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THE EUROPEAN DEFENCE AGENCY (EDA) AND DEFENCE INDUSTRIAL COOPERATION:
IMPLICATIONS AND OPTIONS FOR ICELAND
Executive Summary
The European Defence Agency is the most serious attempt yet made to steer and rationalize defence industry development at a European level. Setting it up within an EU framework has opened the way for linking R+D and project work directly to the needs of European peace missions, and also to general technological progress, in a way that neither NATO-based nor WEU-based work could achieve. The main limit to EDA ambitions, which will not change any time soon even under the Lisbon Treaty, is the preference of big states and producers to keep actual production under their own control.
For Iceland to seek an Administrative Arrangement with the EDA before/without entering the EU, or to accept membership in the context of EU accession, would be an acknowledgement of the EU’s growing ambitions and relevance in the field of defence and security. It would give Iceland a voice – for the first time - in the development of Europeans’ positive armaments collaboration, alongside their arms control and export control endeavours.
The exact political message sent by such a move would depend on the circumstances.
If Iceland accepted EDA membership once inside the EU it would signal that Iceland did not intend to be an ‘opt-out’ state (like Denmark) but to play its part even in the ‘tougher’ parts of EU work as best it could, as other small states in Central and Southern Europe have done.
If Iceland sought an Administrative Arrangement it could be seen as a continuation of the policy of getting as close as possible to EU security-relevant activities, without full membership or – if an application was being processed – while waiting for it. The burden would be on Iceland to prove that it had sufficient practical reason and capacity to interact with the EDA, and it could not expect its application to be rubber-stamped – though it would make sense to test and build support among some friendly member states in advance.
The EDA’s task is not simply to maximize weapons output. There are already elements within the EDA and among member states that would like to see it expand its role in such normative areas as the boosting of state and business compliance with export controls, the ‘greening’ of defence, or even a ‘sunset clause’ approach to weaponry that would ensure regular and cheap destruction of unwanted items. Iceland could add its voice in favour of such (or other) ’restraint’-based policies if wished.
Direct consequences for Iceland’s own defence are limited given that the EDA has no military functions and no control of the operational use of equipment. Nor can it be used as a national procurement agency. However, through the Agency Iceland could learn more about and participate in areas of military (or multi-use) research and technology development that are very much relevant to the High North defence environment. It could play a similar role in developing systems to boost the efficiency and closer integration of multi-functional European peace missions where its own personnel may be involved. The knowhow and contacts picked up in EDA ‘corridors’ could be helpful for potential investment decisions to be taken at the time of renewal of air defence radars in Iceland, as well as any ad hoc purchases of quasi-military equipment.
The ‘price’ to be paid in return, either for an AA or full membership after accession, is small in financial terms unless Iceland chooses to join any of the Agency’s major projects - which it would presumably do rarely and only with special benefits in view. The political ‘price’ that would have had to be paid in terms of US concerns during the first days of ESDP would not be an issue now. US/ESDP and NATO/ESDP relations are steadily improving, and for those – including Washington – who resent Turkey’s exclusion from EDA, having Iceland join after Norway would just put Turkey’s claims in an even clearer light.
Domestic objections could however be raised, as they have been in Ireland and Malta. These other governments have answered critics by pointing to the EDA’s focus on peace missions and the chance that it gives a small country to have a say – including a voice for restraint - in the development of an EU military profile
The commercial benefits of an EDA relationship for Icelandic producers are less easy to judge and do not seem overwhelming. The EDA’s Bulletin Boards publicizing contract offers are open to all and the agency is not allowed to discriminate against non-EU companies. Its new Logistics Platform could also cover many needs of this country’s producers as it is specially geared to primarily civilian producers including SMEs. The specific EDA projects of most interest to Icelandic firms would probably be R+T ones, paralleling those that Iceland already has access to in the non-military and non-traditional fields covered by the Commission. More added value, but of an intangible kind, would come from the contacts, inside information, and especially the ‘early warning’ of useful trends and projects flowing from privileged access to EDA work. Finally, if Iceland opted in to the Code of Conduct on defence procurement (which would then of course bind it in its own occasional purchase decisions) it would have a strong guarantee against discrimination against its own companies in almost all other EEA states.
Aside from minor niches for very specialized equipments which Icelandic producers are already filling successfully, the chances for this country’s profitable involvement in the European defence market are most likely to lie in the fields of pure research, specialized component and software manufacture, other outsource-able services (like data storage and analysis) making use of cheap energy and a clean environment, and the provision of civilian items and logistical services including lift.
Success in these fields will only partly be determined by Iceland’s formal status vis-à-vis the EDA. Icelandic firms could also improve their understanding of the market and chances of profiting from it, at any time, by such measures as:
- exploiting open features of the EDA such as the contract Bulletin Boards and forthcoming Logistic Services Platform (TPLS);
-- going into partnership with large European defence and aerospace companies, as ‘niche’ product, component, software and service providers;
-- making their services better known to nations likely to lead or take a large part in ESDP missions, eg the members of the Nordic Battle Group and the UK, as well as to planners in the EU military organs;
-- increasing their efforts to enter security-related projects funded by the Commission in its Framework Programmes on R+D and in other contexts, where success often depends on joining consortia led by larger nations
-- taking advantage of the eventual implementation of the Commission’s export licensing directive within the EEA, especially to offer outsourced production and intellectual input.
An early step to these ends - which could be taken with or without an official initiative vis-à-vis the EDA - would be to promote an independent grouping of Icelandic firms interested in the ‘security support’ market at home and abroad, in partnership with SÁ or SI or both, and to establish a relationship between this group and the ASD (and perhaps also EOS) in Brussels. Since the ASD’s affiliation charges are based on the numbers of employees in a national sector the cost should be fairly low. Such a grouping could also establish direct contact with and pay visits to the EDA itself.
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Table of Contents
Page Number
Executive Summary1
Preface5
I. European Defence Collaboration – a historical sketch6
The Institutional Story6
The Industrial Story8
II (A).The EU, Armaments, and the Birth of the EDA 11
The Story to 1999 11
ESDP and the European Convention 12
Breakthrough after Iraq 13
II (B). The EDA and European Defence Developments 2004-9 15
Aims, Activities and Contradictions 15
What would the Lisbon Treaty change? 19
Alternative Visions 21
Commission Initiatives and Defence Market Governance 22
III. EDA Relations with Non-EU States 25
The Norwegian Precedent 25
Other Nations 27
IV. Iceland, European Defence, and Icelandic Commercial Interests 28
Projects/Activities Relevant to National Security 29 Commercial Aspects: What Iceland can (and should) offer 30
General Strategies for Small Producers 32
How can the EDA help? 33
V. Iceland and the EDA: Options and Arguments36
Iceland as an EU Member36
An Administrative Arrangement37
Domestic Debate?39
VI. Summary and Closing Remarks40
Annex: Text of the Council Joint Action of 12 July 200443
THE EUROPEAN DEFENCE AGENCY (EDA) AND DEFENCE INDUSTRIAL COOPERATION:
IMPLICATIONS AND OPTIONS FOR ICELAND
A study for the Icelandic Defence Agency by Alyson JK Bailes and Jón Ágúst Guðmundsson
Preface
This study was carried out in the months of February-May 2009 as part of a programme of sponsored research cooperation between the Icelandic Defence Agency (IDA) and the Institute of International Affairs/Centre for the Study of Small States (IIA/CSSS) at the University of Iceland.
The information reflected in it was gathered partly from published (including academic) sources, and partly from interviews carried out in Iceland, Brussels, and with Nordic experts including those of Norway – which is the only non-EU state to have obtained a special relationship with the EDA so far.
The authors wish to thank the officials of the IDA, all other contacts and interviewees, and colleagues at the IIA/CSSS and the Faculty of Political Science, University of Iceland, for their help. The views expressed here are, however, entirely the authors’ own responsibility.
The paper is structured as follows:
Section I presents a brief history of defence industrial collaboration in post-World War Two, from an institutional and then from an industrial standpoint.
Section II (A) tells the story of EU involvement with armament issues and with defence in general, leading up to the circumstances that allowed the creation of the EDA in 2004. II (B) outlines the EDA’s main features and key developments from its creation to the present, as well as other ongoing changes in EU armaments policy.
Section III looks at theEDA’s relationships with non-EU member states - with special reference to the Administrative Arrangement negotiated by Norway - and at some special issues arising with other states.
Section IV discusses the general relevance of the EDA for Iceland and surveys the extent and nature of possible Icelandic private-sector interest in European defence markets, as well as the generic challenges facing small producers.
Section V reviews Iceland’s options for forming a relationship with the EDA, under two main scenarios (with or without EU membership).
Section V offers the authors’ brief conclusions.
The Joint Action of the EU Council of Ministers that created the EDA is attached as an Annex.
I. European Defence Collaboration – a historical sketch
I.1 Defence industry cooperation in Europe since World War Two has developed along two tracks: formal institutional efforts, and mergers or partnership deals driven by free market dynamics. Market forces have become more important over time as Western nations have privatized most defence production (aside from nuclear weapons), and many European firms have had to enter the competitive global export market in order to survive. EU nations’ views still vary quite widely, however, on whether governments should keep strong shares in the industry and should intervene actively to support their own companies (national preference) or the European defence and aerospace sector as a whole (European preference). The more they do believe in these things, the more stress they tend to put on the institutional approach and on harmonization of official policies.
I.2 The dividing line on this basic issue does not run between large and small states. Britain is more market-inclined and France more intervention-inclined, arguing especially for the need to maintain a strong European technological base. Some smaller West European producers (Spain, Greece, Denmark etc) have used a variety of political tools to maintain a ‘work-share’ for their own companies, while most Central European states joining the EU have accepted that their defence industries must shrink or, at best, survive as niche producers. However, there are some basic challenges and choices that all small state and/or smaller producers face if they want to take a profitable part in the business of defence; and they will be highlighted where appropriate in what follows.
The Institutional Story
I.3 World War Two showed how vital a part the capacity and technological prowess of ‘war industries’ could play in military success. Throughout the Cold War as well, the West had to rely on its industrial and technological edge to keep ahead of an Eastern bloc that was always stronger in numbers of men and arms. Even so, armaments issues never became central to the work of NATO. The Atlantic Alliance focused on the correct deployment of forces for effective deterrence, and on maintaining their capability standards through the process known as ‘defence planning’. It did not dictate and in practice could not have dictated – especially to Allies as powerful as the US – what particular equipment they should choose to meet these goals. Its focus was rather on interoperability, ie the need for nations to use the same or compatible systems in situations where they operated most closely together. Also, because there was a constant Cold War debate over inadequate European inputs and the amount of money European countries wasted through fragmentation, NATO’s drive for more efficient resource use – including industrial collaboration – quickly became focused above all on the European dimension.
I.4 In institutional terms, therefore, NATO’s ‘Eurogroup’ became the main Cold-War forum for talking about armaments cooperation.[1] It consisted of all the European Allies who had armed forces, ie including such small states as Luxembourg and Portugal but excluding Iceland. It met yearly at the level of Defence Ministers, and regularly at official level at NATO HQ in Brussels. In 1976 it spun off a separate body, with the same membership, to focus more closely on equipment issues under the name of the Independent European Programme Group (IEPG).
I.5 The first important institutional shift came in 1993 when the IEPG was closed down and its functions transferred to the Western European Armaments Group (WEAG).[2] WEAG was set up in the institutional context of the Western European Union, a relatively weak body existing since 1954 where the main European Allies could discuss defence business separately from the USA and Canada. From the mid-80s WEU had gradually revived, first as a talking shop and then as the framework for some loosely coordinated European naval operations (protection of shipping in the Gulf War, enforcement of former Yugoslavian sanctions). By the mid-1990s it was trying to groom itself as a framework where more serious peace missions (‘Petersberg tasks’) could be carried out under a European flag; and in the historic Berlin Ministerial decision of July 1996, NATO offered to help such missions indirectly through planning advice and the loan of NATO assets.
I.6 WEAG shared the same general inspiration of a stronger and more coordinated European approach to post-Cold War challenges, but it was kept institutionally distinct from the main WEU decision-making structure for reasons that are more than just technical. In WEU proper, only countries belonging both to NATO and the EU could be full members.[3] In WEAG, as a condition for its peaceful transfer from NATO, Norway and Turkey had full membership as well and played a significant role – indeed, Norway provided the Chairman of one of WEAG’s three specialized panels (the one focusing on cooperation with NATO). In 1996 a separate agency, WEAO, was created to focus on the defence research side and it again offered full participation to Norway and Turkey. Only in 2000 was it decided that non-NATO members of the EU could also become full members of WEAG/WEAO if they wished, and Sweden and Finland were among those who took up the offer.[4]
I.7 As it was now five decades since the start of European defence collaboration work in NATO, it may well be asked what WEAG and WEAO achieved. The honest answer is that they were more like theatres for watching what was really happening in the game of defence cooperation, than like the bodies steering it – not least because they never had funds to invest, or their own research labs, or even the power to make rules and regulations for industry. In fact, from 1993 up to 2004 when the EDA was created, the most important strides were made independently by small groups of countries with similar interests: France, Germany, Italy and the UK who set up OCCAR in November 1996,[5] and the same group of countries plus Spain and Sweden who signed a Framework Agreement for defence industry reform at Farnborough in July 2000.[6] Neither of these groups directly owns defence programmes either, but OCCAR manages a portfolio of 7 projects (involving major air. land and sea assets) that have been individually negotiated and funded among the parties. Both initiatives signalled a serious intent of the participating governments to actively seek out chances of collaboration for their shared operational needs, but also to eliminate administrative barriers to trade and the sharing of research among themselves.[7]