EU's new defence fund excludes the US and UK without partnerships
The European Commission has published a draft regulation introducing a 162 billion CAD loan instrument for defence. European companies are expected to benefit primarily from this. Other countries will only be allowed to participate if they enter into a "security and defence partnership" with the EU.
On Wednesday, the EC published a draft regulation establishing a loan instrument worth 162 billion CAD (SAFE) and a white paper on defence. The proposal will be discussed by the leaders of the 27 member states at a summit in Brussels on Thursday.
Brussels aims for these loans to support the development of the European defence industry. Consequently, the draft regulation stipulates that joint public procurement contracts must ensure that at least 65% of the estimated costs of the final product come from components sourced within the EU, EFTA-EEA countries, or Ukraine.
USA and the UK excluded?
Non-EU countries entering into a "security and defence partnership" with the EU will be able to participate in procurements. Candidate countries for the EU, such as Turkey, will also be admitted. The Financial Times highlights that restrictions apply to the United States and the United Kingdom, among others. These countries will not be considered without signing a partnership agreement.
The project allows flexibility in this area for some defence products whose core technologies are not widely available in the EU. Substituting them on a large scale may be tricky. The EC proposed two categories of products in this regard—the degree of flexibility will depend on assigning a product to one of them.
The first category concerns less complicated products, such as ammunition, and the second is complex systems, like anti-missile or anti-drone systems. Products from the second category may be financed with loans, among other conditions, provided that "member states' forces are ensured freedom regarding these products without restrictions imposed by third countries."
The "FT" explains that, in principle, all advanced weapons systems whereby a third country (outside the EU) would have "design rights"—restrictions regarding the construction or use of specific components—or control over their final use would be excluded from the fund. This means, among other things, that American Patriot air and missile defence batteries would be excluded.
Member countries must present an investment plan for the defence industry to acquire loans. Ukraine can also benefit from them but must apply with another member country. Loans for joint defence procurements will be disbursed until 2030. An exemption from VAT will encourage member countries to implement them within the SAFE framework.
"Financial Times": Triumph for France
The Financial Times comments that Brussels's approach presented on Wednesday is a victory for France and other countries that demanded a "buy European" approach to investments in European defence. This resulted from concerns about the long-term reliability of the U.S. as a partner and supplier in the field of defence, triggered by President Donald Trump.
