Brussels moves to open defence market

European governments will on Thursday be told to open up a larger share of the region’s €80bn defence procurement market to cross-border competition or risk facing censure from Brussels.

Charlie McCreevy, the European Union internal market commissioner, is due to unveil stricter guidelines on what parts of a country’s defence expenditure may be exempted from open and competitive bidding.

Only a fraction of national defence contracts are now open to bidders from other EU countries. National sensitivities about defence and security have forced the European Commission to tread carefully in its efforts to open the market.

However, the Commission says only the most sensitive goods and services used by the military should be excused from competitive, cross-border bidding. The procurement of clothing, catering, vehicles and other non-military goods and services should be liberalised.

Brussels hopes greater openness will help the region’s fragmented defence industry become more competitive and lead to more efficient use of national defence budgets.

The call is contained in an “interpretative communication” setting out how the Commission intends to apply EU law in future cases. It is intended to provide clarity on a key provision in the EU Treaty, Article 296, which allows member states to depart from EU laws in cases that concern “essential interests of security”.

The paper – an earlier draft of which has been seen by the Financial Times – says the clause must be used “in a restrictive way” and only “procurements which are of the highest importance for the security of the member states” may be exempted.

Brussels is also preparing a draft directive that would provide new, binding rules for the public procurement of defence equipment. The proposal would offer governments more flexibility than is provided in the general public procurement rules.

Member states spend €170bn ($226bn, £114bn) on defence, which includes more than €80bn for procurement. Most is split into relatively small and closed national markets, the Commission draft said. “Europe’s defence sector remains in fact fragmented at the national level, with 25 different customers and 25 different regulatory frameworks.”

Fragmentation means “extra costs and inefficiencies” that hurt the competitiveness of Europe’s defence industry and undermines “member states’ efforts to equip their armed forces adequately”. Today’s communication is not binding law, and therefore does not require the approval of EU member states and the European parliament.