All you want to know about the EU Defence Fund, and why this is not good for peace nor for jobs and growth

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Principle 1: the European Commission never decides: all decisions are taken either by the governments of the 28 Member States (e.g. our governments) only, or by our governments and the European Parliament together (a form of ‘co-decision’, often referred as the ‘ordinary legislative procedure’)

Principle 2: the role of the European Commission is to draft the proposals of EU laws (directive, regulation, …) that will be then discussed and voted on by the Council (= the Member States) and the European Parliament (EP), usually after a negotiation pahse called ‘trilogue’ (involving the Council, the Parliament and the Commission). After adoption, the Commission will check that those laws are properly implemented.

Principle 3: there is a joint decision by the Member States (Council) and by the Parliament on all issues where the EU ‘has competence’, in other words, where Member States transferred (part of) their power to the European Union: for example economic governance, internal market, immigration, energy, transport, the environment and consumer protection. The vast majority of European laws are now adopted jointly by the European Parliament and the Council (usually a majority vote). This does not mean that there are EU laws on all and every aspects of these areas: the Commission proposes an EU law when it considers that there is an added-value for it, meaning that the EU could “do better” than the Member States on their own.

Principle 4: one main area remains 100% under control of the Member States, on which they decide alone and most of the time under unanimity: the Common Foreign and Security Policy (CFSP*), and the related Common Defence and Security Policy (CSDP*), which include military matters and arms export control for example. The only exceptions are the development aid funded with the EU budget, and international trade agreements. Those two areas fall under EU competence and thus the ordinary legislative procedure applies (co-decision).

• Read more about the EU decision-making process here

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Launched by the EC on 7 June, 2017, the European Defence Fund is a set of tools to “boost Europe’s defence capabilities”. The Fund is made of 2 main envelopes (2 “pots” of funding), and a financial toolbox:

1) the first financial envelope is meant to fund the Research and Technology phase of military R&D*, e.g. the first steps of a Research & Development process
This part is already under way through a Preparatory Action (Q3), and offers grants to companies and applied research groups active in the military sector. Under this Preparatory Action the EC will give €90 million to the military industry (including applied research groups) from 2017 to 2019.
Then, for the period 2021-2027, the EC proposes a total budget of €4.1 billion (€585 million annually in average).

2) the second financial envelope is meant to fund the development phase of military R&D*, e.g. the second phase of a Research & Development process, prior to production
This part is already under way through the European Defence Industrial Development Programme (EDIDP, Q7) which will channel €500 million from the EU budget to the military industry in 2019-2020. Its follow-up programme for 2021-2027 would see its budget increased to €8.9 billion over 7 years (€1.27 billion annually in average).
this industrial programme is to be complemented by voluntary contributions from the Member States, that the EC estimates to 2 billions for 2019-2020, and up to to 35.6 billion for 2021-2027.

3) the European Defence Fund also foresees to develop a ‘financial toolbox‘ to support Member States in the joint production and acquisition of military equipment resulting from this R&D process. It will primarily be administrative/logistic tools. However, the EC does not exclude the possibility to even contribute financially to this production/acquisition process, in a similar path to what is happening under the Internal Security Fund.

In summary, what will be the exact amounts to be taken from the EU budget (+ Member States contributions):
From 2017 to 2020, €590 million will be taken from the current EU budget for the military R&D*: €90 million for R&T and €500 million for the development phase. Member States voluntary contributions should add €2 billion, thus making a total of 2.59 billion for 2017-2020.
From 2021 to 2027 (the next budgetary cycle), the EC proposals plan a total of up to €13 billion coming from the EU budget: €4.1 billion for R&T and €8.9 billion for the development phase. Annual commitments for the 2 parts would increase regularly, starting from 1.5 billion in 2021 up to 2.8 billion in 2027. If one was to be cynical, this could look like already preparing a doubling of the Defence Fund from 2028…
When adding the expected voluntary contributions from Member States, the European Defence Fund would amount up to to 48.6 billion for 2021-2027.
Over a decade (2017 to 2027), European subsidies amounting to an amazing €51 billion could be granted to the arms industry, under highly favourable grants conditions compared to usual practices… (Q15)

Related information:
EU budget: Stepping up the EU’s role as a security and defence provider, EC press release, 13.06.2018
The European Defence Fund Factsheet
Proposal for a Regulation establishing the European Defence Fund (COM(2018) 476)
A European Defence Fund: €5.5 billion per year to boost Europe’s defence capabilities, EC press release, 07.06.2017

For the period 2017-2020, the €590 million that will be dedicated to military R&D* will be largely diverted from other -civilian- sources of the EU budget, including from a budget line dedicated to the environment.
For the period 2021-2027, if the proposals go through, €13 billion will have to be found in the EU budget. As it is quite unlikely that Member States will accept to increase their contributions, it means that €1.5 to 2.8 billion every year will be diverted from the civilian objectives of the EU. In addition, the ending of the UK contribution after Brexit is estimated to a net loss of 10 billion/year for the EU budget.
As for national contributions to the European Defence Fund, they will be voluntary under the form of co-funding for (a) specific project(s) each country is interested in.

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The Preparatory Action for Defence Research (Q6) under way is being funded with a special budget line dedicated to Preparatory Actions. However traditionally Preparatory Actions (PAs) have limited budgets: in 2016 the maximum annual budgets of PAs was €3 million, about €10 billion over 3 years, while this PA on Defence Research will amount to €90 million (25M€ in 2017, 40M€ in 2018, 25M€ in 2019). This means that other possible- and civilian- PAs are not being funded because the defence research has taken most of the available envelop for new PAs (in 2016 the total available budget for PAs was €28 million).

Regarding the European Defence Industrial Programme (EDIDP) for 2019-2020 (Q7), initially the EC wanted to divert 80% of the EDIDP budget from existing civilian programmes. Member States wanted the total amount to be diverted from existing programmes while the European Parliament was calling for 100% “fresh money” (that is using unallocated margins of the EU budget). After 3 months of negotiations, the compromise is to divert 300 million (75% of the EDIDP budget) from existing programmes. That is:
– €116.1 million should come from the Connecting Europe Facility, including a budget line “contributing to sustainable development and environment protection”, and others related to the internal energy market and security of supply
– €108 million should come from the European Satellite navigation programmes, mainly the Galileo* programme for a European GPS system to be on par with ‘competitors’ like China, Russia or the US programme.
– €63.9 million for the ITER* facilities (new generation of nuclear plants).
The remaining €200 million will be taken from unallocated margin, when many valuable projects in many areas are being rejected for “lack of funds”. As a comparison, the annual budget of the 20-years old EU human rights programme was €133 million in 2017.

For the follow-up Defence Fund that would start in 2021 (Q2), no indication has been given as to where the money would come from. Because this will be included in the new EU long-term budgetary cycle running from 2021 to 2027, and because this new budgetary cycle will be structured in a very different way compared to the previous one (2014-2020), it will be extremely difficult to identify actual transfers from one budget line to another.
But in any case significant cuts in the usual civilian programmes of the EU will necessarily happen if this proposal goes through: In average, about €1.85 billion every year will have to be diverted from other programmes to the military R&D, as Member States are not willing to substantially increase their national contributions to the EU budget and Brexit should mean about €10 billion/year loss according to estimates.
Whatever the final EU budget will be, we can expect a substantial over-representation of military-related spending in the EU budget compared with actual competences; such move would contradict not only the founding values of a peace-led EU project but also the EU treaties which exclude defence and military-related matters from the EU competences (Q12).

As for the contributions of Member States, they will happen on a voluntary basis only through co-funding: a country interested in a specific project will co-fund it with at least 2 other Member State. The EC expects a multiplier effect up to 4, but each country will be free to decide to contribute and to which level. Interesting to note that over time the EC is becoming rather vague and discreet on the precise level of MS commitments compared to initial proposals early 2017, while boosting cooperation among MS was supposed to be one of the main results of this initiative.

Related information
The Budget explained, EU website
EU budget: Commission proposes a modern budget for a Union that protects, empowers and defends, EC press release, 02 May 2018
Proposal for a Regulation establishing the European Defence Fund COM(2018) 476
A European Defence Fund: €5.5 billion per year to boost Europe’s defence capabilities, EC press release, 07.06.2017

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The draft Regulation for the Defence Fund 2021-2027 was formally presented by the EC on 13 June 2018. The Member States started to discuss it right away at a high political level.
Traditionally a draft EU law is first discussed in the relevant thematic working groups with civil servants from the different EU countries, and then the text goes up to the different levels until the EU ambassadors: similarly to national ambassadors in other countries, each Member State has one or two special Ambassador(s) for the EU, who are the ones in charge of the last, and usually most difficult negotiations before a text is formally presented to the Ministers for the final vote.
As it was the case for the EDIDP, this draft Regulation is mainly being discussed in a more informal, and thus even less transparent and accessible group called “Friends of the Presidency”, and then directly at the level of EU ambassadors preparing the Council meetings. The working groups in charge of research and industrial competitiveness are not involved.

In parallel, the European Parliament decided that the ITRE Committee, in charge of Industry, Research and Enterprises, takes the lead on this issue, and that the Committee on Foreign affairs (AFET) is only associated. In practice the work in AFET is conducted by its subcommittee on security and defence (SEDE). The Committees in charge of the Budgets (BUDG) and of the Internal Market (IMCO) also provided opinions, that ITRE is not obliged to take into account.
Till April 2019, the main Rapporteurs* were the Polish Conservative MEP Zdislaw Krasnodebski for ITRE, and the German Centre-right MEP David McAllister for SEDE. Shadow rapporteurs were also nominated in the other political groups for each committee involved; they follow the issue on behalf of their political group and negotiate the needed compromises to reach a common position of the EP. Interesting to note a significant over-representation of French MEPs among those rapporteurs and shadows.

provisional calendar:

Member States adopted their 1st position (referred to as ‘general approach’) in November, and the ITRE parliamentary Committee voted its first Report mid-December. The negotiation phase (known as Trilogue*) started mid-January 2019 and resumed on 20 February when all parties reached a provisional political agreement on all but 2 main points: the exact amount to be allocated to the Fund, and the access of non-EU companies to the Fund (Q9). This provisional agreement was endorsed by the European Parliament on 18 April during its last plenary session before the elections. Most provisions are in line with the rules applying to the Preparatory Action (PADR, Q6) and to the Industrial programme (EDIDP, Q7) including about main beneficiaries (Q9) Intellectual property rights (Q11) arms exports (Q22) or the type of weapons to be developed (Q8).
According to this provisional agreement the Parliament would have no proper oversight and influence on the Fund’s implementation for a further 7 years (Q8), and the proposed ethical review falls short of being credible and transparent (see ENAAT Newsletter NBB-2019-2). The only positive move is the exclusion of killer-robots technology from the scope of the Fund (Q8).
For a general overview of this provisional agreement, go to our short flyer and recent Newsletters.
The new Parliament will have to finalize negotiations on the pending issues, but could also decide to re-open the discussions on any other points of the provisional agreement, and even reject the Defence Fund if a majority so wishes.

related information:
If you want to follow the details of the adoption procedure on a regular basis, read the ENAAT newsletters here
EP procedural file for the European Defence Fund 2021-2027
Provisional Agreement on the Defence Fund endorsed by the European Parliament on 18 April
EP report on the proposal for a Regulation
Member States General Approach on the draft Regulation
Proposal for a Regulation establishing the European Defence Fund COM(2018) 476

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There is a clear trend towards considering the arms industry as a ‘normal’ business and ‘defence’ as a top priority: this paradigm shift was obvious in the 2016 ‘Statement to the Union’ of the President of the European Commission Jean-Claude Juncker (Q26), and all Commissioners have been asked to look for ways to contribute to the strengthening of the armament industry in their own field of action.
As a first step, the EC decided to facilitate the access of arms companies to a range of EU funding opportunities, what the EC calls “fostering investments in defence supply chains”, as a way to support the competitiveness of this sector.
In its European Defence Action Plan presented on 30 November 2016, the EC proposed an increased use of the EU Structural Funds (ESIF) and of the Regional funds (ERDF), encouraging the creation of “regional clusters of excellence” in the field of defence, as well as access to COSME funds (Programme for the Competitiveness of Enterprises and SMEs). The arms sector also became a priority under the new Skills Agenda for Europe, by supporting an “industry-led European Defence Skills Alliance” and making use of EU funds such as COSME and … Erasmus+, the EU programme for education, training, youth and sport! The Military Mobility Action Plan will also use funds from the Connecting Europe Facility (the funding programme for transport policies) in order to facilitate the mobility of military troops and vehicles inside the EU.  In 2021-2027, a further €6.5 billion should be dedicated to this topic.
The Plan also included a call to the Member States to adapt the lending criteria of the European Investment Bank (EIB), which are so far excluding investments in projects related to weapons production and sale. This move would in particular open access to the €21 billion guarantee fund of the European Fund for Strategic Investment (EFSI, also called the Juncker Plan) for the arms industry. For the time being this move has been blocked by the EP. However the EIB can already invest in security or dual-use* projects provided they focus on civilian applications only, and plans to dedicate €6 billion over 3 years through a ‘European Security Initiative’ (adopted early 2018) to support RDI (Research, Development and Innovation) for dual-use technologies, cyber-security and civilian security infrastructure.  EIB Vice-President Alexander Stubb also signed a Memorandum of Understanding with the EU Defence Agency (EDA).

On the other hand, the EP accepted a breakthrough regarding the external action funds: from 2017 to 2020, about €100 million of the Instrument contributing to Stability and Peace (IcSP*) will be used to support the military forces in non-EU countries, politely named “capacity-building for security and development” (CBSD), and in 2021-2027 this funding will be continued and increased trough the so-called European Peace Facility, with a planned off-budget of €10.5 billion. (Q26).
Regarding the security-related funds, corporations and applied research groups active in the security and defence sector are the main beneficiaries of the ESRP (European Security Research Programme): according to the ‘Market Forces’ report they took 69% of the ESRP total budget from 2007 to 2016: 43% for companies (€745.5 million) and 26% for research groups (€456.5 million), with major beneficiaries like Thales, Airbus or the German Fraunhofer Institute participating in several dozens of projects (Q13).

related information:
Market Forces: The development of the EU Security-Industrial Complex’, TNI-Statewatch report, 25.08.2017
The EC Defence Action Plan: Press Release, factsheet, EDAP full text
‘Action Plan on military mobility: EU takes steps towards a Defence Union‘, EC press release, 28.03.2018
EIB excluded activities 2013 & EIF Restricted sectors, 2010 ; EDA-EIB MoU (28.02.2018)
EP Report on the extension of the European Fund for Strategic Investments (EFSI), 15 May 2017 – EDA_EIB agreement
European Peace Facility Factsheet

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The norm is that EU-funded programmes are under control of the European Commission, from the definition of priorities to the launch of the calls, the selection of funded projects and the management of the grant including project evaluation. However, for military R&D a special system has been put in place, where the Commission delegates this management responsibility to the European Defence Agency (EDA*). This new responsibility for the EDA led to delays in the implementation of the Pilot Project (PP) in particular.

The ‘Pilot Project for CSDP-related research’, voted in 2014 is an 18-months project with a limited budget of €1.5 million. The grant agreements for 3 projects were signed in October 2016 only, for 12 to 18 months-long projects. One is about developing miniaturized sensors to guide soldiers in urban warfare; another is about standardisation of Remotely Piloted Aircraft Systems (RPAS, e.g. drones) for detection and avoid collisions, and the third one is about unmanned autonomous systems to control and command groups of sensors, which could in turn become of large scale usage for border control and surveillance-security. Because of the quite small amounts, it is mainly medium-size companies and research centres benefiting this funding.

In turn, the follow-up ‘Preparatory Action on Defence research’ (PADR) has an unusually high budget for a PA, amounting to €90 million over 3 years (2017-2019, Q3). It takes a huge share of the usual global available envelope for PAs in EU annual budgets (28 million in 2016). 3 calls for proposals have been launched so far and details about the main priorities and the projects funded are available on the EDA website here.

To note that the biggest project, Ocean 2020 (involving 42 partners and 10 countries!),  takes about a third of the total funding on the PADR and will run over the 3 years. It is about naval surveillance technology, and will take about a third of the budget (35 million in total): it will develop unmanned platforms for surveillance and interdiction missions, meant to help getting a “comprehensive picture of an operational situation in a contested naval environment”; but this could also translate into improved technology to stop migration flows in the Mediterranean… The project is led by Leonardo (Italy), and 6 of the beneficiaries were also members of the Group of Personalties, an expert group that advised the EC in 2016 about this defence research programme (Q13). Operational demonstrations should take place in the Mediterranean sea in 2019 with unmanned helicopters, naval vessels and systems.
In all cases those R&T projects should then be followed by R&D projects under the EDIDP (Q7) in the coming years.
To note that the Preparatory action on Defence research (PADR) was adopted when the industrial projects under the Pilot project (PP) scheme were just selected, and that the discussions on the next European Defence Fund (Q2) started well before any thorough assessment of the PP and PADR impact could be conducted, as the last projects will end in 2020.

related information:
the Pilot Project on CSDP-related research
Call for proposals under the PADR
European Defence Agency webpage on the Preparatory Action for Defence Research
EC press release on PADR projects (16.02.2018)
Leonardo’s press release on Ocean2020

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The EC presented on 7 June 2017 a draft Regulation “establishing the European Industrial Development Programme aiming at supporting the competitiveness and innovative capacity of the EU defence industry”. This was quite an unexpected move to start funding the second phase of the military R&D* (the Development part of the Defence Fund, Q2) already under the current budgetary cycle: indeed this directly diverts quite significant amounts from other – civilian- budget lines (Q3). However the proposal was rather smoothly adopted on 3 July 2018 and the European Parliament won only few minor adjustments.
The first phase of this programme will cover the years 2019 and 2020, and will dedicate €500 million to the development of military goods and technologies: €245 million in 2019 and €255 million for 2020. the EC expects a multiplier effect by 4 with Member States’ contributions amounting to 1 billion every year.
Under the next EU budgetary cycle (2021-2027), the Development part of the European Defence Fund, successor of this industrial development programme, will take in average €1.27 billion every year from the EU budget, and the EC expects national contributions to raise up to 5 billion every year. Thus the total amount (EU budget + voluntary national contributions, Q3) at the end of the 7-years budgetary cycle will be close to €45 billion for the Development part .

How the programme will work?
The funding will be mainly provided through grants, which means that profit-making recipients will not have to reimburse them, while benefiting from extremely favourable conditions regarding the ownership of results (Intellectual Property Rights, see Q11) as well as the most favourable level of funding ever granted by the EU, up to 125% of the eligible costs (Q10).
It should in principle fund military development projects only when Member States will have committed to jointly produce and procure the final product or technology at the end of the project, as a “contribution to the competitiveness of the European defence industry”. However award criteria, including this one, are not exclusive (that is, a project can be selected even if it does not fulfil all award criteria).
The EDIDP is also often presented as a co-funding instrument, where the EU would fund only 20% of the project and the rest would be paid off by the Member States. This is only partially true: the 20% limit for EU funding applies only for the development of prototypes, usually the most costly part of the development phase; while other activities (testing, feasibility studies, certification, etc.), could be 100% EU funded. Moreover, even for prototypes, a number of bonuses provide extra EU money, which could go up to 55% (Q10).
The type of activities to be funded by the programme is listed in the Regulation: design and technical specifications, prototype, testing, qualification (demonstrating that it meets the specified requirements), certification, feasibility studies and other accompanying measures.
In order to encourage transnational cooperation, the projects should involve at least 3 ‘undertakings’ established at least in 3 different EU Member States (raised from 2 upon request of the EP) (Q23). As “undertakings” one should understand the arms industry at large (profit-making companies and applied-research groups) even if not formally defined.
As a derogation to the general rule, companies located in the EU but controlled by a non-EU country or entity can participate in a project and benefit from EU funding under certain conditions (Q9). It is expected that the follow-up programme in the next budgetary cycle (2021-2027) will be more widely open to non-EU companies, including if they are not located in the EU (Q9).
The Regulation also clearly states that it will not affect Member States’ sovereignty over exports of military products, equipments and technologies (Q18), and that the intellectual property rights* will belong to the beneficiaries, e.g. the companies (Q11).

Which projects are being funded?
The Regulation does not give details about the priority topics to be funded, in line with the Defence Fund general priorities (Q2) as well as follow-up on some of the R&T projects funded under the Preparatory action (Q5). See question 8 for further elements regarding potential priorities of the Defence Fund in general.
The first 9 calls for proposals were launched in March 2019 and cover topics from a wide range of areas: drone technology, satellite communication, early warning systems, artificial intelligence, cyber-defence or maritime surveillance. 12 further calls will be launched in 2020.
To note also that a significant part of the budget is being directly allocated to specific projects without competitive calls for proposals (¼ of the total budget): €100 million to support the development of the Eurodrone MALE and €37 million to support ESSOR (interoperable and secure military communications).

related information:
EDIDP and PADR work programmes for 2019
EC press release on the EDIDP and PADR 2019 work programmes, 19.03.2019
Official factsheet on the European Defence Fund
Regulation establishing the European Defence Industrial Development Programme (EDIDP) 2017/0125(COD) 18.07.18

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What type of activities should be conducted?
The Defence Fund would cover actions both for new or upgrade of existing defence product, tangible or intangible component or technology:

• basic research to create, underpin and improve new knowledge and defence technology which can achieve significant effects in the area of defence, or increase interoperability and resilience
• studies such a feasibility studies or statistics on the defence industry and projects to pilot the collection of data
• technical specifications, model development and system prototype (including in an operational environment)
  
• testing, certification and qualification
• increasing efficiency across the life cycle of the defence products and technologies
• dissemination activities, networking events and awareness-raising activities

However the binding Regulations putting in place the different funding programmes of the Defence Fund remain vague about the type of military technology to be developed. In practice Member States are in the driving seat as regards the definition of more precise thematic priorities and the European Parliament is being excluded contrary to usual practices.
Indeed, traditionally the European Commission, when implementing a funding programme, is assisted by a Programme Committee made up of Member States representatives (high-level civil servants experts in the area of work) to define annual work programmes and select projects. The EP has a say when it receives the draft ‘acts’ prepared by the EC and can react on them in a given time-frame. However, both under the Industrial Programme for 2019-2020 (EDIDP, Q7) and in the draft Regulation for the 2021-2027 Defence Fund, an exception clause is being used to exclude the EP from the concrete implementation of the Fund over 10 years: the Commission will use ‘implementing acts’ which do not need an EP opinion. In turn, Member States benefit from a de-facto veto power: if the Programme Committee gives no opinion on a draft act, the latter cannot be adopted.
The recent work programmes published for the EDIDP and the PADR in 2019 gives a good overview of the main areas the Defence Fund will cover: it includes drone technology, satellite communication, early warning systems, artificial intelligence, cyber-defence and maritime surveillance. Details of the work programmes are accessible here, and the running projects under the PADR are described on the EDA website.

What about controversial weapons like nuclear technology, armed drones or killer-robots?
During negotiations for the EDIDP 2019-2020 the European Parliament “won” an explicit prohibition to fund… prohibited weapons like chemical weapons or cluster munitions. However this is not strict enough to exclude all type of weapons of mass destruction (WMD) from EU funding, such as incendiary weapons or nuclear technology.
Second, unmanned systems of all types (air, naval or ground) will also receive particular attention, without any restriction for being armed or not. And the EDIDP also insists that MS are individually and collectively developing unmanned systems and that nothing in the EDIDP text should prevent them from acquiring and using those technologies as they wish (see also Q27 & 28). In other words, the fact that the use of armed drones for example is not yet properly regulated should not refrain the EU from developing them.
As for contributing to the development of killer-robots, the EP attempts to exclude them from the scope of the EDIDP in 2019-2020 failed, and the text only included a vague reference to respecting international rules.
In turn, during the early 2019 negotiations for the 2021-2027 Defence Fund, the Parliament won at last that the development of “killer-robots” should be excluded: “the development of lethal autonomous weapons without the possibility for meaningful human control over the selection and engagement decisions when carrying out strikes against humans shall not be eligible (…), without prejudice to (…) funding actions for the development of early warning systems and countermeasures for defensive purposes” (art. 11.6).
Finally, the provisional agreement for 2021-2027 Defence Fund also includes a focus on innovative/ground-breaking/novel defence products and technologies “presenting a significant advantage” and “contributing to competitiveness”, as well as a specific reference to disruptive technologies for defence, e.g. “a technology the application of which can radically change the concepts and conduct of defence affairs” (a polite way to define war), with a dedicated budget of up to 85%. This will include in particular the development of artificial intelligence in military equipment.

What about ethical review?
The draft Defence Fund 2021-2027 included a new provision for ethics reviews of the projects, allegedly to answer civil society concerns. The initial proposal of the Commission was already rather weak, but after negotiations it falls short of being transparent and credible, giving a central role to the industry:
1st, ethical screenings will happen only before the signature of the grant contract (and not “all proposals systematically” as stated in the initial proposal);
2nd, this will happen on the basis of prior ethical self-assessments by the industry itself and only “where appropriate” (a new provision probably coming from Member States);
3rd, Activities raising ethically sensitive issues will not be discarded but conditions for their implementation shall be specified in the funding agreement;
4th, The possibility to carry out ethical checks during the implementation of a project has been removed, as well as the possibility to terminate an on-going project on ethical grounds;
5th, Experts to assist the EC shall be independent with various backgrounds, but in particular with expertise on ‘defence ethics’; thus favouring officials and industry experts. And the list of experts shall not be made public, making external scrutiny on possible conflicts of interest impossible.

Which projects are currently being funded?
So far 6 projects are already going on with EU funding, under the Preparatory Action for Defence Research (PADR, see Q6 for details). A second call for proposal was launched in March 2018, and 2 other projects should be soon selected under the PADR. As for the EDIDP adopted in June 2018, 9 calls for proposals were launched in March 2019 and direct funding is granted to the development of a European drone (Eurodrone MALE), see Q7.

related information:
EDIDP work programme for 2019
EDA webpage on the Preparatory Action for Defence Research
Regulation establishing the European Defence Industrial Development Programme (EDIDP) 2017/0125(COD) 18.07.18
Provisional agreement on the Proposal for a Regulation establishing the European Defence Fund COM(2018) 476
“Attack on the killer robots: rise of weapons that can think for themselves alarms human rights activists — and soldiers”, Politico
“‘Killer robot’ projects eligible for EU defence fund”, EUobserver
“European Defence Fund – the militarisation of EU science”, Opinion article, Bram Vrancken
“Drones to killer robots: how EU is spending tax-payer money”, a letter from 177 scientists

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Under the Preparatory Action for Defence Research rules (PADR, Q6), legal entities eligible for participation and funding should be established in Member States of the EU (including Overseas Countries and Territories) as well as Norway. The term ‘entity’ is vague enough to enable a wide range of actors to be eligible: mainly it will be private or public companies, research centres or universities, not necessary already active in military-related areas. International European interest organisations (defined as “an international organisation, the majority of whose members are Member States or Norway, and whose principal objective is to promote scientific and technological cooperation in Europe”) are also eligible for funding.
Under the European Defence Industrial Programme (EDIDP, Q7), as a principle, eligible entities (and subcontractors) should be ‘EU-located’ and ‘EU-controlled’, and all activities, infrastructures and assets used should take place in the EU.
However, as a derogation to the general rule, entities located in the EU but controlled by a non-EU country or entity can participate in a project and benefit from EU funding when the EU country where it is located provides the EC with guarantees that it would not contravene the security and defence interests of the EU and its Member States.
To add on, assets, infrastructures, facilities and resources located or held outside the EU can be used by the project’s beneficiaries or subcontractors “where no competitive substitutes are readily available”; the costs related to those activities cannot be funded wit the EU budget.
Lastly, entities established or controlled outside the EU can cooperate in EDIDP-funded projects “provided that this does not contravene security and defence interests of the EU and its Member States”; they cannot have access to classified information and their costs are not eligible for EU funding.
To note that in this Programme no mention is made of other European countries like Norway, which would in this case be considered as non-EU.

The Regulation for the Defence Fund 2021-2027 still under negotiations could further open access to participation and funding for non-EU entities
As a general rule, the Fund shall be open to EU Member States and to ‘associated countries’.Currently this includes Norway, Iceland and the Liechtenstein membesr of both the European Free Trade Association (EFTA) and the European Economic Area (EEA), but the exact definition is still to be decided. Thus applicants and subcontractors shall be established in the Union or associated country, have their executive management structures in the Union or in associated country and not be controlled by a non-EU/non-associated country or entity.
By derogation, entities based in an EU or associated country, but controlled by a non-EU/non-associated country or entity, can participate and receive EU funding if it is necessary for achieving the objectives of the action and if its participation will not put at risk the security interests of the Union and its Member States.
Like in the EDIDP, the text is not clear about who exactly will check if it is necessary and not putting at risk EU interests, and in practice it will rely mainly on the MS or associated country agreement.

As for activities location, all infrastructure, facilities, assets and resources used shall be located on the territory of the Union or associated countries. Furthermore, beneficiaries and their subcontractors shall cooperate only with legal entities established in the Union or in an associated country and not controlled by non associated third countries or non-associated third country entities.
By derogation, beneficiaries and subcontractors may use their assets, infrastructure, facilities and resources located or held on the territory of a non-associated third country, if this is necessary for achieving the objectives of an action and if this will not put at risk the security of the Union and its Member States (again only possible with the agreement of the Member State or associated country in which the applicant is established).
Under the same conditions, beneficiaries and their subcontractors may cooperate with an entity established in a non-associated third country.
The costs related to the use of such infrastructure, facilities, assets or resources and to such cooperation shall not be eligible under the Fund.

related information:
PADR calls general annexes for 2018, p.26
Regulation establishing the European Defence Industrial Development Programme (EDIDP) art.7
Provisional agreement on the Proposal for a Regulation establishing the European Defence Fund COM(2018) 476, art.5 & 10

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EU Funding levels for Research and Development activities:
The current funding level for the Research and Technology activities (or ‘basic research’, the first stages of an R&D process) under the Defence Fund is similar to what is provided to the industry under the civilian EU research programme (Horizon 2020* or FP8, running from 2014 to 2020): the EU funding covers 100% of the eligible direct costs of a project, plus a 25% flat-rate for indirect costs (such as administrative costs).
For Development activities (the 2nd phase of an R&D process, prior to production) under the Industrial Programme for 2019-2020 and the provisional agreement for the Defence Fund 2021-2027, there will be 2 levels of funding: 20% for activities related to prototypes, and 100% for the other Development activities. However a number of bonuses (for projects run under the banner of the Permanent Structured Cooperation -PESCO*, or for the participation of SMEs and MidCaps), allows for prototyping funding to go up to 55% of the eligible direct costs.
The draft Regulation clearly states in its ‘legislative financial statement’ that the maximum level of EU funding is the preferred option, including for development actions.

Flat-rate and other flexibility rules
In the existing programmes (PADR for 2017-2019 and EDIDP for 2019-2020), a flat-rate of 25% will cover indirect costs (like administrative costs) on top of the direct costs covered. This means that a project can get up to 125% funding level. This is in line with the current practice under the EU research Programme Horizon 2020 for example.
But this was not enough for the arms industry: In its lobby papers, ASD Europe (AeroSpace and Defence Industries Association of Europe) has been claiming for a flat-rate even higher than 25%. If the push was resisted under the Preparatory Action (Q6), the industry seems to have won the case in the draft regulation for the Defence Fund 2021-2027: The provisional agreement reached in February 2019 suggests that flat-rates can go beyond 25% in accordance with usual costs accounting practices of the beneficiary, if they are accepted by their national authorities under comparable funding schemes.
Moreover, the draft Regulation also promotes the use of single lump sum or contribution not linked to costs when possible, in particular when Member States and/or associated countries finance the major part of the budget. In such case, the Commission may provide a single lump sum based on the provisional budget of the action (including indirect costs), or a fixed contribution based on the achievement of results. The EC will this not ask for justification of expenses, in order to “reduce implementing costs”.

Pre-commercial procurement
The draft Regulation for the Defence Fund 2021-2027 also introduces a new form of support through pre-commercial procurement: “The Union may support pre-commercial procurement through awarding a grant to contracting authorities or contracting entities which are jointly procuring research and development of defence services or coordinating their procurement procedures”.

To conclude, whatever the final funding rules are, most of the projects’ costs will be paid with taxpayers’ money, be it through the EU or national budgets. In principle, the EU funding available under the Defence Fund could be provided to the industry under different ways, ranging from grants to investments, loans or guarantees. But the stated intention in all Defence Fund legislative texts is to provide most of the funds through grants, which do not have to be reimbursed or paid out, contrary to loans or investors.
As an illustration of the general contrast between funding for the industry and for civil society, in human rights projects funded under the European Initiative for Democracy and Human Rights (EIDHR*), the EU contribution must fall between 51 and 95% of the eligible costs* (usually limited to 75% for European non-profit organisations), plus a lump sum of 7% for eligible indirect costs and a 5% contingency reserve for unexpected costs that must be duly justified or reimbursed.

related information:
PADR calls general annexes for 2018, p.31
Regulation establishing the European Defence Industrial Development Programme (EDIDP) art.11
Provisional agreement on the Proposal for a Regulation establishing the European Defence Fund COM(2018) 476 , art.14, 16, 17, 18

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The special conditions for ownership of the results are particularly advantageous for the recipients of EU funding under military R&D projects:
the general rules about the “exploitation and dissemination of results” clearly states that the results are owned by the beneficiary generating them. This means than even within a single project, each ‘partner’ only owns the results it has directly produced; only when such distinction is not possible then results are jointly owned by the beneficiaries that contributed to them.

The main rules of the IPR regime under the Preparatory Action for Defence Research (PADR, Q6) are as follows:

• results can be protected by the owner (for example via a patent) when there is a reasonable possibility of a future commercial or industrial exploitation of the results “for an appropriate period of time and […] territorial coverage” (no definition is given about what is ‘appropriate’);
• results can be transferred or licensed to third parties within or outside the EU; one partner may object to this transfer or licensing under certain conditions. The EC may object to a transfer of ownership or licensing to third parties in a non-EU country only if this possibility has been included in the initial grant agreement. In such case the EC will assess if “appropriate safeguards” are in place to preserve the EU competitiveness, “ethical principles” or “security considerations” before authorising or not the transfer or licensing. Sanctions in cases of a breach are however limited.
• access rights for further exploitation of the results against compensation: the owner of the results will be able to ask for “fair, reasonable and non-discriminatory” compensation (such as royalties) to its former partners or their European affiliated entities if they need access to its results for the exploitation of their own results.
• the EU institutions, bodies or agencies can have access to the results on a royalty-free basis only “under the duly justified purpose of developing, implementing and monitoring Union policies and programmes [and] limited to non-commercial and non-competitive use”
• the EU Member States can only access the Special Reports of the projects summarising the technological results obtained and the potential further developments, “solely for the purposes related to the use by or for their armed forces, or security or intelligence services including within the framework of cooperative programmes” and under “appropriate confidentially obligations”

The Defence Industrial Development Programme for 2019-2020 (EDIDP, Q7) says a minimum:
“the Union shall not own the products or technologies resulting from the action nor shall it have any intellectual property rights claim pertaining to the action”. Results will thus be owned by the beneficiaries of the funding (including non-EU entities as defined above) under arrangements they will agree in an internal agreement establishing their rights and obligations. That is, the partners of the project will define themselves the IPR regime, while respecting some minimum rules:

• “results (…) shall not be subject to control or restriction by a third country or by a third country entity, directly, or indirectly (…), including in terms of technology transfer”
• “the Commission shall be notified of any transfer of ownership to a third country or to a third country entity. If such transfer of ownership contravenes the objectives set out in Article 3, the funding provided under the Programme shall be reimbursed”
• “If Union assistance is provided in the form of public procurement of a study, all Member States shall have the right, free of charge, to a non-exclusive licence for the use of the study upon their written request”
  

Only when results are owned by a non-EU entity, any transfer should be authorised by the EU country where it is located. Respect of those rules however relies heavily on the goodwill of the beneficiaries and nothing is said about the EC capacity to double-check this is indeed the case.

As for the Draft Regulation for the defence Fund 2021-2027, there are also different rules regarding the ownership of results for research activities and for development activities, which are respectively quite similar to the PADR and the EDIDP rules. Only where the Union assistance is provided in the form of public procurement (see Q10), the Union shall own the results and Member States and/or associated countries shall have the right, free of charge, to a non-exclusive licence for the use of the results upon their written request.

To sum-up the situation in an accessible language, what does that mean for the EC and the Member States:
For the EC: for Research projects, the EC has only a limited leverage to prevent transfer or licensing of the results outside the EU as the sanctions it could take are not deterrent enough. No limits at all are defined for transfers of results generated by Developments projects, apart from reimbursement claims. Not sure this will have any deterrent effect against the high profitability of military technology exports.
For the Member States: their limited access to the Reports only will oblige them either to subsidize further and procure to the same company, or to pay royalties for another company to develop further those results, despite the projects being 125% paid by taxpayers money (Q10).
The beneficiaries (e.g. profit-making undertakings) win on every count, as they will own the results and be able to make money even out of their ‘partners’ through royalties, despite results being fully paid by public money in most cases (Q10).

Related information:
PADR calls general annexes for 2018, p.39
Regulation establishing the European Defence Industrial Development Programme (EDIDP) art.12
Provisional agreement on the Proposal for a Regulation establishing the European Defence Fund COM(2018) 476, art.22 & 25

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The EU Lisbon treaty formalized a common Foreign and Security Policy (CFSP*) and a Common Security and Defence Policy (CSDP*), but both remain purely intergovernmental policies, meaning that they are under control of the Member States only. And in practice most decisions are taken under the unanimity rule by the national governments alone. The EP can only provide non-binding opinions and the Commission has no power to initiate legislative proposals in this area. Moreover article 41 TEU (Treaty of the European Union*) exclude the use of the common EU budget for operating expenditures with military or defence implications. So how could the Commission justify its proposal for a Defence Fund from a legal point of view?
Regarding Pilot projects and Preparatory actions, they are meant to test new areas of actions and the EC does not need to justify under which competence it is proposing a PP or a PA in a specific area. Thus the legal basis was not really an issue at the moment of deciding on the Pilot Project or on the Preparatory Action on defence research, although one could already argue it contradicted EU peace values.
In contrast, the European Defence Industrial Development programme for 2019-2020 (EDIDP, Q7) and the draft Regulation for the 2021-2027 Defence Fund are legislative proposals and as such do need a clear legal basis: the EC chose article 173 of the Treaty on the Functioning of the European Union (TFEU*, part of the Lisbon Treaty) that grants it competence in industrial matters. This could be seen as a confirmation that the primary objective of the Fund is rather to boost an industrial sector and its competitiveness rather than contributing to advancing an “EU of defence”. This legal basis issue is still a matter of discussion for legal experts, and a German Legal Opinion commissioned by the European Union Left argues that the Defence Fund is more about Defence than about Industrial research and development. As such it should be legally based on the EU Foreign and Defence policies, meaning that it could not be paid for by the EU budget but by the Member States only, and that the EU Commission is not allowed to implement such programme.

In any case, we consider that the Defence Fund seriously questions the founding values of the EU (Q26) and contains fundamental internal contradictions:
Using the EU budget should imply respecting the standard community rules* and obligations, something that neither the Member States nor the arms industry want to follow, in particular regarding open access and Intellectual Property Rights (Q11), EC and EP involvement in defence matters, limitations to national sovereignty (Q21, 24 & 25) or arms export control (Q22 & 27).

related information:
Introduction to the Lisbon Treaty & Treaties currently in force
FAQ on the EU competences and European Commission powers
Official presentation of the EU Foreign and Security Policy
Legal Opinion on the Illegality of the European Defence Fund, Prof. Dr. Andreas Fischer-Lescano, 9 January 2019

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The role of the ‘security and defence’ industry in shaping related EU policy-making has been documented since the early 2000’, and several reports uncover the level of influence of what is described as a spider-web:
Major corporations like Airbus, Dassault, Rolls-Royce or Thales are active in a number of areas ranging from civilian aviation and transport to security and defence, and as such are involved in a large number of advisory groups, experts groups, high level panels and other similar bodies. This bodies are consulted by the EC on a regular basis: some play a key role at the very early stage of the definition of a new policy till the drafting of the legislative proposal, while others advise on the implementation of the adopted legislation or programme, for example on the rules and criteria for a funding programme including on the priorities, the annual work programmes and finally the calls for proposals; calls to which they will then apply for funding.

Over-representation of private interests in EC experts and advisory groups in security and defence
The transparency organisation CEO (Corporate Europe Observatory) has regularly denounced the over representation of the industry and private interests in the EC expert groups and similar bodies, and the security & defence area is no exception to the rule, to the contrary:
In 2003 the EC set up a Group of Personalities (GoP) in the Field of Security Research, including 15 representatives of corporations or research groups out of 28 members; in February 2004 the EC included most of the GoP recommendations into a Communication and announced the launch of a Preparatory Action on Security Research. Then in 2007 a full European Security Research Programme was integrated into the EU Research Framework Programme FP7*, and this ERSP was extended in 2014 with an increased budget. In parallel an Internal Security Fund was created. Does that ring the bell to you?

Indeed a very similar process is going on regarding military research: in 2015 EU Commissioner Bieńkowska (in charge of internal market and industry) set up a Group of Personalities on defence Research: 9 out 16 members represented corporations or research groups including members of the former GoP on security research, namely BAE systems (UK), INDRA (SP), Airbus group (former EADS), Finmeccanica (now Leonardo, IT), the Frauenhofer Group and TNO (respectively German and Dutch research groups). The GoP final report was published in February 2016, and in the following months most of its recommendations were taken over by the EC: the draft 2017 EU budget included a Preparatory Action on defence research, and the following EC Defence Action Plan (November 20017) and Communication launching the European Defence Fund (June 2017) included most of the GoP recommendations in terms of funding rate, intellectual property rights (Q11), guaranteed ‘market uptake’ through the EDIDP (Q7), and a fully-fledged Defence Fund from 2021 (Q2).
In line with the usual practice in EU funding programmes, industry representatives are or will be part of the advisory groups on the implementation of the Preparatory Action and the EDIDP, and will then apply to the calls for proposals to get EU funding.

One example among others: the Fraunhofer Group
As an illustration of this spider-web system, let’s look at a concrete case: a major German applied research group, the Fraunhofer Group, is the third biggest beneficiary of EU funding under the general EU Framework Programme* for research cross-themes (currently Horizon 2020). It is in particular the first recipient of funds under the Security research programmes: between 2003 and 2016, it received €65.7 million via its participation in 109 projects.
Fraunhofer also participated in the GoP on Defence Research in 2015. It was formally represented by its President Reimund Neugebauer. But as it is often the case, those high-level representatives only met twice; the regular work and report drafting were conducted by ‘Sherpas’, (like representatives of representatives). The Sherpa for the Fraunhofer Group was Dr Klaus Thoma, former director of one of the Fraunhofer Institutes and former chair of the Fraunhofer Group for Defence and Security VVS. While acting as Sherpa* in the GoP, Dr Thoma was also paid by the EP as an independent expert to carry out a study on the need for an EU Defence Research Programme. This study was then a major internal lobbying tool for the pro-industry MEPs to convince their colleagues to accept the Preparatory Action on Defence Research (PADR). As the Fraunhofer Group is very active in military research, it will also probably be a major recipient of the Defence Fund.
And this is not an isolated case: among the main recipients of EU research funds (civilian and/or security), one can find Airbus, Rolls-royce, Dassault, Thales, TNO, Leonardo…; They are all key players of the military industry too, and as such will also benefit from the Defence Fund: TNO is already involved in 3 of the 5 funded projects under the Preparatory Action, the Frauenhofer Group in 2, SAAB in 2 and Leonardo in 2 (Q5). All were members of the Group of Personalities on Defence Research….

Influencing the decision-makers (Member States and Parliament)
Besides, the security and defence industry is capable to influencing the negotiations between the 2 EU decision makers (Member States and European Parliament) during the trilogues* (Q1), both directly at national level where they have very close ties with their governments, and at EU level through their own Brussels offices, their lobbying organisations like ASD* or EOS*, friendly think-tanks like Friends of Europe*, and possibly consultancy firms.
The fact that for long MEPs said ay they were not approached by the defence industry itself is contradictory in name only. The truth is that until recently it did not need to do so:
In parallel to ad-hoc opportunities like the EP study we mentioned previously, the security and defence industry has a privileged entry point in the EP trough the Kangaroo Group: it is an EP Intergroup* whose secretariat was run by the lobbying association ASD for several years until it had to stop after criticism sparked. MEPs that are members of this Kangaroo group regularly meet with the industry, are conveyed to high level events about EU defence policies and are the initiators of the first EP proposal for a Pilot project on defence research in 2013; today they continue to be the main players as Rapporteurs, shadow rapporteurs or ‘expert MEP’ on the EC proposals in favour of the arms industry; as such they have a key influence on the decision process within the Parliament and often participate in trilogues*. Not to say about the national level again, that largely determines MEPs positions regarding defence.

related information:
PADR webpage
‘Securing profits, how the arms lobby is hijacking Europe’s defence policy’, B. Vrancken, Vredesactie, October 2017
‘NeoConOpticon, the EU Security-Industrial Complex’ (2009) & ‘Market Forces: The development of the EU Security-Industrial Complex’ (2017), Reports from Statewatch and TNI
Arms Industry Lobbying in Brussels, CEO Infographic, December 2017
Register of EU Commission Experts groups and other similar entities
ASD website, position papers related to EU defence policy and funding
the Kangaroo Group, Working Group on Space, Security and Defence
EU defence groups under fire for opacity, EUobserver, 28.09.2018

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Civil society organisations (CSOs) working on peace and transparency are lacking the resources to counterbalance the arms industry spider-web: they are usually understaffed and underfunded, this issue is only one among many files part of their mandate, and it is a complex one at the nexus of corporate lobbying, industrial policies and interests, peace-making and security and defence policies.
It is thus very difficult for one organisation to have an in-depth knowledge of all these areas combined and they lack the human and financial resources to research the issue, to conduct EU level advocacy, and to campaign for awareness-raising of the public all at the same time.
So far ENAAT, with its 0.66 FTE permanent staff, has been the main organisation following the developments about EU subsidies to the military industry and trying to raise an alternative voice at EU level. It also works in cooperation with other organisations that have expertise in some of the related areas, namely transparency organisations and peace organisations.

Together with the citizens’ movements WeMove.eu and SumOfus, ENAAT launched petitions to raise awareness among EU citizens, which gathered over 160’000 signatures so far. Another example of citizens’ interest is the success of our call to submit comments on the EDIDP under a quite obscure ‘consultation’ possibility named “have your say”: despite a bad timing (deadline for submitting comments on 7 august 2018), a late warning to our supporters and a not user-friendly procedure, more than 4’000 citizens posted critical feedback against this legislative proposal. So far the best feedback rate that the EC could get through this tool was 260 responses… However both the EC and the European Parliament have been playing down the importance of those feedback and limited the information circulating about it.
In addition to this, a number of ENAAT members and scientists organisations launched a pledge of Researchers, which gathered over a thousand signatures in a few months.
Challenging the arms industry lobbying and the lack of transparency is also an important part of the work conducted by ENAAT and its members, through Freedom of Information requests to the European Commission, parliamentarian written questions and complaints to the Ombudsman. Indeed the Commission almost systematically resorts to the protection of “security interests” to justify not publishing documents, but thanks to the work carried out by ENAAT and Vredesactie, both the EC and the EDA had to release more information.

Hopefully this online information tool will now become a major tool of the ‘noEUmoney4arms’ campaign. Indeed we are convinced that a larger audience needs to be informed about the real motivations and expected impact of the current proposals: progressive MEPs, journalists, civil society actors and EU citizens at large must be able to understand what is going on and tell whether they agree with a military-industrial complex increasingly shaping major EU policies and benefiting from taxpayers’ money.

related information:
Ask the EU website
Ombudsman decision on the Group of personalities
WeMove-ENAAT Petition “EU: Don’t invest in weapons”
SumOfUs petition
Researchers4Peace pledge
NoEUmoney4arms Facebook page
4,000 citizens expressed their concerns on the EDIDP legislative proposal
Follow us on Twitter: @_ENAAT – #noEUmoney4arms

In a nutshell, the main economic and industrial arguments put by the EC when presenting its plans to fund military R&D under the European Defence Fund are savings and contribution to jobs and growth:

• the lack of cooperation between MS is estimated by the EC to cost annually between €25 billion and €100 billion because of lack of competition, costly duplication, lack of interoperability, technological gaps, and insufficient economies of scale
• this would largely be due to the fact that 90% of the research and 80% of the defence procurement is run on a pure national basis
• a spill over effect on European economy is expected: the defence sector is presented as a key industrial sector generating a turnover of €100 billion every year and employing directly or indirectly 1.4 million highly-skilled workers in Europe
• military research is considered the main driver for innovation that further lead to civilian applications to the benefit of all (typical example being the internet or GPS technology)
• it is thus important to support the competitiveness of the defence industry with a specific attention to SMEs, and including its capacity to export

In the following questions we will check with concrete elements to which extent those assertions are true.

related information:
EC communication ‘Towards a more competitive and efficient defence and security sector’ 24.07.2013
The EC Defence Action Plan: Press Release, factsheet, EC Communication on the EDAP
European Defence Fund: Press Release, factsheet, EC Communication Launching the EDF

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The defence market represents a quite small share of the European economy, albeit differently weighed according to countries. Even experts in favour of the EU Defence Fund admit that “the EDTIB is rather small and unimportant in economic terms” (in Strategic autonomy and the Defence of Europe, p.55).
Apart from the question how ethical it is to use arms production as an economic instrument, there is little data on the impact of the defence sector on national economies, and the more recent academic literature is moving towards a more accepted, if not consensual, view: rather, military expenditure has a negative effect on economic growth.
In a 2013 study by defence economists J-P. Dunne and N. Tian, the entirety of existing literature on the subject (close to 170 papers) was reviewed. The results provide strong support for the argument that military spending has adverse effects, or at best no significant effect at all on growth.

Even when looking specifically at the military Research and Development (R&D) spending, the positive impact of such investments on employment and economic growth is not uncontested:
In a report initiated by the Sub-committee on Arms Trade of the Flemish Parliament, Dunne & Braddon concluded that it cannot be proven that investment in military R&D is a motor for economic development as there are so many other elements influencing the process. And that, if there is any effect, it is most likely a negative one because the ‘spin-in’ process from military to civil sectors has reversed: actually technology transfer from the commercial sector to the military sector nowadays is much more common (Q19).
Thus, military R&D has a negative ‘distortion effect’ on the economy as a result of ‘crowding out’ resources from the civilian research while the latter contributes much more to growth and jobs. The same distortion effect will happen at EU level: we already explained how the European Defence Fund will be diverting significant amounts of the EU budget from civilian areas (Q3).

Why is it so? Indeed it is a quite counter-intuitive situation in light of the huge amounts of money behind arms production and sales. There is a number of reasons for it:

• firstly military spending create (far) less jobs than similar investments in other sectors (Q17)
• it is a heavily subsidised economic sector (Q20), which in average costs more than it brings gains
• this is true including for arms exports, which are also highly subsidised through different channels (Q22): despite impressive figures they are mainly a cost for the country rather than a gain
• the European arms industry faces a number of ‘obstacles’ (compared to competitors like the US) that are not addressed by the Defence Fund, which rather preserves short-term national and industrial interests (Q21)

Thus, in order to try and compete with the US defense industry, European companies have to resort to alternative ways to propose attractive deals to potential costumers: that is offsets and bribery. Indeed the level of corruption and bribery is particularly high and widespread in arms sales including by Western companies, and offsets are also increasingly systematic in order to gain deals, which distort further the armament market. (to know more about bribery, corruption and offsets, read ‘Indefensible’ (Myth 5, p.117 onwards)

related information:
‘Strategic Autonomy and the Defence of Europe, On the Road to a European Army?’ H.P. Bartels, A.M. Kellner, U. Optenhögel (dir.), Bonn, Dietz Ed., 2017
The following studies have been accessed through the book ‘Indefensible: 7 myths that sustain the global arms trade’ by P. Holden et AL. London, 2016:
– ‘Military Expenditure, Economic Growth and Heterogeneity’, Paul Dunne & Nan Tian
– ‘Defence and Peace Economics’, Taylor & Francis Journals, vol. 26(1), pages 15-31, February 2015
– ‘Economic Impact of Military R&D’,  Flemish Peace Institute 2008
‘Militaire productie en Neerlands welvaren De relatie tussen economie, militaire industrie en kennisinstellingen’. Dr. E.J. de Bakker en prof. dr. R.J.M. Beeres Militaire Sprectator 12/2016

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The arms sector does create jobs of course, although it represents a tiny share of total employment; but because of the important public funding it receives, it still creates fewer jobs at a higher cost than any other economic sector:
A 2011 US study from the University of Massachusetts compared the impact of defence spending on job creation against the estimated cost of job creation in 4 civilian areas: health, social care, education and green economy. The results clearly showed that all 4 areas create more jobs per $1bn than the defence sector. Among the main reasons for this lower job creation rate is the lower labour intensity level of the defence industry, and the expensive highly mechanized and substantial industrial inputs needed, as well as the import-heavy nature of the industry.
And UK studies suggest that even defence exports have a deflationary impact on employment, there again due to the use of enormous public subsidies including national procurement (Q22). Halving defence exports would in fact raise employment as the resources freed would create a higher number of jobs than the ones lost.

Investment in military R&D in particular does not create more employment but rather a shift from the civil to the military sector:
in a report initiated by the Sub-committee on Arms Trade of the Flemish Parliament (2008), Dunne & Braddon concluded that military R&D has a negative ‘distortion effect’ on the economy as a result of ‘crowding out’ financial and human resources. The same effect is recently reported more specificity for the Netherlands by De Bakker and Beeres; this is due to the existing shortage of high-skilled workers in engineering or computing for example.
Not to say about the export of manufacturing capacities, from production goods or technology up to on-the-shelve plant productions in non-EU countries (in particular as offsets* are part of arms export deals, Q20): in some cases, if not systematically, this limits the actual creation of jobs in the EU when the transfer happens in a country with a wide-enough industrial base, capable to ‘capture’ the transfer in the long-run.

To add to this, investments in the military R&D benefits technically high-skilled workers who happen to be mostly male. At the same time women are under-represented in the EU workforce. According to Eurostat Employment Statistics the 2015 EU employment rate for men aged 20–64 stood at 75.9%, as compared with 64.3% for women. Investment in military R&D will not create employment for the group that most needs it. One could say that investment in military R&D is gender-biased investment.

Funding reconversion of military sector workers:
If the EC and Member States’ main concern is jobs then they should be shifting that support into more positive areas like education, health, renewable energy and low carbon technology, agroecology research, waste recycling, eco-construction and other industries which would create more jobs per euro invested and have a positive impact on societal issues, rather than depending on war and conflicts for profit.
And because the armament sector mainly employs skilled workers, the latter could easily convert to help fill these new needs in other industrial sectors: for example, a research from Campaign Against Arms Trade in the UK shows that the renewable energies sector requires similar skills like electrical engineer, mechanical engineer, marine engineer or project manager, and that off-shore wind and marine energy could create more jobs than the entire arms industry. All this while addressing a major global challenge and an important root-cause of conflicts.

related information:
‘Arms to renewables; work for the future’, Campaign Against Arms Trade UK, 2014
‘Strategic Autonomy and the Defence of Europe, On the Road to a European Army?’ H.P. Bartels, A.M. Kellner, U. Optenhögel (dir.), Bonn, Dietz Ed., 2017 (p.63 about offsets and transfers)
‘Militaire productie en Neerlands welvaren De relatie tussen economie, militaire industrie en kennisinstellingen’, Dr. E.J. de Bakker en prof. dr. R.J.M. Beeres, Militaire Sprectator 12/2016
The following studies have been accessed through the book ‘Indefensible: 7 myths that sustain the global arms trade’ by P. Holden et AL. London, 2016:
– ‘The US employment effects of military and domestic spending priorities: 2011 update’, Robert Pollin & Heidi-Garret-Peltier, Amherst, MA: Political Economy Research Institute, University of Massachusetts
– ‘Escaping the subsidy trap: why arms exports are bad for Britain’ Paul Ingram and Roy Isbister, British American Security Information Council, Saferworld and Oxford Research Group, London and Oxford, 2004
– ‘The economic costs and benefits of UK Defence exports’, Malcom Chamlers, Neil V. Davies, Keith Hartley and Chris Wilkinson, Centre for Defence Economics, University of York, 2001
‘Economic Impact of Military R&D’ Dunne & Braddon, Flemish Peace Institute, 2008

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“Thanks to the military we have the Internet”: we are being told that over again. But reality is a bit more complex, as it is often the case. The first ideas of an ‘Internet concept’ have been produced by civilian researchers, and while the military put that into action, computer scientists and companies then played a key role in turning it into the modern Internet we use today in civil life. Moreover, a major reason why military research has been successful, in this and other similar cases, is the huge amount of money it received. Sufficient funding in civilian research would most probably have equally led to the Internet as we know it today. Moreover, for one successful project how many multi-billion ones completely failed, like the US so-called Stars Wars plans?

While the contribution of the military research to some of the major innovations of the Cold War period is a reality, it should not be overestimated either. And the same results may have been more efficiently reached if the research was done for civil purposes in the first place.
Today, experts and even the European Defence Agency* recognize that there is a shift in the research process: civilian research is increasingly providing for the technological progress to be then used in military applications. In this way the arms industry is also benefiting from the results of civil research partly funded with public money.
The EP study “the future of EU defence research” (2016, p.39-40) explained further that “the centre of gravity in cutting edge military applicable research is shifting abruptly away from the defence establishment to relatively new commercial firms wit loads of cash to invest. (…) Indeed international commercial corporations are taking the lead over defence industries. The defence sector (…) is nowadays becoming an importer of the technological advances taking place worldwide. (…) The changing technological environment is reshaping the entire Western defence industry. As a matter of fact, there are no defence companies among the top 20 industrial research and development spenders worldwide. (…) This position has left defence firms reluctant to jeopardise the support of their stakeholders by allocating cash to fund defence R&D”. [emphasis added] In other words, the defence industry asks the EU and Member States to pay for the research so that they can keep their profits safe for their shareholders (shareholders make the largest part of an industry stakeholders and the ones more interested in preserving available cash).

A last point is about life-cycle and endless spending for new technologies. As the EP study says, “robotisation, big data and artificial intelligence are now widely recognised as defence disruptors. (…) defence customers will have to adapt to much higher innovation rates and to potentially shorter life-cycles for equipment”. Indeed “defence industries will have to incorporate such innovations in their products or gradually lose relevance as suppliers for western militaries which base their military strength to a large degree on technological superiority” as underlined by Chagnaud, Mölling, Schütz & von Voss.
As a consequence, this accelerated pace of innovation will result in a never-ending cycle of increasing military spending to maintain alleged competitiveness and strategic autonomy (Q24), as the rules applying to Intellectual Property Rights (Q11) and to arms exports (Q22 & 27) will favour the dissemination of these new weaponry and technologies outside the EU, with high risks in terms of end-use or end-users diversion.

related information:
‘The Future of EU Defence Research’, by F. Mauro & K. Thoma for Policy Department, DG External Policies, European Parliament, March 2016
‘Indefensible: 7 myths that sustain the global arms trade’ by P. Holden et AL. London, 2016, (Myth 4, p;83 onward)
Chagnaud, Mölling, Schütz & von Voss in ‘Strategic Autonomy and the Defence of Europe, On the Road to a European Army?’ H.P. Bartels, A.M. Kellner, U. Optenhögel (dir.), Bonn, Dietz Ed., 2017

It is a preferential treatment first because the EU has been regularly refusing new or increased budget lines claiming that the budget was too tight, but managed to find €590 million for the arms industry (Q3), in parallel with facilitating the defence sector access to existing civilian programmes.
Second, despite Horizon 2020* general rules that are already quite favourable to profit-making beneficiaries of EU funding, in particular under the Security Research Programme (Q5), the arms lobbying is still claiming for an even more favourable treatment such as a flat-rate higher than 25% (Q10) or more favourable Intellectual Property Rights* rules (Q11).
Last but not least, the arms industry is also benefiting from an important public support at national level through different ways like infrastructures, publicly-funded research or public procurements; but in parallel they try to avoid national taxes by settling empty shells in ‘fiscally advantageous’ countries such as the Netherlands, and benefit from exception to usual free competition rules, in particular regarding public procurements and compensation deals (offsets).

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Adding to the privileged treatment they are about to receive at EU level (Q5, 10 & 11), the arms industry has also been receiving preferential treatment at national level for long through a number of channels:

• as all companies, they use infrastructures paid for by taxes;
• their products are also paid for by taxes, as the lion share of what arms companies produce is bought by governments (EU MS but also third countries which are, for many of them, partly financed by European development aid thus freeing part of their national budget for defence expenditure);
• last but not least, much of their research and development is already subsidized by governments or done in cooperation with publicly funded universities and/or research institutes;
• they increasingly benefit from innovations produced by civilian research also partly publicly funded (Q19)

On the other side, defence industry does not seem to be “playing the game” when for example they practice tax avoidance: a 2015 Dutch report shows that 7 of the of the 10 biggest global arms companies have nearly empty legal structures in the Netherlands, and one-third of the hundred biggest military companies turned out to have one or more holdings in the Netherlands (for example, Airbus and BAE Systems); the major reason for this being that the Netherlands has a “highly competitive fiscal climate” and is a favourite for tax avoidance, as stated by the European Parliament itself in a 2013 Report. A concrete example shows that this is common public practice: in 2015 the French land armament Nexter and the German land armament company KMW seek to merge; for this a holding, KNDS, is being set in the Netherlands and owned 50% by the French government and 50% by a German stakeholder; KNDS in turn owns 100% of the French and German companies.

Under EU law, national public procurements should be open to other European companies, except for arms…
Under the EU internal market rules, Member States have to open public procurements to all European companies and cannot favour national ones. However the EU law on procurements does not apply to arms-related procurements. In 2009 the EC adopted a specific Directive to encourage more transparent EU-wide competition in arms-related procurements. However, 7 years later, the implementation of this Directive is extremely poor: only 20% of those procurements are open. And when they are, in most cases the contract is given to a national company. But the EC is extremely reluctant to raise the case for non-compliance against MS, although it is said to be crucial to combat the fragmentation of the EU defence market.

Arms trade benefit from a blanket exception to the WTO rules regarding offsets…
Offsets* are promises on the part of the supplying company to invest in the economy of the buyer, as a form of compensation. under the WTO rules, offsets cannot be a criteria in purchasing decisions, except for the arms deals… Offsets in arms trade represent 50% of the offsets globally, and are of particular important for European companies (Q16 & 21). They cloud and distort procurement decisions.

To sum up, the EU is to fund military R&D for a dysfunctional industry (Q16) that escapes traditional free competition rules and already benefits from massive public subsidies. In return, the results of the R&D and the profits generated by the sale of the final products will remain to the companies. If that is not privileged treatment, then what is it?

related information:
European initiatives on eliminating tax havens and offshore financial transactions and the impact of these constructions on the Union’s own resources and budget, EP study, Blomeyer & Sanz,15/04/2013, PE 490.673
Tax evasion and weapon production: Letterbox arms companies in the Netherlands, Stopwapenhandel in cooperation with the Transnational Institute, December 2015
EC Evaluation of the Defence procurement directive
https://club.bruxelles2.eu/2017/09/le-mariage-kmw-nexter-knds-lairbus-terrestre/ (in French)

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The industry claims that it is facing a competitive disadvantage compared to international competitors, in particular American ones, but also new comers in the international defence market such as Russia, China, Brazil or Turkey.
One main disadvantage is the home defence market: American companies profit from a single defence market with a huge budget. The same can be said for China and Russia in terms of single market if not in terms of military spending: China is just behind the EU and Russia spends only about a third in military compared to the Eu28 (Q24).
However on that aspect Member States are extremely reluctant to take serious steps, as shown by the poor implementation of the Procurement Directive (Q20) that intended to bring some transparency and EU-wide competition in national defence procurement.

The industry may not have such interest in a single European defence market either, as this would mean more competition within the EU, and thus pressure on prices and the elimination of national companies that are duplicating and less competitive: they prefer to have the cake and it it too, e.g. access to protected national markets which helps maintaining artificially higher prices and to EU funding at the same time, in order to preserve profits.

But at least this single market should be in the interest of Member States, no? Again it depends of the point of view: firstly national industries have very close ties with political leaders and the latter will prioritize the economic interests of their national military industry, allegedly in order to preserve national jobs (Q17) and growth (Q16). Secondly, at political level there is no mutual trust between MS to go for a common European strategic autonomy, something that we will explore further in Q24 & 25. And for some countries like France, national military power is also a geopolitical priority.
Thus for the Member States too, it is more advantageous to dig into the EU budget pot: they can claim that they are responding to citizens request for more EU involvement in defence, while in fact they are just preserving their national political and industrial interests. Interestingly, this directly contradicts the stated objective of improving military capabilities (Q25) and strategic autonomy (Q24).

Regarding economies of scale, there is huge space for progress in the field of joint funding for research, development, production and final procurement. However for the reasons mentioned above, to the contrary when less money is available for military spending, even less is spent jointly! The EP study shows that from 2006 to 2013 when defence budgets shrunk in EU countries, collaborative projects in R&T* shrank proportionally even more! This demonstrates that decisions in this field are not rational ones.
The European Defence Fund will not change the mindset as Member States remain in the driving seat with the industry closely associated. Under the Industrial Programme for 2019-2020 (EDIDP Q7), the European Parliament is being excluded from the implementation phase under derogatory rules, while Member States are given a de facto veto power in the Programme Committee : if they provide no opinion on a draft implementation act the Commission cannot go on, while the EP is not even consulted. Such derogation to the normal rules for EU programmes (where the EP has a say on implementation acts) was supposed to be an exception due to time constrains, but is now being extended for the fully-fledged Defence Fund 2021-2027, creating a detrimental precedent (Q30). Which companies will access the Fund is also another key issue, and the trend is clearly about making the access to the Fund by non-European companies easier and easier (Q9).

The case is that western military industry is facing exactly the same economic cycle as many other industrial sectors before (coal, textile, …): the decline of their dominant position worldwide. Not only ‘ambitious’ countries like China or Russia, but also recently emerged wealthy countries like Brazil, Turkey, South Korea or India want both to decrease their dependency on western-made weaponry and to have their share of the pie, e.g. the lucrative international defence market. Pouring EU money into the European industry will at best preserve a bit longer industrial profits at the expenses of peace (Q28) and civilian priorities (Q3 & 26), when a radical structural shift would be needed.

Lastly, the industry also claims to be at competitive disadvantage because of European rules regarding arms export controls; we will explore this issue from an industrial point of view in the next question (Q22), and from a political point of view in Q27.

related information:
EC communication ‘Towards a more competitive and efficient defence and security sector’ 24.07.2013
EC Communication on a European Defence Action Plan, 30.11.2016
‘The Future of EU Defence Research’, by F. Mauro & K. Thoma for Policy Department, DG External Policies, European Parliament, March 2016
Europe faces defence spending challenges: new plans meet old obstacles, Politico (14.12.2017)