Economic Logistics

The European Union’s executive branch will clarify in 2006 how defense procurements essential to national security — and thus protected from foreign competition — should be distinguished from those deemed non-essential and therefore subject to the union’s cross-border public tender rules.

The European Commission’s initiative, announced here Dec. 6, will complement a new voluntary code of conduct by the European Defense Agency (EDA) that seeks to keep EU member states from using national security to shield their defense purchases from competition.

The commission’s clarification will come in the form of a so-called interpretative communication. This, in turn, will lead to a new legislative proposal to update EU tender rules to reflect the unique needs of defense tenders, such as security clearances and technology transfers, EU officials said.

“Action to clarify and improve EU law on defense procurement is imperative,” said Charlie McCreevy, European commissioner for internal market and services, whose department will lead the effort. “We must now put our foot on the gas. The future of Europe’s defense industry is at stake.”

To push the 25 EU nations toward a borderless defense market, McCreevy said the commission is “almost certainly going to have to go beyond [the EDA’s] code of conduct and an interpretative communication” by issuing a new proposal in 2007 to update the union’s procurement rules.

The code aims to restrict the invocation of Article 296 of the union’s founding treaty, which allows member states to exempt a defense purchase from cross-border competition within the European Union in the name of essential national security.

EU member states have long abused this privilege.

“There’ve been some awfully murky decisions by national capitals to protect their national markets,” an EU diplomat said.

The commission intends to undermine the long-protected position of national defense champions in Europe, a commission official told reporters: “There is no justification for national champions to be subsidized by the governments.”

Chipping Away at 296

EU sources say the purpose of the commission’s forthcoming interpretation is to hem in as much as possible the defense equipment categories that national capitals can place under 296’s protective umbrella by restricting this to arms and systems of the highest strategic value, such as nuclear weapons, military satellites and encryption technologies.

The new EDA code, which takes effect in July, will, for the first time, oblige a national defense ministry to explain to the other 23 defense ministries its reasons for invoking 296. All EU countries but Denmark belong to the agency. But the ministries are under no obligation to provide the same to the European Commission.

“One does have to wonder how the commission is going to interpret 296’s application and what will happen if it disagrees with a national government to invoke the article,” said Barbara Rapp, whose law firm here of Kemmler Rapp Boehlke specializes in EU competition rules.

Legal Recourse

Rapp said the commission has two likely channels of recourse. One is to invoke other provisions of the treaty, such as Article 10. Known as the loyalty clause, it forbids national capitals from frustrating the European Union’s objectives. But this is a broad concept and not easily used as a disciplinary stick.

More likely is court action. “There will certainly be cases going to the Court of Justice,” she said, referring to the union’s highest tribunal in Luxembourg.

Before that can happen, however, the commission needs a solid legal basis for dragging a national government before the court. That is why it plans to issue in early 2007 new draft legislation to update the European Union’s procurement laws with a special set of rules to cover cross-border competition in non-296 defense procurement.

According to the commission, the rules could allow:

• Specific selection criteria to be applied to assess tenders such as confidentiality and security of supply.

• Negotiations between contracting authorities (after a call for tenders) and selected companies to hammer out contract terms, as well as scope for a negotiated procedure without prior publication of a tender.

• Public announcement of defense contracts via a centralized system.

The EDA, too, plans to create a public information system in 2006 in the form of a Web site where prior notification of all defense contracts to be competed across the 24 agency markets will be centralized. •

source: defensenews.com

This entry was posted on Monday, December 12th, 2005 at 1:49 pm and is filed under Procurement, Military. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.