Derogations from internal market rules for defence procurement on the basis of Article 296 TEC (debate) 
President
The next item is the debate on the oral question to the Commission on derogations from internal market rules for defence procurement on the basis of Article 296 TEC, by Arlene McCarthy, on behalf of the Committee on the Internal Market and Consumer Protection - B6-0122/2007).
Arlene McCarthy 
author. - Mr President, I am sorry Mr Booth has gone because I would like to tell him that I am a music lover and perhaps next time he could perform a Euro-rap when my report is up!
As the Commissioner is aware, the defence procurement market accounts for a large share of EU public procurement, estimated at about EUR 80 billion out of a combined Member State defence budget of EUR 170 billion, and that is why we are tabling this question today: defence procurement is still being awarded within mostly fragmented national markets.
The Committee on the Internal Market and Consumer Protection, therefore, takes note of the Commission's interpretative communication on the application of Article 296 of the Treaty in the field of defence procurement, adopted on 7 December 2006. This helped clarify the existing legal framework. However, we also further note efforts by the Commission to propose new legislation, which should substantially contribute to creating a more competitive environment for the European defence industry and its suppliers.
Therefore, we want to ask the Commissioner the following questions. What progress is being made on the draft directive on the procurement of defence equipment not subject to the derogations of Article 296? What are the subsequent steps planned by the Commission in this area? How does the Commission evaluate, from the perspective of a fair and efficient working of the internal market, the situation within the European defence industry, where in different Member States a significant number of highly skilled jobs appear to be at risk? What impact does it expect the directive to have on the sector, and what is the Commission's strategy to induce Member States to cooperate more closely on defence procurement issues, to improve transparency and gradually open up their national defence procurement markets in order to establish a well-performing and competitive environment for this sensitive sector? We should also like to know what conclusions can be drawn from the code of conduct that was established in 2006, and how the Commission understands the future relationship between a potential directive and the code of conduct.
President
Thank you, Mrs McCarthy. I would like to remind you that rap music and the Greek hendecasyllabic metre have the same rhythm. You and Mr Booth are closer than you think.
Charlie McCreevy
Mr President, four years ago the Commission announced its intention to develop a European security and defence policy. Since then, we have been striving to establish a more open and fair European defence market through a number of initiatives. The new procurement directive for defence equipment is a crucial element of this overall strategy and is one of the Commission's strategic priorities for this year.
At present, the vast majority of defence equipment tenders are conducted outside Community rules. Member States rely upon the derogation from the Treaty under Article 296. In the Commission's view, this derogation should be limited to the exceptional cases. We gave some guidance on the matter last December. Nevertheless, the derogation is still the rule more than the exception. Most defence procurement has therefore remained outside of the internal market principles. This means that all 27 Member States procure defence equipment in accordance with their own national regulations, often resulting in non-transparent and sometimes discriminatory practices.
We recognise that current public procurement rules are really suited to the particular needs of the defence procurement. But we believe we can achieve important economic gains if we open up national defence markets, which represent 0.8% of the European Union's GDP and one quarter of public procurement at state level.
Member States and industry widely acknowledge these advantages. Fair and transparent conditions would allow companies, especially SMEs, to tender more easily in other Member States and thus widen their access to business opportunities in a much larger home market. Longer production runs would allow economies of scale. This in turn would help to reduce costs and lead to lower prices. The final beneficiary of that would be the taxpayer.
Our proposal would adapt certain Community procurement rules to the specific nature of defence and give awarding authorities greater flexibility for sensitive procurement procedures. This will also make it easier for Member States to use the derogation under Article 296 of the Treaty only in exceptional cases. As is the case under the other procurement directives, Member States will continue exchanging views on defence procurement issues via the Advisory Committee on Public Procurement, once the directive has been implemented.
I wish to emphasise that the new directive will implement the code of conduct of the European Defence Agency. The code of conduct applies only to contracts which are exempted from the Community rules on the basis of Article 296, while the future directive will apply to contracts which are not exempted from Community rules. Together the code of conduct and the new directive will enhance transparency and fair competition on defence partners in the European Union.
I am pleased to indicate that work on the proposal for a defence directive is well advanced. My services are currently finalising the impact assessment which will tell us more about the expected impact of the initiative on the market, including social issues. In parallel we are working closely with Member States via the Advisory Committee on Public Procurement and via the European Defence Agency. Industry is also involved in the impact assessment.
The Commission is planning to adopt a proposal in the autumn. At this stage we aim to present it as part of a package, together with a proposal for a regulation on intra-Community transfers of military equipment and a communication on defence industries.
Since we started the reference in the field of defence procurement, Parliament has always been one of our strongest supporters. This is clearly reflected in Parliament's resolution of 2005. I wish to thank you for this and hope that our fruitful cooperation will continue in the future.
Malcolm Harbour
on behalf of the PPE-DE Group. - Mr President, I wish to begin by welcoming the Commissioner's clear commitment to producing the new directive as soon as possible and by thanking him for outlining a number of important measures on which he and his departments are already working. Clearly, this is a particularly sensitive area because of both its strategic nature and some of the industrial policy issues surrounding the whole defence sector.
I should like to raise two particular points, to which the Commissioner could perhaps respond in his winding-up statement.
Firstly, it is clear that in many areas of defence equipment procurement there are very complex contractual arrangements, in many cases also involving a significant amount of product development. In other words, the specification of the equipment may involve new technology evolutions. These arrangements will be very different in many cases from conventional buying contracts, although, as I indicated in my response to Mrs McCarthy's report, there is increasing interest in more transparent conditions for these types of contracts. I wonder whether the Commissioner could indicate or confirm that he will be taking these specific strategic needs into account.
The second point, which is a difficult one, is that in many cases defence procurement agreements also have some form of offset agreement attached to them. For instance, the procuring countries may be looking for some form of local investment, involving local firms in assembling the equipment. Or, in some cases, there is a completely different sort of financial offset in terms of an agreement to buy products from a company in another market.
These arrangements seem to raise difficult issues in the context of both competition and procurement law, and I should be grateful if the Commissioner could confirm that he will be looking at these in the review of the directive he has promised.
Barbara Weiler
on behalf of the PSE Group. - (DE) Mr President, Commissioner, ladies and gentlemen, this is not only a tricky subject but, astonishingly, also an area in which Member States are persistently infringing European law.
The Green Paper was discussed in 2004, Parliament tabled a motion for a resolution in 2006, and now we have a new interpretation - yet, in reality, hardly anything has changed. Member States are continuing to do as they please. Has the CFSP failed in this respect? I can see no real improvement since 2004. Member States and members of national parliaments seem to be completely unaware of Article 296 of the EC Treaty - as, indeed, it describes an exceptional situation rather than the rule. In addition, the European Court of Justice has found once again that this is not a case of a general automatic derogation. Yet there is no improvement to be seen, even though - and this, too, may still be worth mentioning - the group concerned consists of just six Member States. There, too, I do not currently see any improvement.
To put it clearly, I do not want any increase in the defence budget; above all, my group wants to see savings by means of cooperation and the use of synergies. Parliament has made some recommendations in this regard, for example on the components the new Code of Conduct should have. Perhaps the Commissioner could add something in this regard?
We have also requested better cooperation from the Commission - and not only the Commission, but also the European Defence Agency. I cannot see much evidence of this in reality. I should like to reiterate that we have made suggestions on the mechanisms for the competitive award of contracts the Commission still needs to change for us to finally achieve what everyone in this House wants. After all, we agree with the Commission that a genuine European defence market is necessary to reduce military expenditure costs and to make production more efficient in the interests of the taxpayer and the public.
Alexander Lambsdorff
Mr President, Commissioner, Chairman, ladies and gentlemen, I should like to start by giving my sincere thanks to the Commissioner for his speech clarifying the current position of the Commission on this subject. He pointed out that Parliament is a good ally of the Commission's, and indeed we do support his view that a more transparent, effective and open European defence market is an important objective, with a view both to strengthening the sector in Europe and to further objectives. I believe that what I have just said goes for all my fellow Members: I would point to the broad consensus we achieved on our resolution on the Green Paper.
We learn with interest that the work on the Directive on the procurement of defence equipment is well advanced and that the Commission intends to present a proposal in autumn. Mrs Weiler has just pointed out that defence markets are still largely national in character. The State is the only relevant bidder for defence equipment, and it is true that, in the case of many award decisions, recourse is still taken to legal bases that are questionable, to say the least.
However, I agree with Mrs Weiler: there is little support for increasing the defence budget. I believe that this draft Directive takes exactly the right course, namely increasing the efficiency reserve in the European armaments industry, ending the fragmentation of the market, and really improving efficiency and achieving economies of scale. That is why we welcome the Commissioner's remarks on expected growth and on increased competitiveness on the European defence equipment market. I believe that this will also have a positive effect on the trained labour market.
We need a clear definition of the equipment covered by the derogation. The existing regulations are indeed insufficient to meet the particular needs of the defence equipment market. Therefore, we also welcome the Commission's initiative to adapt the rules to the state of affairs on the defence equipment market and to strive for greater flexibility in this regard. I would be grateful if the Commissioner could tell us why he decided to adapt general public procurement law instead of presenting a separate directive. This may well be appropriate, but I should like him to say a few words about this.
The bottom line is that we agree with the Commissioner when he says that the opening-up of this market will increase transparency and competition and thus ultimately reduce the burden on taxpayers.
Finally, I should like to emphasise that, as I see it, this draft Directive is far more important than any considerations of industrial or internal-market policy. It will contribute to the development of European security and defence policy, thus bringing about progress in what is traditionally a core domain of national sovereignty. The Directive will bring about progress that may not be revolutionary, but is hopefully measurable, towards a European Security and Defence Policy truly deserving of the name. I would like to add that I would be obliged if, in future, such debates were held in Brussels and not in Strasbourg.
Leopold Józef Rutowicz
on behalf of the UEN Group. - (PL) Mr President, each year, around EUR 180 billion are spent on defence within the borders of the European Union's common market. Almost half of this amount is not subject to the public procurement legislation currently in force. We need to analyse this situation, which has resulted from the application of Article 296 of the Treaty in relation to public procurement in the field of defence. The Communication has partly clarified the issue.
In view of the specific nature of the arms manufacturing industry and the need to integrate it into the defence policies of specific Member States of the European Union and NATO, we need to ensure the technical compatibility of the equipment and communication systems, as well as the proper compatibility of equipment and appliances. We need greater cooperation between individual countries, a properly functioning defence industry and well organised supplies.
The objective of our activities should be to draw up a directive on public procurement in the defence sector. A stable arms market and stability with respect to the procurement procedures used will have a positive effect on the sector, in terms of employment and efficiency.
Andreas Schwab
(DE) Mr President, ladies and gentlemen, the basis for today's debate is the report by our former colleague Mr Würmeling. It was on this basis that the Commission issued its communication at the end of last year, which was intended to clarify the application of Article 296 but in fact had little effect. After all, it was initially geared exclusively towards non-military goods, and thus the majority of military procurements inevitably fell within the scope of this derogation.
Therefore, it is really up to the Commission to ensure that, firstly, the rules on public procurement in the defence sector really support the work of the European Defence Agency and, secondly, that they take account of the fact that, as many of the previous speakers have said, this is a sector that exhibits peculiarities. I have three questions for Commissioner McCreevy, therefore.
Firstly, does a directive in this field not have the flaw from the outset that it is based on a communication that was originally intended to cover only non-military goods, and is consequently unable to achieve what we expect of it as regards the common security policy?
Secondly, would it not be possible to update the 1958 list, which sets out the derogations relatively clearly but is now out of date? Has the Commission abandoned the task of updating this for good?
Thirdly, the Commissioner rightly said that normal public procurement law is not suited to the defence sector. Following on from Mr Lambsdorff's question, I would be very interested to hear how the Commissioner intends to take account of the peculiarities of the defence sector in a directive.
Karl von Wogau
(DE) Mr President, Commissioner, ladies and gentlemen, each year, the 27 Member States of the European Union spend EUR 170 billion on defence. These 27 Member States have two million soldiers, 10 000 tanks and 3 000 fighter aircraft. In spite of this, they could not end the bloodshed in the Balkan conflict; we needed our American friends to do it for us. Why was that? At that time there were not yet any common decision-making structures in the EU to enable the implementation of such operations.
Another of the main reasons for the inefficiency of European defence is the lack of a common defence market. One of the reasons for this is Article 296. I am convinced that this Article will be retained in future. The reason that no common European defence market has developed is the excessive application of this Article in the past. First of all, the Commission issued its communication clarifying what is and what is not covered by Article 296: I think this communication is helpful. Then the European Defence Agency took action: in my opinion, the Code of Conduct it adopted was an important step in the right direction. We now also need EU legislation in this field, however - which is why I welcome the fact that this Directive is now envisaged.
As MEPs, we keep hearing a great deal of criticism of the EU rules on the award of public contracts, particularly from local authorities. Therefore, we MEPs shall take very great care that the rules established here are indeed tailored towards the defence field, and that they improve rather than worsen the situation in that field. Our assent will be conditional on this.
In addition, we keep hearing that we Europeans are spending too little on defence. If we continue working on this field and create a common market, we shall at least achieve more security for the same money.
Charlie McCreevy
Mr President, in response to comments by Mr Harbour, Mr Lambsdorff and Mr Schwab, I can confirm that the very aim of a dedicated directive on defence procurement is to take account of the specificity of the defence market. We recognise that the existing framework is ill-adapted to the defence market. Clearly, the fundamental principles of public procurement rules will have to apply, but defence presents specific requirements in terms of security of supply, security of information or the need to have negotiated procedure.
Mr Harbour also raised the question about offsets, which is a very complex issue. Offsets are economic compensations, which most Member States require from non-national suppliers when they buy military equipment abroad. They are legally problematic, politically controversial and economically questionable.
Direct offsets are directly related to the subject of the procurement contract, they can sometimes be covered by Article 296, if the procurement contract itself is exempted on the basis of that article. However, the huge majority of offsets are indirect and non-military in nature.
From the Commission's viewpoint, these offsets are not covered by Article 296. They must respect Community law, even if they are related to defence contracts exempted on the basis of Article 296. In other words, offsets are a problem in themselves, even in the area covered by Article 296. Addressing this problem via the Defence Directive would only cover the Community part of the defence market and would leave indirect offsets for contracts exempted on the basis of Article 296 untouched.
In conclusion, as I said earlier, the opening-up of national defence markets will lead to important economic gains and will ultimately benefit all taxpayers. In order to achieve this we need to create a new legal framework, which adapts certain Community procurement rules to the specificities of defence. This new directive will give national authorities greater flexibility when they make sensitive procurements.
President
The debate is closed.
