Friday, January 28, 2005

The more subtle defence agenda

Entirely by coincidence – I would have written about this anyway – comes a story which links rather well with the previous post on the defence issue – i.e., the common defence policy, which Neil O’Brien claimed was being introduced in the draft constitution.

The trouble is, as we see, that the overt move towards a common defence policy stems from Maastricht, but the bigger problem is that defence integration, in addition to being driven politically, is also proceeding apace outside the aegis of the treaty structures altogether.

This is brought home in an article in the current edition of DefenseNews, headed: "EU threatens to build own defence market". The headline is actually wrong, because the story actually refers to EU member states – and defence contractors acting outside the formal institutional structure of the EU, but the effect is the same.

This gist of the story is that, frustrated by US restrictions on the transfer of defence technology, European defence manufacturers are pushing for the creation of an independent European industry, servicing the EU member states with common equipment.

This came up at a conference held on 17 January in Brussels, attended by EU and Nato officials, industry executives and defence policy experts. There, a representative of the European aerospace giant EADS complained that: "US technology restrictions on foreign defence firms [operating in the US market] have reached the absurd." He continued:

Dual-use technology, such as ordinary internet communications protocols that are freely used in civil products, cannot be exploited by us commercially if we're involved in a DoD project using the same protocols. It's ridiculous.
Other European companies express the same concerns and, while they are anxious to exploit the $445.6 billion US defence budget, they are also anxious to get a grip on the defence budgets of the 25 EU member states, collectively worth $180 billion a year.

But, to exploit that fully, says Bill Giles, director-general Europe for BAE Systems, "something does have to be done to put in place a [rationalised cross-border] defence market in Europe."

Several issues arise from this. Firstly, with the expense of modern military hardware, its complexity and the limited numbers bought by any single European state, it makes absolute sense for the market to undergo rationalisation, which would have happened with or without the EU – and is happening already, independently of the commission initiatives.

But the other issue is that European manufacturers would much rather have access to the US market, which is much more valuable. But, while $65 billion was awarded to in contracts US firms in 2003, foreign firms only gained $1 billion.

Some of this is straightforward protectionalism, some relates to the need for the US to ensure security of supply, but a significant factor is the increasing reluctance on the part of the US to share technology that could end up in the wrong hands. And it is easy to see why.

The net effect, however, is that commercial as much as political pressures are driving defence integration. But, as far as the UK goes, that integration could be – and historically has been – as much with the US as with Europe.

With the evolution of a European Defence Policy though - of which the UK will be an integral part if the full provisions of the constitution are implemented - the UK could find itself frozen out of the US market on political grounds. That could have considerable economic and security implications.

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