House of Commons - Defence

Select Committee on Defence First Report

THE SIX-NATION FRAMEWORK AGREEMENT

Research and Technology

19. The Framework Agreement requires the signatories to share information on their defence-related Research and Technology programmes,[73] except those regarded as pertaining to 'critical security interests, or which are about relationships with third parties'.[74] The aim is to reduce duplication of effort by facilitating collaboration and harmonisation of research programmes. The Agreement seeks to create a climate in which nations can establish collaborative research projects more quickly and efficiently than at present.[75] More efficient research would also mean that, on the supply side, European defence industries would be able to transfer technology into defence equipment more effectively and more quickly.

20. This is not the first time that European countries have sought an arrangement under which collaboration on research and technology could be advanced, and indeed the Framework Agreement seeks to build on experience (and the somewhat mixed results) gained from existing European multilateral research initiatives.[76] For many years, for example, the Western European Union has organised collaborative research programmes. The MoD suggests that WEU bodies may have a future role in coordinating research programmes of the Framework Agreement signatories.[77]

21. The Agreement envisages a separate organisation to contract and manage such collaborative research programmes,[78] but it does not assume that a wholly new organisation need necessarily have to be created.[79] Rather, the six nations intend to consider whether existing organisations can be used for this purpose. Within the WEU, we were told, the Western European Armaments Organisation's Research Cell could act as the primary contracting agency.[80] A new WEU memorandum of understanding ('EUROPA')[81] has been drafted. It is intended to embrace both the general research and technology requirements of the WEU as a whole, and the particular relationship envisaged between the six Framework Agreement nations. Its use would not, however, prevent the use of other contracting mechanisms on a project-by-project basis, when these were considered more appropriate.[82] Given the decades it has taken to put collaborative procurement programmes onto a sounder footing under OCCAR[83], there cannot but be grounds for a degree of scepticism about the hopes for open, competitive and well-managed collaborative research programmes being advanced by the rather imprecise provisions of the Framework Agreement.

22. We nevertheless welcome the Framework Agreement's stipulation that competition should be the preferred method for managing collaborative research.[84] We understand that the new EUROPA model, potentially available for collaborative research under the Framework Agreement, also firmly establishes the principle of competition as the preferred method for letting research contracts.[85] Under the Agreement, research work would not be allocated across the parties according to the restrictive juste retour workshares[86] that have been used for many equipment procurement projects, although a 'global balance' of work would still be the aim.[87] This is the compromise approach used by the Organisation Conjointe de Cooperation en matière d'Armement (OCCAR), on which we commented in our First Report of last Session—

juste retour

23. Competition will not be mandatory, however, if better value for money can be achieved by other means,[89] or when it might be detrimental to a country's 'critical security interests'.[90] If such exemptions were applied sparingly, and European collaboration on research were to prove more extensive than possible up to now, these provisions might enable a degree of 'role specialisation' amongst European nations on certain areas of research and development. Our MoD witnesses saw the establishment of centres of research expertise as "an inevitable consequence of this, and a good consequence of it".[91] The UK will have to continue to balance carefully the relative industrial and technological benefits it derives from collaborating with Europe and with the US. The two are not mutually exclusive, but choices will have to be made. The Framework Agreement stipulates that third-party research results, including those from collaborative work with the US, are properly protected.[92] The political difficulties this might pose were brought to the fore recently when the UK was faced with having to hold back information gleaned from a UK/US stealth research project from a prospective collaborative European programme looking at low-observable airframe technologies.[93] Access to US technology developed and matured in US research programmes must remain a vital part of the UK's research strategy. As our MoD witnesses put it—

Treatment of Classified and Technical Information

24. The Agreement sets out new, simplified arrangements for protecting exchanges of classified information between the parties. These provisions are intended to make it easier for staff of transnational defence companies to move between the countries, with less national re-vetting of their security clearance.[95] The provisions do not apply to classified information belonging to third party countries such as the US,[96] whose data would continue to be protected by bilateral arrangements.

25. For industry, the technical information provisions in the Framework Agreement are perhaps more significant than those relating to classified information and the security clearance of personnel. The Agreement seeks to establish clear principles for the disclosure, transfer, use and ownership of technical information, in order to encourage its movement between governments and their defence industries. Its provisions are intended to 'advance the knowledge base and ... the innovation and the development of new products'[97] and (perhaps of more immediate concern) to encourage industrial rationalisation. It stipulates for example that, in making information available, the signatory nations shall treat firms of other signatory countries 'as it treats its own domestic industry'.[98] Further, countries will not be permitted to prevent the intellectual property of their domestic industry being transferred into newly created transnational firms.[99] The MoD told us that it had particularly sought the inclusion of these provisions during the Framework Agreement negotiations.[100]

26. Each nation will be obliged to share government-owned technical information with other nations and their firms, 'for information purposes' (that is, not for exploitation), except when third-party rights or national security would be infringed.[101] The MoD witnesses noted that —

102

27. To protect intellectual property rights (IPR), the Framework Agreement commits the parties to develop a mechanism to harmonise each nation's IPR contract provisions and to establish common practices.[103] The MoD hopes that this will simplify negotiations between the parties and their industries (and between the parties themselves) on intellectual property rights.[104] The Defence Industries Council reported that industry was generally positive about the 'useful principles' set out in the technical information section of the Framework Agreement.[105] The Defence Manufacturers Association (representing small and medium-sized enterprises in particular) nevertheless had some misgivings about whether the provisions would protect industry-owned IPR from disclosure,[106] and also saw a risk that the provisions on sharing technical information might reduce the willingness of the US to share its technology with the UK.[107] The MoD told us that one of the four areas which it had sought to include, or emphasise during the negotiation of the Framework Agreement, was the need for adequate protection of commercially-sensitive information, which it saw as essential if it is to retain the confidence of industry.[108] It did not anticipate that the information necessary to discharge its obligations will be of significant commercial value.[109] It is clear, however, that the anxieties within industry about transfers and protection of intellectual property will have to be allayed as work on the Framework Agreement is taken forward. As far as the use of technical information in concerned, that requirement will best be served by industry's close involvement in that process.

Harmonisation of Military Requirements

28. In our 1998 Report on aspects of defence procurement and industrial policy we concluded that—

... improvements to the demand side of the market, including harmonisation of operational requirements, were lagging too far behind moves to rationalise the industry (ie the supply side). Industry will be more ready to rationalise if it perceives that markets are open not just to 'national champions'.[

110

Most of the provisions of the Framework Agreement are concerned with freeing up the supply side of the defence equipment market, but Article 45 sets out a range of measures directed towards rationalisation of the demand side of the defence equipment equation. Its aim is to encourage the signatories to generate common equipment requirements—'an essential prerequisite to better equipment co-operation'.[111] It envisages the creation of a 'master-plan' of future operational needs to facilitate earlier collaborative planning of equipment programmes to meet those requirements.[112]

29. Many of the parties to the Agreement are already involved in collaborative programmes, but these mainly arise after equipment requirements have become relatively firm. The MoD told us that a key aim of the Framework Agreement will be to start the process earlier through co-operative equipment planning, and to identify and formulate common military requirements rather than to attempt to harmonise already mature 'national' requirements.[113] The MoD explained that there would be two distinct stages in seeking to harmonise military requirements. First, the aim would be to share information on equipment planning assumptions—the tentative requirements which are generated before being developed into firm commitments.[114] This in itself will be a challenge, as the parties have different planning cycles, and have sometimes been reluctant to share information. The second, and probably more critical step, will be to produce harmonised requirements which could be used for requesting proposals from industry.[115]

30. The Framework Agreement envisages a separate organisation to manage the harmonisation of capability requirements.[116] This is not the first such European initiative. Indeed, the UK MoD, who will be taking the lead in defining the structure and the level of detail for the requirements 'database', told us that its work will be augmented by features drawn from WEU and NATO documents.[117] A prospective 'European Armaments Agency' (long the subject of discussion in the WEU) appears to be one of the candidates for the body now envisaged. The MoD told us that much work remains to be done before the EAA concept could be implemented, and the size and diversity of its potential membership raises questions about its applicability to the Framework Agreement. The MoD favoured the OCCAR route.[118] If OCCAR were given the role, arrangements would be required to allow participation by non-members, or expansion of OCCAR to include all parties to the Framework Agreement[119] (at present Spain and Sweden are parties to the Agreement but not to OCCAR, although the former has now been invited to join once the A400M aircraft is taken under OCCAR's wing).[120] More fundamentally, while OCCAR is designed to tackle some of the major impediments found in past collaborative procurement programmes,[121] it may not be best suited for the central role in harmonising requirements —

122

31. We share the Defence Industries Council's concern about the risk of duplication and overlap if the Framework Agreement results in the creation of any new bodies in this already overcrowded world of European defence requirements harmonisation.[123] OCCAR appears to be a promising candidate to take on the harmonisation role, but if it were used care would be needed to insulate its existing procurement programmes from the inevitably complex and difficult negotiations that there would be to secure common requirements for new capabilities. It would be regrettable if the momentum now achieved for OCCAR in its existing role[124] were lost because it was required to assume additional new roles.

32. The Preamble of the Agreement envisages the sought-after competitive and robust industrial base 'contributing to the construction of a common European security and defence policy'. The DIC sees in such an aim a risk that the 'fairly simple objectives' of the initial 1997 six-nation initiative will become part of a more 'complicated political scene', and that as a result the current initiative might be vulnerable to further delay.[125] The DMA expressed their concern that the Preamble's wording might be an indication of a neglect of other collaborative avenues in NATO and with the US.[126] Others from industry also expressed general scepticism about the feasibility of harmonising requirements.[127]

33. We too are sceptical about the Framework Agreement giving the necessary impetus for harmonising military requirements, when other initiatives in this area have not been particularly successful. To minimise the risk that seeking to harmonise military requirements could prove over-ambitious, and jeopardise the implementation of the other aspects of the Framework Agreement, caution is needed in developing this aspect of the Agreement alongside work on its other themes. The UK must ensure that equipment requirements are not contrived to support particular national industries rather than to meet genuine military requirements. Nevertheless, as we said in our 1998 Report, it does make sense to lower the barriers to a more efficient defence market by tackling both the demand side of the equation as well as the supply side. The currently envisaged effort to harmonise requirements may in the end prove more successful because restructuring of the industrial and technological base (on the supply side) could itself play an important part in encouraging defence ministries to address and define their (demand side) equipment requirements much more carefully.[128] Having transnational companies may remove much of the inclination to define equipment requirements to favour 'national champions'.

Initiatives with the US

34. While the Framework Agreement was being formulated, the UK had also been involved in similar initiatives with the US. Since May 2000, the two countries have been developing a bi-lateral 'Defence Trade Security Initiative', for example, aimed at loosening up the procedures for US exports to the UK (once the US authorities are satisfied with UK controls on export licensing and industrial security).[129] There have been reports that it had encountered some difficulties,[130] although many of these now appear closer to resolution.[131] In February 2000, the US and UK Defence Secretaries also signed a 'Declaration of Principles', which is deliberately couched in terms very similar to those of the Framework Agreement.[132] Like the Framework Agreement, the Declaration of Principles represents a structure for more definitive agreements to be negotiated subsequently. It covers—

Harmonisation of military requirements[133]

Meeting National Defence Requirements,[134] effectively dealing with security of supply issues. However, the provisions are rather more cautiously phrased than the Framework Agreement — 'The participants recognise the potential for a degree of interdependence of supplies, ... solutions may include obtaining assurances, some of which may be legally binding.'[135]

Export procedures,[136] seeking the 'greater transparency and efficiency' of US and UK export procedures, and simplified transfers between them of equipment for their own use. Very much like the Framework Agreement, the Declaration envisages 'mutually agreed lists of acceptable export destinations for jointly-developed and produced military goods ... on a project-by-project basis'.

Security,[137] dealing with protecting classified information by the US or UK companies (or multinational companies sited in the UK or US).

Ownership and Corporate Governance.[138] This stipulates that UK companies operating in the US are to be treated no less favourably than US firms doing business in the UK.[139] The Declaration also commits the two countries 'not to place unreasonable or unnecessary security restrictions on corporate governance'[140] —long an area of complaint by UK firms, who have had to set up separate US boards of directors with American citizens.

Research and Development,[141] which seeks information exchange and harmonised research and development programmes.

Technical Information,[142] which seeks the removal of 'unnecessary controls on the flow of technology and technical information'.

Promoting Defence Trade,[143] which seeks to reduce protectionist procedures and rules. Each country would 'give full consideration to all qualified sources in each other's country' in meeting their national requirements.

35. The Declaration of Principles charged its working groups with developing the necessary measures, and reporting back to the two Defence Secretaries 'within a year' (by February 2001).[144] In the meantime, its status is similar to the six nations' Letter of Intent as it stood in 1998.[145] If finalised in its current form, however, it may have implications for the MoD in co-ordinating its approach to its dealings with Europe and with the US.[146] The US authorities have not raised objections to the UK's involvement in the Framework Agreement[147] and it seems to us that their continued acceptance will hinge on the UK's continued protection of US technology.[148] From the UK's perspective, we see much merit in the MoD's approach of establishing parallel arrangements along the lines of the Framework Agreement both with our European partners and with the US. In the end, it may be our European partners who will have more difficulty accommodating the UK's bi-polar approach to defence collaboration.