26th Jan 2021

EU defence contracts to become more transparent

A code of conduct coming into force on Wednesday (1 July) in 25 EU member states and Norway is to bring more transparency in defence procurement contracts. But experts question its effectiveness as long as it is a non-binding agreement.

To be implemented by the European Defence Agency (EDA), the EU's intergovernmental co-operation body on military procurements, the code will set standards for side-deals made by national governments when they sign defence contracts.

Read and decide

Join EUobserver today

Become an expert on Europe

Get instant access to all articles — and 20 years of archives. 14-day free trial.

... or subscribe as a group

  • Soldiers in Afghanistan: the European Defence Agency wants to see fewer side-deals attached to military contracts (Photo: army.mil)

In a classic example of a so-called "offset" deal, when Hungary bought 14 fighter jets from Swedish firm Saab for around €600 million, it asked for other Swedish investments worth 110 percent of the contract value. In one of the offsets, Swedish firm Electrolux built a new €65 million fridge factory in the country.

Offset distortions are normally illegal under EU single market law. But defence contracts enjoy a "national security" exemption, even if they concern materials such as soldier's boots.

"We are aware that offsets are a market distortion - in a real European defence market, offsets should not exist," EDA chief Alexander Weis told journalists at a briefing on Tuesday.

The new code will not do away with offsets altogether, but aims to "mitigate [their] adverse impact on the market" by channeling the side-investments into research and technology projects in the defence industry and by capping offsets to 100 percent of the value of the contract.

Participating countries will have until October 2010 to adapt their national legislation to this end.

Some countries, such as Austria, ask for offsets of as much as 300 percent of the contract value, Nick Witney, the former head of the EDA and currently an analyst at the London-based European Council on Foreign Relations, told EUobserver.

"In that sort of transaction the defence equipment you're buying becomes almost unimportant. So people are going around at the moment in Europe, buying the wrong equipment, for the wrong reasons, simply because someone is offering to build a factory in that country or buy 100,000 pairs of shoes," he said.

Since the code is non-binding, monitoring and implementation will depend on the goodwill of the 26 states,

"It's a first step in the right direction, but still very weak, as it is voluntary and doesn't ask too much from member states," Giovanni Gasparini, a defence expert with the Rome-based Institute for Foreign Affairs, said.

He added that the problem with non-mandatory codes is that they "could go on forever" without actually getting rid of offsets, since there is "no phase-out deadline" in place.

Clara Marina O'Donnell from the Centre for European Reform, a British think-tank, also noted the "wide gap between what EU rules say and what member-states do in the defence sector."

"Much will depend on how far member-states choose to play the game – particularly for the code of conduct on offsets," she wrote in a policy brief.

Two EU states are not taking part in the effort at all – Denmark (which has opted out of EU's security and defence policies) and Romania, which is an EDA member but declined to sign up to the code due to internal political battles in 2008.

Industry welcome

The Brussels-based Aerospace and Defence Industries Association of Europe (ASD) has said in a statement that it "welcomes the effort undertaken by EU member states ...to bring more transparency to offset practices linked to their national defence procurements."

"However, ASD would like to underline that presently it is the general lack of coordinated investments in defence technology more than the practice of offsets that endangers the future of the European defence technological and industrial base," it added.

Barney O'Kelly, a spokesman for the British defence and aerospace company BAE Systems, said that introducing a 100 percent cap on offsets "made perfect sense" because it brought more consistency in the various rules throughout the EU.

"We welcome anything that will increase transparency in the industrial participation," he explained.

Mr O'Kelly added that governments currently have very different requirements, depending on their economic priorities,. In some countries BAE Systems is required to participate in socio-economic programmes, such as the construction of schools.

"Obviously it is not the company itself doing the construction work, we would use our contacts in various industries and sectors," he said.

Rift widens on 'returns' deadline in EU migration pact

Negotiations on the European Commission's asylum and migration pact among EU states continues. But a rift is widening on the eight-month deadline for capitals to sponsor returns of failed asylum seekers.


EU adds new 'dark red' zone to travel-restrictions map

The European Commission has proposed additional measures to limit non-essential travel within and to the European Union - amid fears over more transmissible mutations triggering a new surge in cases across the bloc.


Migrants in Bosnia: a disaster foretold on EU doorstep

Ultimately, the European Pact on Migration and Asylum, only unveiled in September, risks reinforcing bottlenecks and misery at the borders, should be thoroughly amended before final agreement.


Migrants in Bosnia: a disaster foretold on EU doorstep

Ultimately, the European Pact on Migration and Asylum, only unveiled in September, risks reinforcing bottlenecks and misery at the borders, should be thoroughly amended before final agreement.

MEPs call for workers to have 'right to disconnect'

MEPs called for a new law guaranteeing workers can 'disconnect' outside work hours, without repercussion. But they also passed a last-minute amendment, calling on the commission to delay any legislation for three years.

Stakeholders' Highlights

  1. UNESDAEU Code of Conduct can showcase PPPs delivering healthier more sustainable society
  2. CESIKlaus Heeger and Romain Wolff re-elected Secretary General and President of independent trade unions in Europe (CESI)
  3. Nordic Council of MinistersWomen benefit in the digitalised labour market
  4. Nordic Council of MinistersReport: The prevalence of men who use internet forums characterised by misogyny
  5. Nordic Council of MinistersJoin the Nordic climate debate on 17 November!
  6. UNESDAMaking healthier diets the easy choice

Latest News

  1. Giuseppe Conte: scapegoat or Italy's most cunning politician?
  2. Borrell to meet Lavrov, while Navalny behind bars
  3. Too few central and eastern Europeans at top of EU
  4. Rift widens on 'returns' deadline in EU migration pact
  5. EU adds new 'dark red' zone to travel-restrictions map
  6. Migrants in Bosnia: a disaster foretold on EU doorstep
  7. Navalny protests sharpen EU sanctions talks
  8. Why Russia politics threaten European security

Join EUobserver

Support quality EU news

Join us