European defence industry association cautious on new EU directive

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The Aerospace and Defence Industries Association of Europe (ASD) a new European Union directive is a “mixed blessing” for industry, which by extension includes that of SA as many local defence companies are owned in part or whole by businesses domiciled there.
ASD says the EU Defence and Security Procurement Directive, adopted yesterday in Strasbourg by the European Parliament “does not meet all its intended objectives”.
The association says that while encouraging cross-border competition and trade as well as transparency in defence and security markets, the “text could be damaging to R&D investment and hence to the defence and technology base in Europe”.
Following ASD`s welcome in December of the Intra-Community Transfers Directive, François Gayet, ASD  Secretary General, called the Defence and Security Procurement Directive a “mixed blessing”.
The advantages of the new directive relative to the standard procurement directive used for other public sector markets include the routine use of negotiated procedures for contract award, and recognition of security of supply and interoperability as criteria for contract award within the competitive process, ASD says in a statement posted on its website.
The directive also introduces a remedies regime tailored to the needs of the sector. In a novel move, it permits contracting authorities to require that up to 30% by value of a contract must be competed among sub-contractors on a non-discriminatory basis. “International and collaborative programmes are sensibly excluded.”
R&D contracts are also excluded, on the same terms as the standard procurement directive.
“However, this complex directive rather overlooks the fundamental fact of defence procurement that new products are designed at national taxpayers` expense for that nation`s Armed Forces. According to François Gayet, “To apply the logic of EU internal market rules which rigidly divide R&D and production phases is to reduce the incentives for defence capability investment by both the public and private sectors.
“Under these rules, will governments invest in R&D if the resultant production for their Armed Forces may be conducted anywhere? Will companies invest in R&D if they cannot be confident of winning the resultant production?
“Such a philosophy has never been applied in defence markets. Furthermore, it does not provide a satisfactory business model for industry.
“While attending to important specificities, the European legislator has regrettably not recognised the fundamental and unique nature of R&D in defence markets. Despite the directive`s proclamation that it is intended to strengthen the technology and industry base in Europe, its provisions will most probably weaken the very foundations of that base.
“So, while Article 296 of the EU Treaty provides exemption from internal market rules when Member States judge that their essential security interests so require, defence and security procurements falling under the competence of the directive will increasingly be met by old or imported technology.
“The EU Defence and Security Procurement directive does not meet all its intended objectives. It will encourage cross-border competition and trade, and improve transparency in the important EU public sector markets of defence and security. But discouragement of investment in technologies for the future will not strengthen industry`s capacity to meet tomorrow`s requirements and may jeopardise the implementation of a sound ESDP.”
Meanwhile, back at home, SA Department of Defence Acting Chief Financial Officer Dudu Mutloane late last year told Parliament that a defence-related industry strategy “had been completed to co-ordinate and promote local defence industries, in order to encourage economic growth and the widening of participation” in the defence industry.
The document is not in the public domain and she did not further elaborate on its contents. [defenceWeb has asked the relevant authorities for further particulars].