EU defense ministers adopt plan to open $35 billion arms market

Monday, November 21st 2005, 10:13 am

By: News On 6

BRUSSELS, Belgium (AP) _ European Union defense ministers adopted a plan Monday to open up their $35 billion arms industry to increased cross-border competition within the 25-nation bloc _ a landmark move designed to cut costs for tight military budgets.

The new ``code of conduct'' is voluntary and nonbinding, but it marks a breakthrough after decades efforts to persuade nations to relax the protection of their tightly guarded national defense markets and allow Europe's defense companies to compete on a continentwide level.

``It will mean a better deal for European taxpayers, and for their armed forces. And it is a vital step for ensuring that our defense industries remain globally competitive,'' said Javier Solana, the EU's foreign and security policy representative who chaired the meeting.

Governments have been able to protect their national defense industry champions because military contracts have been largely excluded from EU legislation that has ripped down barriers to trade within Europe in other sectors. The new rules will not apply to companies from outside the EU.

EU officials say more than half the annual spending on new military equipment in Europe lies outside EU free market rules. Ministers hope increased competition will drive down prices for new weapons.

By allowing companies to compete more in each others' markets, the EU hopes to encourage a restructuring of the continent's fractured industry so it is better placed to take on international rivals.

The code of conduct is to take effect in July. EU nations will have until April to decide if they want to take part. Denmark has already opted out and officials said Spain also has doubts because of concerns about protecting its small-scale arms makers.

Ministers also adopted a report on efforts to fill shortfalls in Europe's military arsenal by 2010. They noted progress in developing mechanized infantry units and field laboratories for use in chemical or germ warfare attacks, but persistent gaps remained in areas such as helicopters, transport planes and missile defense.

Under the new arms market system, nations commit to posting defense contracts on an Internet bulletin board open to companies from all EU nations who could then compete for it. The rules will apply to defense contracts over $1.17 million, but exemptions will be allowed if ongoing operations dictate they need especially quick supply.

Although the rules are not legally enforceable, ministers said they would face considerable peer pressure to allow free competition from other EU companies. ``It's a sort of moral obligation,'' said French Defense Minister Michelle Alliot-Marie.

However, analysts warn it could take time before Europe's defense ministries from the main arms producers, such as Britain, France, Germany, Sweden and Italy, move away from trusted national suppliers.

Seven of the world's 10 biggest defense companies are American.

The U.S. top four _ Lockheed Martin Corp., Boeing Co., Northrop Grumman Corp. and Raytheon Co. _ had a combined revenue from defense of $105.4 billion last year. That is more than double that of the four biggest European defense companies _ BAE Systems PLC, European Aeronautic Defence & Space Co., Thales SA and Finmeccanica SpA.

However, Alliot-Marie said the danger to Europe's industry comes not only from U.S. rivals, but increasingly from Russia, Israel and fast-growing competitors in Asia.