EC Defense Essay

Custom Student Mr. Teacher ENG 1001-04 19 April 2017

EC Defense

Introduction

Public security of Member States has long been on the agenda of the EC, which has culminated in the establishment of a European Defence Market to “support the Council and the Member States in their effort to improve the EU’s defence capabilities in the area of crisis management and to further The European Security and Defence Policy.”[1] The EU also established a programme for countering illegal trafficking of arms.[2] However, national safety and defence has to do with nationalism and state sovereignty. It is doubtful whether a state can feel itself to be independent without being in control of its own defence.

It has often been the case that regulations made by the European Community (EC or the Community) regarding trade and citizens’ movement within the territory have on occasion led to the discomfort of several Member States. The Treaty of Maastricht states that one of the major tasks of this supranational organisation is to establish a “common market” which promotes “convergence of economic performance”[3]. The Treaty objectives are largely realised through trade, and public procurement Directives, competition and Merger Regulations also exist to maintain the uniformity of trade on the European Common Market.

Yet it might not be immediately obvious why documents governing trade, competition, and mergers would become a mechanism that regulates a country’s ability to defend itself. [4]  However, this has been an object of concern to EC Member States and has sparked a proliferation of legal literature discussing the extent to which this is (or has been) possible.

An important part of national security and defence is to obtain up-to-date arms and other equipment necessary for the running of the military and constabulary forces as well as other departments responsible for State security. As no country produces all the products it needs for its defence, the balance must be acquired through trade with other countries. The purpose of this essay is therefore to explore the effect of the EU trade regulation of competition and mergers on the defence industries of Member States. It will assess these laws’ control over the means through which Member States are able to acquire the equipment necessary for national defence.

Mergers, Trust, Subsidies, and Procurement Directives

One of the duties of the European Commission is to stand as guardian of the Treaty that established the EC. Free trade on the common market is one of the major provisions of that Treaty, and competition within the EU is threatened in the presence of cartels or whenever mergers occur. These types of activities are subject to a substantive Competition Test, which gives the Commission the right to intervene wherever a merger occurs that is hostile to healthy competition as it regards trade on the European Common Market. All scenarios that follow mergers and that fail the test (including the existence of oligopolies) are subject to the scrutiny and handling of the European Commission and to possible escalation to the level of the European Court of Justice (ECJ).[5]

Mergers have much to do with competition. When companies merge or have an understanding or “trust” they behave more and more like monopolies, oligopolies or cartels. Government subsidies and laws that regulate the purchases of nationals from a particular company often have the effect of behave like mergers and trusts. However, the government might, for defence purposes, see the need to make laws governing the nation’s spending in a certain market. It might also see the need to exclude other nationals or business from bidding on contracts if such bidding is deemed a threat to the nation’s security. Legislation by the Commission of the European Union disallows this kind of law-making on the part of the Member States. The Merger Regulation 4064/89 applies to these situations, and therefore might exercise a significant amount of control over defence.

Public procurement is the process by which government bodies acquire equipment and services.[6] This represents about 14% of EU Member States gross domestic product.[7] Rules regarding this come from the EU in the form of Directives which are subsequently adopted by Member States. Public sector contracts, services and supplies are published across the EU, facilitating free trade in these areas as well. Breaches of these rules can be pointed out by the European Commission, and can incur legal action before the European Court of Justice.[8]

The laws of the EC make it clear that competition should in no way be hindered, in the pursuit of the objective of good value for money[9]. Mergers and government subsidies are cases in which this might happen. However, there is evidence that where governments sanction mergers of companies that deal with military equipment, the effects of Merger Regulation 4064/89 might be escaped. The creation of Eurocopter and its encouragement by the French and German governments demonstrate this.

Although the Commission granted that the merger was governed by the Regulation, it conceded that such a venture was “compatible with the Single European Market.”[10]  In addition, Article 21 and Court opinions formed as a result of the Aéropatiale-Alenia-de Haviland case allow for Member States to take measures necessary to protect interests considered legitimate, and national security is admitted as part of that group. Therefore, though the EU Commission often does have a significant amount of control over defence industries, certain privileges are granted to the Member States for matters of national security.

With soft defence materials the rules change slightly. In such cases, prohibitions of mergers by the Commission are final. If, however, the Commission chooses to allow such a merger, the Member State is at liberty to prohibit it. It has been found that exemption from the Merger Regulation all hard defence materials might be prudent, as mergers would help with competition against non-European countries such as the United States. As it stands, however, the Commission enjoys full control over soft defence (or dual purpose) goods, and tempered control over hard defence materials.

With regard to the Directives governing public procurement of equipment and services, the European Commission demonstrates another way in which it can have an impact on Member States’ defence industry. One case finds the Commission applying to the European Court of Justice for a declaration that Belgium had failed to fulfil its directive obligations (with regard to 92/50/EEC), being in breach of the provisions Articles 11(3) and 15(2). Belgium had “issued a restricted invitation to tender” for the surveillance of its coastal regions by means of aerial photography, and did this without expressly notifying the European Communities via the Official Journal.[11] It is of note that this kind of coastal surveillance can have immense implications for national defence.

However, the Commission faulted the Member State for neglecting to perform the necessary publishing measures before executing actions toward procurement of the contracts. The ECJ found it necessary to determine whether the action of the Belgian government was even governed by the Directive in question, considering that much of the contract regarded aerial photography and the Directive mainly deals with architectural, engineering, and landscaping services.

The Court’s opinion was that it saw “no reason to call into question the Belgian Government’s assessment that aerial photography accounts for the predominant value of the contract. Accordingly, the contract falls under Annex I B, with the result that the tendering procedure under Community law, under Titles III to VI of Directive 92/50, does not have to be followed.”[12] Here the Member state was granted autonomy in that sphere of defence. However, had the contracts involved a slightly different type of service, the Commission might have been awarded the case.

Trade Laws and Defence

Certain of the EC Articles, namely 30 (ex 36), 39(3) (ex 48), 58(1) (b) (ex 73d), (81)(1), 226, 296 (ex 223), and 297 (ex 224) deal explicitly with issues of trade and competition that concur with those of national security, and offer ways in which the Member States can attend to their national interest where they might conflict with the terms of the Treaty.

However, some of the articles are equivocally worded such that they allow for sometimes opposing interpretations. These articles lead to uncertainty with regard to the provisions of Treaty as well as to how the European Court of Justice would rule in certain situations. Therefore, it is unclear exactly how Member-State sovereignty is affected by the Treaty, since certain controversies have arisen because to some extent the Treaty has touched the industries that deal in the trade of materials necessary for national defence.

Articles 28 and 29 of the EC Treaty agreement ban restrictions on the quantities of goods that can be imported or exported by the Member States. However, article 30 states that such restriction “shall not preclude prohibitions or restrictions on imports, exports, or goods in transit justified on grounds of […] public security.” This grants Member States the ability to derogate from the regular stipulations of the treaty should the goods in question pose a threat to public security.

Clearly in this case, although the treaty is apt to regulate areas of the defence industry, the articles make way for the countries to be free from its influence in that regard. In fact, in June of 2003, the European Union adopted a Common Position requiring that Member States enact “ad hoc” legislation to regulate the activities of arms brokers.[13] However, the use of the word “require” indicates that the power to act in that way was conferred upon the state by an organisation in whose possession the power had rested before. It also implies that to some degree power still rests in the hands of that body.

A closer look at EC Article 30 supports this idea. It reads: “Such prohibitions or restrictions shall not, however, constitute a means of arbitrary discrimination or a disguised restriction on trade between Member States.” This implies that any Member State that wishes to enact laws affecting the defence industry for the purpose of protecting their interests must do so for specific and justifiable reasons. Indeed, the use of the term ad hoc in the 2003 EU position on arms brokering indicates that the control that Member States are granted over their defence market laws is not a general one, but one that materialises only under extenuating circumstances.

The Irish case involving Campus Oil is an interesting example. The Irish requirement that 35% of all oil and petroleum products be purchased from the national refinery constituted a case of according an unnatural advantage to a supplier on the Common Market. This was done to protect the Irish economy and to scaffold the company, but might be considered a matter of defence since such military equipment as tankers would require fuel from this national refinery in the event of a national emergency. It was therefore crucial for the refinery to stay in business. The Court saw this necessity, and allowed the national requirement to remain in place.[14]

What this case demonstrates is that the European Community law regimes on trade, competition, mergers and the like do have the power to regulate the laws that regard the defence industry. Though the EC laws cited do not relate specifically to defence, the surveillance of a coastline or the protection of a State’s leading energy company can have immense implications for national security. These laws were enacted to combat that effect, and the EC law was able to call that Member State law into question. It, however, did ultimately grant leave to the Member States because of the delicate nature of the situation.

Competition and Defence

The EC Treaty article that concerns the distortion of competition exists to prevent scenarios in which monopolies could arise in the marketing of certain military goods and/or to certain areas. Articles 85 and 86 regulate situations to ensure that a firm or other venture which has a comparative advantage in the market does not in any way use that advantage to disrupt competition. As far as the Articles allow derogation from this rule, it is not clear whether private companies are able to claim that the provisions of the Articles apply to their situations. However, for derogation to be possible, such benefits as economic progress for both companies and consumers must be proven, and neither indispensable restrictions nor the elimination of competition for the products involved should result from the mergers.

One aspect of the GEC-Siemens v. Plessey case concerned whether a company licensed to distribute arms has a right to award sub-licences. The Commission’s opinion on the subject was that only Member States are allowed to invoke article 296b[15]. Therefore, as far as private undertakings concerning military products are involved in the market, competition and free trade are to be assumed to govern military defence equipment.[16]

With regard to resolving whether dual-use goods fall under the jurisdiction of the Treaty, there exists a list drawn up by the European Community in 1958.[17] Yet though it has not been officially published, it is now in the public domain. On it is contained traditional types of military equipment, such as tankers and other types of typically defence-oriented products. If this list were considered as containing all the items that are to be excluded from the jurisdiction of the Commission, then it would be clearer how far the EU laws govern the defence industries of Member States. Because goods that can be used both civilly and militarily are not present on the list, it would become clear that dual-use goods should fall solely under the jurisdiction of the Treaty.

Though the list has been considered outdated by many, upon close consideration it can be found that many of the newer military equipment can be covered by the broad terms used in the list[18]. If, therefore, the list is to be considered exhaustive, it leads to the conclusion that dual-use goods are not covered by Article 296 and are therefore under the jurisdiction of the Commission. In such cases where dual-use goods are being traded for military purposes, then, the Commission would have some amount of control over the defence industry of the Member State in question.

Recently the European Commission has sent forth a Communication[19] on the issue of the interrelatedness of civil, market and defence policies. The purpose of the Communication document is to promote and enhance more efficient spending on defence, to maintain competition in the defence industry, as well as to uphold fairness and ethics in the trade of defence materials. Long has the issue of European defence hung in limbo because of the problematic nature of defence collaboration among Member States. Such situations usually have resulted in encroachment upon the sovereignty of each state. The aims of the Communication are set to be effected through the monitoring of industries related to defence. This activity by the Commission is supported by EC Treaty Art. 296.

Through this measure, the EC proposes to regulate licensing, delivery, certification, and other things which have caused arms-trade problems at the borders within the European Community. Beyond this, the EC recognises the importance of competition to the creation of defence sector that does not harm the common market—a defence market that is as similar as possible to the market that exists for non-military goods.  Article 296 has been thought of as a prime obstacle to the European defence market integration, though the European Parliament believes that this article does allow for integration if the Member States cooperate.[20]

This article gives states the right to take “such measures as it considers necessary” to protect its own security interests as far as these concern the procurement of arms and other military equipment. It further stipulates that any action implemented ought not to impair the functioning of the market as far as it concerns goods that are not explicitly military related.

It is here that much confusion enters concerning the extent to which the European Community laws govern the defence industry, as demonstrated in the cases of Werner and Leifer.[21] Arrowsmith notes that the importance of the Treaty is largely manifest in actions that lie “below the thresholds” of the Member state legislation.[22] These states are, according to EC 296, clearly in charge of the trade of expressly military commodities.

However, which body shall be in charge of regulating those goods that may be used for both civil and military purposes (dual-use goods) remains in question. Koutrakos reminds us that the Common Commercial Policy established in EC 113 grants exclusive competency to the Community itself. Without this competency in the hands of the EC, the Member States might be inclined to act in a way contrary to the intentions of the Community and create mistrust among the members.[23]

In cases where the goods in question are military in nature and a Member State wishes to derogate from the terms of the Treaty, the effects of doing so are subject to a proportionality test. This test ascertains that “no other measure, less restrictive from the point of view of the free movement of goods, capable of achieving the same objective” could have been performed in its place. The measure must also achieve a maximum amount of good for the Member State with the most minimal of adverse effects on the Community as a whole.[24]

Moreover, the provisions of Article 296 do not automatically apply to any country as it regards military security. This article has to be invoked by any party that perceives the necessity to curtail or otherwise regulate the trade of defence products. In that case, the state must also be prepared to offer reasons why such action is necessary, as the burden of proof lies on that state. The EC Court then has the right to intensely scrutinise the actions and motives of the Member state that chooses to derogate from the provision of the Treaty via Article 296. It also has the power to demand that it change its policy back to that of the EC if the motives prove unethical or the reasons inadequate.

One such case is the Commission vs. Spain[25], in which the Spanish government had enacted laws exempting from the value-added tax (VAT) exports and transfers of military goods within the Community and to third countries. The argument by the Spanish government was that the measure was necessary for the health of the defence industry, and that such a measure was protected under the provisions of EC 296(1)(b).

The Community itself invoked EC 226, which gives the Commission the right to give an opinion on any matter in which it considers that the state has not complied with the terms of the Treaty.[26] The Court ruled that any interpretation of Article 296 should be a limited one. So that where the wording of the article gives the apparent idea that all measures considered necessary by the Member States are viable, the Court emphasises that the states must be able to prove the necessity of those actions in order for them to go unchecked. In this way, Spain was forced to change its policy, and the EC law demonstrated a significant amount of control over the defence industry of Member States.

Yet the Spanish derogation was a frivolous attempt, and represented what might be seen as a much lower level of scrutiny by the Court than other cases might. Other states with much more dire cases could conceivably be granted much more autonomy with regard to the regulation of their own portion of the defence market.  The Member States have usually interpreted this article (EC 296) to mean that the exemption of defence material from the terms of the Treaty occurred automatically.

On the other hand, the Community has held that any derogation by Member States must be according to strict rules testable by the aforementioned proportionality test. This would therefore mean that it is not only in the case of Spain’s obviously opportunistic case, but in all cases that “the Treaty would in general apply to hard defence material and […] the Community has jurisdiction over these products unless a Member State can prove the existence of a situation justifying derogation from the regime.”[27]

Other complications stem from the second part of Article EC 296(1)(b). This reads, “Such measures shall not adversely affect the conditions of competition in the common market regarding products which are not intended for specifically military purposes.” In the case between the Republic of Portugal and the Commission,[28] it was held by the Portuguese government that during the privatisation of the company Cimpor-Cimentos, no buyer would be able to acquire rights amounting to more than 10% of the shares. This privilege was reserved only for the Portuguese government.

The Commissioners brought this government to the Court because its actions had in their view breached the EC laws against interference with competition. The Commission did acknowledge, however, that had the Portuguese law been concerned with matters of national security, an exception would have been made for the case. However, even in a Portuguese appeal to the Court, the opinion given by Advocate General Tizzano was that the appeal be rejected on the grounds that the action of that government served to impede competition on the European market. Therefore, though this case demonstrates that the ECJ clearly has the authority to force the compliance of Member States on questions of competition, it does sometimes refrain from this if/when defence equipment is involved.

The Italian case C-423/98, Alfredo Albore [2000] ECR I-5965 concerned the right of any EU citizen to purchase land in any Member State. The Italian government made it illegal for the German citizen to purchase land declared “of military importance” to the country. Though this land, not being an expressly military commodity, does for that reason fall under the jurisdiction of the Treaty, the Court decided to allow the Italians derogation through the invocation of Article 296 and the declaration of the land a matter of national defence.

Conclusion

Some goods that are used by civilians and that can also be used for military purposes are regulated by the Commission. In other situations where countries accord merger rights or subsidies to certain business for military purposes, the Commission has a right to intervene and in those situations can be seen as regulating the country’s defence industry. Goods and services that are considered of military importance to a country may not always be explicitly military or differentiable from goods/services designated for civilian use. In those cases where the Commission has jurisdiction, the right is theirs to allow or prohibit the actions of a Member State government.

The Treaties, Procurement Directives, and Merger Regulations of the European Community function in such a way as to promote a healthy market economy in which no producer or country has an unfair advantage with regard to the manufacture or sale of its product. The nature of the defence industry dictates that its functions often come under the regulations of the European Community, and this often indicates the possibility of national security problems for Member States. Because of this, several of the articles in these treaties/regulations allow for derogation from their provisions.

Yet, in many cases this allowance has proven equivocal to the point where the European Court of Justice has had to become involved. The European Commission works hard to devise a method of regulation that accounts for the security of the individual states while maintaining the freedom of the Common Market; but as yet, where competition and merger control concerns public procurement and trade of dual-use goods, the EC still exercises, to a significant extent, control over the defence industry of its Member States.

References

Anders, Holger. (2004). “Controlling arms brokering: next steps for EU Member States.”           GRIP p6.

Arrowsmith, Sue. (1995). The application of the EC Treaty rules to public and utilities   procurement. Public Procurement Law Review. 6.255-280.

Arrowsmith, Sue. (2002). The EC procurement directives, national procurement policies,           and better governance: the case for a new approach.” 27(1), 3-24.

“Competition: Mergers (Overview).” Europa. Accessed 2 March, 2006.            http://europa.eu.int/comm/competition/publications/special/3_merger.pdf

 “Commission of the European Communities v Kingdom of Belgium (C-252/01).”          Official Journal of the European Union. (2003). C 289/3.

            http://europa.eu.int/eur-          lex/pri/en/oj/dat/2003/c_289/c_28920031129en00030003.pdf

“Consolidated version of the Treaty establishing the European Community.” (2002).      Official Journal of the European Communities. C 325/33.

Eikenberg, Katharina. (2000) “Article 290 (ex. 223) and external trade in strategic          goods.” European Law Review. 25(2), 117-138.

Georgopoulos, Aris. (2005). “Defence procurement and EU law.” European Law Review.          30(4), 559-572.

Georgopoulos, Aris. (2003). “Industrial and market issues in European defence: the        Commission Communication of 2003 on harmonisation and liberalisation of     defence markets.” Public Procurement Law Review. 4.NA82-89.

“Fourth Annual Report on the implementation of the EU Joint Action of 12 July 2002 on           the European Union’s contribution to combating the          destabilising accumulation     and spread of small arms and light weapons (2002/589/CFSP).” (2005). Official           Journal of the European Communities. C 109, vol. 48.P. 0001 – 0025.  

            http://europa.eu.int/eur-lex/lex/LexUriServ/LexUriServ.do?uri=CELEX:

            52005XG0504(01):EN:HTML

Koutrakos, Panos. (1998). “Exports of dual-use goods under the law of the European      Union.” European Law Review. 23(3) 235-251

O’Keeffe, D. & Branton, J. (2006). “State Aid and Public Procurement: A Practical        Guide.” Hammonds. http://www.hammonds.com/FileServer.aspx?oID=21843

“Portuguese Republic v Commission of the European Communities (C-42/01).” CVRIA. (2004). http://curia.eu.int/jurisp/cgi-bin/form.pl?lang=en

Saggio, Antonio. (1999). “Association Église de Scientologie de Paris and Scientology International Reserves Trust versus the Republic of France.” Opinion of Advocate        General Saggio. CVRIA. http://curia.eu.int/jurisp/cgi-   bin/form.pl?lang=en&Submit=Submit&alldocs=alldocs&docj=docj&docop=doco            p&docor=docor&docjo=docjo&numaff=&datefs=&datefe=&nomusuel=&domain            e=&mots=military+arms+goods&resmax=100

Trybus, Martin. (2002). “The EC Treaty as an instrument of European defence    integration: judicial scrutiny             of defence and security exceptions.” Common         Market Law Review. 39. 1347-1372.

Trybus, Martin. (2005). “A fine balance: free movement and public security in the EC    Treaty.” European Union Law and Defence Integration. Hart: Oxford.

Trybus, Martin. (0000). “European defence procurement: toward a comprehensive          approach.” European Public Law. Vol. 4(1). 111-133.

Trybus, Martin. (2004). “The limits of European Community competence for defence.” European Foreign Affairs Review. 9, 189-217.

Trybus, Martin. (2000). “On the application of the EC Treaty to armaments.” European Law Review. 25(6), 663-668.

Trybus, Martin. (2002). “Procurement for the armed forces: balancing security and the   internal market.” European Law Review. 27(6), 692-713.

Trybus, Martin. (2000). “The recent judgement in Commission vs. Spain and the            procurement of hard defence material.” Public Procurement Law Review. 4. NA           99-103.

[1]              Georgopoulos, Aris. (2005). “Defence procurement and EU law.” European Law Review. 30(4), 559-572.

[2]              Fourth Annual Report on the implementation of the EU Joint Action of 12 July 2002.

[3]              Article 2. “Consolidated version of the Treaty establishing the European Community.” (2002). Official Journal of the European Communities. C. 325/33.

[4]              Trybus, Martin. (2004). “The limits of European Community competence for defence.” European Foreign Affairs Review. 9, 189-217.

[5]              “Competition: Mergers (Overview).” Europa. http://europa.eu.int/comm/competition/publications/special/3_merger.pdf

[6]              Arrowsmith, Sue. (2002). The EC procurement directives, national procurement policies, and better governance: the case for a new approach.” 27(1), 3-24.

[7]              Trybus, Martin. (2002). “Procurement for the armed forces: balancing security and the internal market.” European Law Review. 27(6), 692-713.

[8]              O’Keeffe, D. & Branton, J. (2006). “State Aid and Public Procurement: A Practical Guide.” Hammonds. http://www.hammonds.com/FileServer.aspx?oID=21843

[9]              Arrowsmith, Sue. (2002). The EC procurement directives, national procurement policies, and better governance: the case for a new approach.” 27(1), 3-24.

[10]            Trybus, Martin. (0000). “European defence procurement: toward a comprehensive approach.” European Public Law. Vol. 4(1). 111-133.

[11]            “Commission of the European Communities v Kingdom of Belgium (C-252/01).” Official Journal of the European Union. (2003). C 289/3.

[12]            Ibid.

[13]            Anders, Holger. (2004). “Controlling arms brokering: next steps for EU member states.” GRIP p6.

[14]            Trybus, Martin. (2005). “A fine balance: free movement and public security in the EC Treaty.” European Union Law and Defence Integration. Hart: Oxford.

[15]         “Any Member State may take such measures as it considers necessary for the protection of the

essential interests of its security which are connected with the production of or trade in arms,

munitions and war material; such measures shall not adversely affect the conditions of competition

in the common market regarding products which are not intended for specifically military

purposes.” . “Consolidated version of the Treaty establishing the European Community.” (2002). Official Journal of the European Communities. C. 325/33.

[16]            Trybus, Martin. (0000). “European defence procurement: toward a comprehensive approach.” European Public Law. Vol. 4(1). 111-133.

[17]            Ibid.

[18]            Trybus, Martin. (2005). European Union Law and Defence Integration. Hart: Oxford.

[19]            Georgopoulos, Aris. (2003). “Industrial and market issues in European defence: the Commission Communication of 2003 on harmonisation and liberalisation of defence markets.” Public Procurement Law Review. 4.NA82-89.

[20]            Ibid.

[21]            Eikenberg, Katharina. (2000) “Article 290 (ex. 223) and external trade in strategic goods.” European Law Review. 25(2), 117-138.

[22]            Arrowsmith, Sue. (1995). The application of the EC Treaty rules to public and utilities procurement. Public Procurement Law Review. 6.255-280.

[23]            Supra n.2 at 1364. Qtd. in Koutrakos, Panos. (1998). “Exports of dual-use goods under the law of the European Union.” European Law Review. 23(3) 235-251

[24]            Trybus, Martin. (2002). “The EC Treaty as an instrument of European defence integration: judicial scrutiny of defence and security exceptions.” Common Market Law Review. 39. 1347-1372.

[25]            Trybus, Martin. “The recent judgement in Commission vs. Spain and the procurement of hard defence material.” 4. NA 99-103.

[26]            “Consolidated version of the Treaty establishing the European Community.” (2002). Official Journal of the European Communities. C. 325/33.

[27]            Trybus, Martin. “The recent judgement in Commission vs. Spain and the procurement of hard defence material.” 4. NA 99-103.

[28]         “Portuguese Republic v Commission of the European Communities (C-42/01).” Cvria. (2004).

 

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