How are defence companies responding to EU defence and security market liberalization? A comparative study of Norway and Sweden

ABSTRACT

A new European Union Directive (Defence and Security Procurement Directive 2009/81/EC) intends to liberalize the European defence market. This article investigates whether this Directive leads to a more liberalized European defence market and how the defence companies respond to these changes, by carrying out a set of interviews with a selected sample of some of the most important defence contractors in Norway and Sweden. The article points out two main results. (1) The defence companies believe that the liberalization of the European defence market will at best be partial and fear that the new regulations might end up favouring the larger nations (e.g., Germany, the United Kingdom and France) at the expense of the smaller countries (e.g., Norway and Sweden). (2) The companies' scepticism and response to the Directive vary according to the defence industrial policy regime they are part of and their position in the defence industrial value-chain.

KEY WORDS:

• Defence industry
• EU
• export
• industrial policy
• liberalization
• security policy

ACKNOWLEDGEMENTS

Practical help from Kari Tvetbårten (FFI) and financial support from the NorwegianResearch Council (FORFI programme) and the Norwegian Ministry of Defence are gratefully acknowledged. We also thank the JEPP referees for their very helpful comments.

Notes

1 The EU member states were to transpose (bring into national legislation) the Directive 2009/81/EC by 21 August 2011. By July 2012, four member states had still not transposed the Directive, but by April 2013 all member states had transposed it (http://export.gov/europeanunion/defenseprocurement/) (Accessed 10 November 2013). Meanwhile, Norway – an EFTA member state – had by that time yet to transpose the Directive.

2 The Directive does not specifically mention offsets, since the Commission has previously declared it unlawful, and it cannot regulate illegal practices. Nevertheless, in 2009 the EC Directorate General Internal Markets and Services issued a guidance note concerning the use of offsets.

3 A cost-share/work-share agreement is an agreement where all partner nations in a collaborative armaments development project receive work tasks that directly correspond to their share of the total cost. This principle is the dominating setup for multilateral arms collaboration.

4 These clauses set caps on profit margins and also permit the procurement agency certain defined access to the companies' production plans.

Additional information

Biographical notes:

Fulvio Castellacci is professor and head of department at the Department of International Economics at the Norwegian Institute of International Affairs (NUPI), and professor at the TIK Centre, University of Oslo.

Arne Martin Fevolden is a senior researcher at the Nordic Institute for Studies in Innovation, Research and Education (NIFU).

Martin Lundmark is deputy research director at the Swedish Defence Research Agency (FOI).