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LEAK: EU Commission queries member states, defence industry on draft industrial strategy

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European Commission defence experts are asking EU countries and the arms industry how it can make the latter more flexible and less dependent on third countries with ideas on mapping production capacity, setting up a one-stop shop for all, and securing budgets, according to internal documents seen by Euractiv.

The three non-papers and questionnaires include around 50 questions on ideas to shape the future European Defence Industry Strategy (EDIS), to “invest better together” and make the industry more flexible, to be answered by 29 December.

While EU member states have increased defence investments by12% between 2021 and 2022, “this does not necessarily mean they spend better, i.e., more efficiently and cooperatively,” a memo seen by Euractiv said.

“This fragmentation prevents the [defence base] from exploiting economies of scale, while the lack of coordination has resulted in competing orders that provoked tensions in the cross-border supply chains.”

The consultation comes after the Commission was criticised for not conducting impact assessments before presenting its Act in Support of Ammunition Production (ASAP), ammunition plan for Ukraine, and the Joint Procurement Act (EDIRPA).

After an attempt to propose a strategy earlier this autumn, a US-style Defence Production Act, Internal Market Commissioner Thierry Breton postponed it to next year and announced consultations with stakeholders.

The Council rejected regulatory proposals to ramp up production in the spring and called for a new text, including on production capacity mapping.

Lack of collaboration

The ideas in the non-papers and questionnaires are centred around plans to incentivise governments’ demand and supply, make the sector more flexible and innovative, boost cross-border collaboration, and make the EU independent from other markets.

The questions relate to the identified issues, how to best tackle them, and their views on the proposed incentives, including open questions.

Most have a long-term perspective looking for support for European flagship projects and the next EU budget cycle (2028-2035), and several ask what can be done to prepare the integration of the Ukrainian defence and technological industry with the European one as part of security commitments.

The documents stress that they do not represent the opinion of the EU executive and do not prejudge what the strategy will contain for regulatory proposals.

Financial incentives 

A large part of the ideas focus on financial incentives.

For instance, the proposed Ukraine assistance fund under the European Peace Facility (EPF) “could act as a catalyst for joint procurement from the European defence industry”. Dedicated reimbursement rates for equipment purchases jointly or in the EU could be higher, as Euractiv reported earlier.

“There is no solution at the EU level to finance member states’ own critical defence product needs, e.g. the replenishment of stocks but also procurement of new capabilities,” the papers say, hinting at creating an EPF equivalent for member states.

It brings again the idea of states’ VAT-exempted European Defence Capability Consortia (EDCC) to jointly procure, own, maintain, and decommission purchases, as first expected in the European Defence Investment Plan (EDIP) and to adopt the proposed increased budget of €1.5 billion for the defence fund (EDF).

“Would member states be ready to consider pooling national contributions in a wider EU scheme?” they ask.

An EDIP “covering the short term (2025, 2026 and 2027) would need to embed financial incentives covering both the demand and supply sides of the European Defence Equipment Market” before the next EU budget.

At the national level too, “there is a need to ringfence budgetary resources” and guarantee access to private financing opportunities.

Europeanising the chain, and a one-stop shop

Another idea is to create a mapping and one-stop shop at the EU level for EU-based and foreign sales, based on the Defence Joint Procurement Task Force (DJPTF) set up to identify the member states’ needs after large deliveries to Ukraine. 

There is a “need to explore the set-up of a more structured mechanism enabling the aggregation of demand and the mapping of the production capacity”.

A Joint Programming and Procurement Function could “coordinate efforts of all stakeholders, collect information on the demand side, and propose consolidation and de-conflicting of the demand”, ensuring security of supply.

The EU also asked whether “an EU equivalent of the US FMS-scheme be considered” for member states and third countries, including Ukraine, as Politico reported.

The US foreign military sales programme approves and facilitates all US companies’ sales to foreign governments.

Questions include improving the predictability and visibility of European demand and whether regulatory hurdles at the EU level hamper the ability to contribute to EU defence readiness.

It also asks whether support for “ever-warm factories” that run non-stop should be considered to avoid supply crises.

With China on its mind, the Commission calls on “a Europeanisation of supply chains” and asks how to “design and implement an effective security of supply regime within the internal market, in particular when a crisis occurs”- the topic of the fourth paper.

The papers already mentioned ideas such as extending the ammunition ramp-up fund model to other products, coordination in defence planning across the bloc, increased standardisation especially of ammunition, and revising the EDF.

But they do not touch on the competitiveness of large and small companies within the EU or on a potential division of labour among EU member states. Establishing such a scheme could enable the development of a European champion and might push some smaller companies to disappear as a result of competition.

[Edited by Zoran Radosavljevic/Alice Taylor]

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