ECCO Symposium Discusses Offset Benefits

Defense expenditure in Europe, measured as a percentage of GDP, has decreased in the past twenty years. The defense industry has to restructure to ensure that companies become capable partners in the European defense market.

Directive 2009/81/EC on defense and sensitive security procurement and Article 346 of the Treaty on the Functioning of the European Union (TFEU) form two pillars of this restructuring and were the main topics at the latest ECCO (European Club for Countertrade and Offset) symposium in Brussels, Belgium. The 90 attendees represented 17 countries.

Speakers debated issues related to the European Defense Equipment Market (EDEM) and defense procurement in EU. The European Commission stated that European Union (EU) industries are significantly dependent on EU member states’ spending and that an industrial restructuring at the European level is needed as a first step to create an EDEM. To reach this goal, however, an adequate legislative framework has to be created.

Summary of two-day discussions

Aims and the implementation of the Directive were discussed in presentations made by the European Commission, as well as in the roundtable discussions where attendees could raise questions and debate scenarios.

The Directive was implemented to counter:

·         Fragmentation of the defense market

·         Lack of competitiveness on a worldwide market

·         Lack of inter-operability

·         Lack of transparency

·         Budget constraints

The aim of the Directive is to establish a competitive EDEM and an efficient European Defense Technological and Industrial Base (EDTIB). Czech Republic, Denmark, Greece, France, Lithuania, Malta, Portugal, Spain, Sweden and the United Kingdom have officially transposed the Directive.

Member states that have not yet written the Directive into national law have until the first quarter of 2012 to announce their transposition.

Article 346

The TFEU mentions that the internal market is built on fundamental freedoms and principles prioritizing equal treatment. According to EU Primary Law there needs to be free movement of goods, persons, services and capital, while non-discrimination and transparency need to be assured. Offset is seen as contracting the basic Treaty principles, because it discriminates on the basis of nationality and impedes free movement of goods and services. 

The only possible justification for Offset can therefore be found in Art 346 TFEU, and the Offset requirement itself needs to fulfill the conditions for its use.

However, the “catch-all” approach can no longer be tolerated as it is incompatible with EU law. The new approach is to move away from compensation logic to focus on capability and security requirements. The new Directive offers possibilities to achieve security of supply, operational sovereignty and market access for local industries. Article 346 is included if it is necessary to address national security measures.

Representatives from two EU countries explained how they are applying the Directive and interpreting Art 346.

Further debates included the question whether the Directive will really open in Europe, and discussions of how national security vastly differ from one member state to the next.

Workshop

On the second day, a collection of presenters shared fundamental reasons for implementing Offset policies. Speakers’ presentations detailed how Malaysia, Israel, India and Czech Republic, benefited from Offset. The impact of direct and indirect Offset, respectively, on a company’s strategy and activities were investigated and shared by two different speakers.

Next symposium

The next ECCO Symposium will coincide with the Eurosatory 2012 trade show in Paris, France. The forum presentations will focus on Offset in Brazil, while the workshop with look at the role of SMEs in Offset.

For more information click here.

ECCO is an association for European companies, individuals and institutions involved in Offset and countertrade. The association organizes symposiums where members and guests can unravel matters related to trade, international law and government procurement. Offset research and training are also aims of ECCO.