Conclusions

36. The Framework Agreement's preamble sets out its aim as—

... to create the political and legal framework necessary to facilitate industrial restructuring, in order to promote a more competitive and robust European defence technological and industrial base in the global defence market...

The MoD's role in shaping a robust and efficient industry is however an indirect one. It told us that—

... it is not the role of government to prescribe the form of the new companies, alliances and joint ventures that emerge from [restructuring], although we are not a disinterested party.[149]

We asked in what circumstances, and in what areas, the MoD would seek to be more proactive. Our witnesses highlighted four ways in which the MoD could influence the competitiveness of the European defence industry in the future:[150]

• In research and technology, where governments can help reduce duplication of effort and co-ordinate the establishment of capabilities able to compete in world markets.

• Rationalising contract law across European borders, to make it easier and quicker for companies to manage trans-national projects.

• Releasing information, to facilitate technology transfer throughout the defence supply chain — "Removing impediments that governments have in place, through making their research information available to European transnational companies, is a very good way in which we can improve matters". [151]

• Establishing security of supply.

37. The Framework Agreement brings together discussions by the six countries going back to December 1997. A lot has happened since then in terms of discussions, co-operation and the use of goodwill and best endeavours.[152] The Framework Agreement now seeks to consolidate and formalise that work—

What the treaty is intended to do is to put in place a framework where there will have to be changes in contract law; there will have to be for some countries changes in their export control procedures and so forth. I think it is a very opportune time to consolidate what has happened on a goodwill [basis] ... and put in place a framework that will enable industry to operate better at the European level.[153]

38. In many ways the Framework Agreement is simply a first step, setting the framework for the real work and commitments that will follow. The MoD acknowledges that there is a great deal of work still to be done to turn the good intentions of the Agreement into practical measures. It estimates that a number of its measures, though complex, can be implemented within about a year. However, it expects certain measures to take longer, especially those that require further legally binding agreements, changes in national laws and regulations, or negotiation with industry.[154]

39. The Framework Agreement puts on a legal footing what was essentially ' a statement of political intent'.[155] In theory, therefore, there is more scope for redress in the case of a breach by one of the parties, and the MoD suggests that there are practical ways of enforcing compliance with the Agreement.[156] But the specific Articles of the Agreement include many caveats that could allow a country to escape its general obligations, typically citing 'national security',[157] and the Defence Industries Council highlighted the risk that further work on the Framework Agreement could easily be dogged by disputes about national interpretations of its somewhat imprecise provisions.[158] Although now on a treaty basis, therefore, the effectiveness of the Framework Agreement and its future development depend on the political (rather than legal) commitment of its signatories.

40. As the work on the Agreement goes forward, the MoD will have to balance the concerns of important stakeholders in the process. The UK has important partnerships with the US and benefits from technology only available in the US. It is vital therefore that we do not as a result of the Agreement's provisions end up with a European preference policy.[159] Although the defence industry witnesses told us that they broadly welcomed the thrust of the Framework Agreement, some did caution against its measures being developed in a way that might handicap industry attempts to restructure or organise joint ventures, which could make it less responsive in international markets than its US competitors. As the MoD takes the work of the Framework Agreement forward, it must ensure UK industry is not unduly circumscribed. We welcome therefore the MoD's attitude that —

 If what you are doing looks as though it is making life more complicated, you should not do it. The treaty I think is consistent with that rule of thumb. ...we must take the companies with us. They have to be the test case, if you like. We have to work with them through the working groups on each area of this treaty to make sure that they agree with us that what we are doing is making life easier, not more difficult.[160]

41. The Agreement provides for an Executive Committee to be responsible for oversight of the Agreement, monitoring its effectiveness, and providing an annual status report.[161] We were told that the nations have yet to agree exactly how it would work, but that the UK would be pressing the Executive Committee to develop performance indicators in each of the six principal areas of the Agreement.[162] The Agreement will have to prove itself step-by-step,[163] and our MoD witnesses did not overstate the challenge when it told us that —

There are obviously deep legal and historical differences, even between the six countries involved [in the Framework Agreement]. They will take hard work to overcome ... All the countries intend to pursue this agenda, but there will be differences in the pace at which people want to go and differences of perception, which we will have to deal with through the executive committee structure.[164]

42. Care will be needed to develop the provisions of the Framework Agreement at a pace which maintains the commitment of all the parties, and the US, to the changes being introduced. The intended effects of the Agreement should bring overdue improvements in the European defence market. Ratification of the Framework Agreement is the essential next step, which should not be delayed.

150  Q5 Back

151  ibid Back

152  Q2 Back

153  ibid Back

154  Ev p4, para A3.3 Back

155  Ev p3, para A2.1 Back

156  Ev p8, para A15 Back

157  A point highlighted by the DMA (Ev p38) Back

158  Ev p36, para 7 Back

159  Q94 Back

160  Q6 Back

161  Cm 4895, Article 3 Back

162  Ev p3, para A1.2 Back

163  Q95 Back

164  Q9 Back