ROME — The European Union has written to member states asking for details of recent defense procurements after waking up to the fact that a key 2009 European directive on opening markets to greater competition has been mostly ignored.
Reportedly sent to 13 member states last month, the letter insists on the "importance that the rules of the directive are applied, concretely, when member states are contracting."
Signed by European Commission official Lowri Evans, the letter, which has been seen by Defense News, reminds recipients that all new defense contracts, with some exceptions, must be posted on a European Union bulletin board.
The 2009 directive, known as 2009/81/EC, was designed to push member states into opening up contracting to greater cross-border competition, and to end the use of offsets, creating a thriving, open market based on merit and cost. Since then, most European countries have acknowledged the directive selectively, only when it suited them, continuing to favor domestic industries.
"Things may have improved very slightly in the last seven years, but the problem is enforcement," said a senior European industry official, who declined to be named. "The directive is fine, but it needs to be enforced," he added.
Brussels news agency B2 reported that the letters were sent out last month to the Czech Republic, Denmark, Finland, France, Germany, Hungary, Italy, Lithuania, the Netherlands, Poland, Portugal, Spain and the UK.
Each of the 13 letters mentions a contract handed out by the recipient member state and requests information on how the procedure matched the conditions on free markets set down by the 2009 directive. Two months are given for The member states have two months to respond.
A European Commission spokeswoman declined to state which countries had received the letters and what contracts had been mentioned.
"Administrative letters were sent to several members asking for clarification on specific procurement cases, in order to start a dialogue about the defense procurement directive," she said.
"The directive faces two problems," said the source. "If you are a big country you will favor your own industries, while if you are a small country you will have a competition and go abroad, but then insist on offsets — neither of which are in line with the directive."
The source said Italy might be questioned about its massive frigate building program, which Rome decided to handle through the European defense contracting organization OCCAR.
"Doing it through OCCAR was a neat trick because that way you can avoid competition," he said.
The ships will be built thanks to a funding package that also covers a new logistics ship and a new LHD vessel, for a total of €5.4 billion (US $5.9 billion), euros, with Italian state shipyard Fincantieri winning contracts worth €3.6 billion and state-controlled group Finmeccanica earning work worth €1.8 billion. euros.
"The French would have had lots of competitors for its Scorpion vehicle program, which was a major purchase, but gave it to home player Nexter, making the firm more attractive as it entered a merger with Krauss-Maffei Wegmann," he added.
"Poland asked for plenty of offsets when it purchased helicopters, as did Denmark for fighter jets," he said. "There are examples of the directive being used, after all, competition lowers prices, but when jobs and industrial policy are at stake, that is more important. Germany is buying frigates using a competition — let's see who wins."
One defense analyst suggested that the Netherlands' Holland’s sale of second-hand Leopard tanks to Finland might have cropped up on the EU’s radar. But the analyst, who declined to be named, said it was unlikely the EU would get tough about existing cases of non-competitive contracting.
"The large number and large variety of cases that the EU will have signaled suggest that this time Brussels wants to just issue a general warning," he said.
"It means the EU wants to say, 'We cannot pretend anymore that the 2009 directive doesn't exist'. This is the first time the EU reacts since the directive was introduced and it may go no further," he said.
The industrial source pointed out that the "administrative letter" sent to members was far from a threat of legal action.
"This letter appears to be one down the scale from an 'EU pilot' letter, which is a formal request for information," he said.
An EU pilot letter asking whether an EU rule is being applied must be replied to within 10 ten weeks. The commission then has 10ten weeks to assess the response.
"After that, a first letter of formal notice about an infringement may be sent out, then a second," said the industrial source. "But the fact the EU is sending a letter which is not yet an EU pilot suggests that they feel under pressure because everyone knows the directive is not being applied, but they are shying away from actually taking action," he said.
Email: tkington@defensenews.com
Tom Kington is the Italy correspondent for Defense News.
