look at nation's requirements for software defined
radio. Once this has been ascertained the Agency will explore
the viability for a collective European approach to developing
a next generation software defined radio.
INDICATORS
AND
STRATEGIC
TARGETS
The Steering Board agreed the EDA proposals
for a set of indicators and potential strategic targets on defence
spending. Data will be collected and analysed with priority being
given to set targets in the area of R&T before other areas
of defence spending.
For your ease of reference I am listing the
documents that I am enclosing with this letter (not printed).
Please note in additions to EDA related papers I enclose the capability
improvement chart that was requested by Lord Grenfell in his letter
to Douglas Alexander, dated 20 October.
21 NOVEMBER
STEERING
BOARD
PAPERS
1. Covering letter for 21 November Steering
Board including the Agenda (enclosure 1) and note on EDA staffing
(enclosure 2)
2. EDA Note 2005-14 dated 14 November. An
intergovernmental regime to encourage competition in the European
defence equipment market.
3. EDA Note 2005-19 dated 14 November. Draft
EDA 2006 budget.
4. EDA Note 2005-16 dated 14 November. EDA
2006 work programme.
5. EDA Note 2005-15 dated 14 November. A
Long-Term Vision for European capability and capacity needs.
6. EDA Note 2005-17 dated 14 November. Software
defined radio.
7. EDA Note 2005-18 dated 14 November. Indicators
and strategic targets—proposed methodology.
8. EDA Note 2005-03 dated 14 November. EDA
report to Steering Board against its 2005 Work programme.
Additional documents specified in Article 4 of
the Joint action
9. Head of the Agency report to the Council
10. Council guidelines for the EDA's work
in 2006
Document requested by Lord Grenfell from FCO in
letter dated 20 October
11. Capability improvements chart.
38 Data collected from Member States by the EDA indicates
that in 2004 approximately 80 per cent of European defence equipment
procurements (by value) were exempted from the EC public procurement
rules through the invocation of Article 296 of the Treaty of the
European Community. Article 296 enables Member States to derogate
from the EC public procurement rules where this is necessary to
protect essential national security interests. Back
39
A joint MoD-industry paper which developed the arguments for
the Code of Conduct was provided to the Committee by Lord Bach,
then Minister for defence Procurement, on 27 October 2004. Back
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