© OECD A joint initiative of the OECD and the European Union, principally financed by the EU The EC Treaty and Defence Procurement Martin TRYBUS Professor of European Law and Policy Director, Institute of European Law Birmingham Law School Seminar on European Defence Procurement, Bucharest, November 2007

© OECD A joint initiative of the OECD and the European Union, principally financed by the EU Overview l The legal ‘architecture’ of European defence procurement l Problems with the regulatory framework l Possible solutions

© OECD A joint initiative of the OECD and the European Union, principally financed by the EU The legal ‘architecture’ of European defence procurement l European Union European Commission Council: European Defence Agency l (Western European Union) l Organisation for Joint Armaments Procurement l Letter of Intent l Bilateral initiatives

© OECD A joint initiative of the OECD and the European Union, principally financed by the EU European Community law of defence procurement l EC Treaty Article 28 free movement of goods Article 49 free movement of services l Public Sector Directive 2004/18/EC l Interpretative Communication 12/2006 l Defence Procurement Directive?

© OECD A joint initiative of the OECD and the European Union, principally financed by the EU National security in the EC-Treaty l Article 30, 46 EC Treaty l Article 296 (1) (b) EC Treaty l Article 297 EC-Treaty

© OECD A joint initiative of the OECD and the European Union, principally financed by the EU Article 30 EC: text l “The provisions of Article 28 and 29 shall not preclude prohibitions or restrictions on imports, exports or goods in transit justified on grounds of public morality, public policy or public security; the protection of health and life of humans, animals or plants; the protection of national treasures possessing artistic, historic or archaeological value; or the protection or industrial and commercial property.”

© OECD A joint initiative of the OECD and the European Union, principally financed by the EU Public security exceptions l Member States have to invoke the exceptions. l The exceptions have to be narrowly construed (C-222/84, Johnston). l The circumstances leading to the use of the exception can vary in different Member States who have a certain margin of appreciation. l Nevertheless, the European Court of Justice will scrutinise the use of the exception. l Proportionality test.

© OECD A joint initiative of the OECD and the European Union, principally financed by the EU Article 296 (1) (b) EC Treaty l “ […] 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.”

© OECD A joint initiative of the OECD and the European Union, principally financed by the EU Article 296 (2) EC Treaty l “The Council may, acting unanimously on proposal from the Commission, may take changes to the list, which it drew up on 15 April 1958 of the products to which the provisions of paragraph 1 (b) apply.” l List was never officially published but is part of the public domain.

© OECD A joint initiative of the OECD and the European Union, principally financed by the EU Article 296 (1) (b) EC: material l Civil goods: stationary, office furniture, food l Hard defence (warlike) material: fighter aircraft, battle tanks, missiles l Soft defence material (dual use goods): transport aircraft, tents, radars

© OECD A joint initiative of the OECD and the European Union, principally financed by the EU Article 296 (1) (b) EC: material l Civil goods: Article 296 (1) (b) EC does not apply l Hard defence material: Article 296 (1) (b) EC may apply l Soft defence material: ?

© OECD A joint initiative of the OECD and the European Union, principally financed by the EU Public Sector Directive 2004/18/EC l “Article 10 -Defence Procurement This Directive shall apply to public supply, service and works contracts awarded by contracting authorities in the field of defence, subject to Article 296 of the Treaty.”

© OECD A joint initiative of the OECD and the European Union, principally financed by the EU Article 296 (1) (b) EC: effect? l Some Member States: automatic/categorical exclusion of hard defence material from the regime of the EC- Treaty as a whole Wording: “as [Member State] considers necessary”. Historical interpretation: ratio legis. l EU-Commission: derogation that has to be justified and proven Wording: use of the word “necessary”. Article 298 EC Treaty

© OECD A joint initiative of the OECD and the European Union, principally financed by the EU Article 298 EC Treaty l “If measures taken in the circumstances referred to in Articles 296 and 297 have the effect of distorting the conditions of competition in the common market, the Commission shall, together with the State concerned, examine how these measures can be adjusted to the rules laid down in the Treaty. l By way of derogation from the procedure laid down in Articles 226 and 227, the Commission or any Member State may bring the matter directly before the Court of Justice if it considers that another Member State is making improper use of the powers provided for in Articles 296 and 297. The [ECJ] shall give its ruling in camera.”

© OECD A joint initiative of the OECD and the European Union, principally financed by the EU Problems with Article 296 EC l Fragmentation of the EU into 27 separate defence procurement markets. No economies of scale: value for money. No competition. Insufficiently competitive defence industries. l Lack of transparency: ‘dirty market’. Corruption. Bad procurement: incompetence. l Lack of interoperability: military/strategic. ESDP. NATO.

© OECD A joint initiative of the OECD and the European Union, principally financed by the EU C-414/97, Commission v Spain l ECJ: “In the present case, […] Spain has not demonstrated that the exemptions provided for by the Law are necessary for the protection of the essential interests of its security. […]. It follows that the VAT exemptions are not necessary in order to achieve the objective of protecting the essential interests of the security of […] Spain”.

© OECD A joint initiative of the OECD and the European Union, principally financed by the EU Commission v Spain l Proportionality test? l “Necessary” in Article 296 (1) (b) EC? l Abuse (see Article 298 EC)?

© OECD A joint initiative of the OECD and the European Union, principally financed by the EU Commission Interpretative Communication 7 th Dec 2006, COM (2006) 779 final l Narrow interpretation. l Article 296 (1) (b) EC needs to be specifically invoked by Member State. l National security situation must be proven by Member State. l Exemption must be necessary. l Judicial review.

© OECD A joint initiative of the OECD and the European Union, principally financed by the EU Problems l ‘Balkanisation of the European defence procurement landscape’; fragmentation l Interpretation of Article 296 (1) (b) EC Treaty l Intergovernmental v supranational: constitutional conflict l Flexibility l Lack of political will l Lack of funds

© OECD A joint initiative of the OECD and the European Union, principally financed by the EU Solutions? l Diminished use of Article 296 (1) (b) EC Treaty in practice (voluntary). l Clear attribution of competence of defence procurement regulation to the Community pillar. l Clear attribution of competence of defence procurement regulation to the CFSP pillar. l Control mechanism: Member States invoking Article 296 (1) (b) EC Treaty need to register contract with Commission or EDA.

© OECD A joint initiative of the OECD and the European Union, principally financed by the EU Thank you! l Martin Trybus Birmingham Law School University of Birmingham Edgbaston Birmingham B15 2TT United Kingdom