Explanatory Memorandum to COM(2024)150 - European Defence Industry Programme and a framework of measures to ensure the timely availability and supply of defence products (‘EDIP’)

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dossier COM(2024)150 - European Defence Industry Programme and a framework of measures to ensure the timely availability and supply of defence ...
source COM(2024)150 EN
date 05-03-2024


1. CONTEXT OF THE PROPOSAL

• Reasons for and objectives of the proposal

On 24 February 2022, Russia launched a full-scale military invasion of Ukraine, with devastating consequences for Ukraine and its people. Two years of intense fighting, heavy artillery shelling and airstrikes have resulted in high numbers of civilian casualties and immense human suffering. Russia’s war of aggression has caused extensive damage to civilian and defence critical infrastructure, production capacities and services across Ukraine and the wholesale destruction of cities and towns in some parts of the country. The resulting humanitarian crisis has displaced millions of Ukrainians from their homes and left many in desperate need of food, shelter and medical assistance. To this day, Russian aerial strikes continue to attack targets throughout the country. It will take years, if not decades, to heal the trauma of this senseless war. The EU supports Ukraine’s independence, sovereignty and territorial integrity within its internationally recognised borders, its inherent right of self-defence, and its pursuit of a comprehensive, just and sustainable peace in line with international law and the UN Charter. Russia’s war of aggression against Ukraine poses a fundamental threat not only to Ukraine but also to the European and global security. The EU’s contribution to Ukraine’s self-defence is a crucial investment in the EU’s own security. In this vein, the European Union and Member States will contribute, together with partners, to future security commitments to Ukraine, which will help Ukraine to defend itself, resist destabilization efforts and deter acts of aggression in the future. There is no defence without a defence industry. Ukraine is heavily dependent on military support made available by the EU and its Member States, including due to its largely destroyed defence industrial base.

Russia’s military aggression against Ukraine has marked the dramatic return of territorial conflict and high-intensity warfare on European soil. The production capacity of the European Defence Technological and Industrial Base (EDTIB) has been tailored to respond primarily to limited Member States needs, mostly along national dividing lines, due to decades of public underinvestment. In such a scenario, defence companies often faced the need to reduce production rates in order to keep production lines afloat and maintain skilled personnel, while producing limited quantity of defence systems for national customers. Today, for many European defence companies the export of defence equipment to non-EU customers is a major market.

The surge of demand for certain defence products in Europe caused by the radically changed security environment happened against this backdrop of an EDTIB constrained by limited “peace time” production capacity. On the long run, this situation raises the question of defence industrial readiness in Europe, i.e. the capacity of the EDTIB to respond effectively (in time and scale) to changes in European demand for defence products. This is closely linked to the broader challenge of security of supply (SoS) of defence equipment in Europe. Although this topic is not new to EU Member States, the recent ammunition plan has put it in the spotlight, by raising the question of the EDTIB’s ability to ensure Europe’s SoS of defence equipment both in peace and war times.

Following the outbreak of the war and the invitation of the Versailles declaration of March 2022, in May 2022, the Commission, and the High Representative of the Union for Foreign Affairs and Security Policy (“the High Representative”)/Head of the European Defence Agency (EDA) adopted the Joint Communication on Defence Investment Gaps Analysis and Way Forward (JOIN/2022/24 final). The Joint Communication highlighted that the past decades of underinvestment in defence from Member States resulted into both capability and industrial gaps within the Union.

Since the presentation of the Joint Communication of May 2022, several measures have been tabled to react to the most immediate consequences of Russia’s war of aggression against Ukraine:

–As announced in the Joint Communication of May 2022, the Commission, and the High Representative/Head of Agency established the Defence Joint Procurement Task Force (DJPTF) to work with Member States to support the coordination of their very short-term procurement needs. The Task Force focused on de-confliction and coordination to avoid a race to secure orders. The Task Force also established an aggregate estimate of needs and mapped and highlighted the need for expansion of the EU industrial manufacturing capacities necessary to answer the needs.

–Also, as announced in the Joint Communication of May 2022, in July 2022 the Commission presented the European Defence Industrial Reinforcement through common Procurement Act (EDIRPA), aimed at incentivising through financial support, Member States’ cooperation on procurement of the most urgent and critical defence equipment. EDIRPA was adopted by co-legislators on 18 October 2023 and contributes to strengthen the adaptation of Union’s defence industry to structural market changes. EDIRPA will end on 31 December 2025.

–The capability gaps highlighted by the Joint Communication of May 2022 were various, but in light of the evolution of the situation in Ukraine, a specific pressing need for ground-to-ground ammunition and artillery ammunition, as well as missiles emerged. This was formally recognised by the Council, which agreed on 20 March 2023 on a three-track approach for the delivery and joint procurement of ammunition for Ukraine. In this context, in May 2023 the Commission tabled a new proposal for a Regulation on supporting ammunition production (ASAP) to face the sudden surge of demand for these products and urgently enable their timely availability, by mobilising EU budget to support investments in the ramp up of the EDTIB’s production capacities in this field. ASAP was adopted by co-legislators on 20 July 2023. It will end on 30 June 2025.


The unlawful war of Russia against Ukraine not only raised urgent challenges for the EU and its Member States, but its continuation over time also keeps aggravating structural issues affecting the competitiveness of the EDTIB and questions its ability to ensure a sufficient level of SoS to Member States. Hence, the EU now needs to move from punctual emergency responses (illustrated by the above-described measures) to EU defence industrial readiness, from securing the availability of consumables in the requisite volumes during crisis times, to ensuring the timely delivery of tomorrow’s high end critical capabilities in the coming years. This is the exact purpose of the European defence industrial strategy (EDIS) presented on 5 March. In order to implement the orientations set out in EDIS as well as the actions it announces, the Commission proposes a new regulation on the European defence Industry Programme (EDIP). Announced by the Joint Communication of May 2022, and called for by the European Council, EDIP aims to reconcile the urgent with the long term, by maintaining support for the EDTIB under this Multiannual Financial Framework (MFF) and preparing for the EU’s defence industrial readiness for the future. In doing so, EDIP will translate in effect part of EDIS as its action is structured around 3 main pillars.


-Strengthen the competitiveness and responsiveness of the EDTIB. In order to increase efforts to aggregate and harmonise European demand for defence equipment requirements from the EDTIB, EDIP proposes a ready-to-use legal framework, the Structures for European Armament Programme (SEAP), for cooperating and jointly managing defence equipment throughout its life cycle. In a similar logic, EDIP extends the EDIRPA logic beyond 2025, to continue to defragment and harmonise European demand. EDIP also replicates the logic of ASAP to support the EDTIB’s productive investments, helps the EDTIB to move towards more flexible production capacities, as well as ensures the productization phase of EDF projects. In order to enhance access to finance for the EDTIB, EDIP also entails the establishment of a fund in order to leverage, de-risk and speed-up investments needed to increase the defence manufacturing capacities of EU-based SMEs and small mid-caps, building on the Commission’s experience of the ASAP “ramp up fund” as well as the successful set-up of the EUDIS’ defence equity facility.

-Enhance the ability of the EDTIB to ensure the timely availability and supply of defence products. EDIP’s aims is to support Member States’ efforts in pursuing the highest possible level of SoS when it comes to defence equipment, by creating an EU wide SoS regime. The latter would also enhance Member State’s trust in cross-border supply chains, creating at the same time a key competitive advantage for the EDTIB. A comprehensive crisis management framework would enable the coordination of responses to possible future supply crises on specific defence equipment or along their supply chains.

-Contribute to the recovery, reconstruction and modernisation of the Ukraine Defence Technological and Industrial Base (Ukrainian DTIB). Ukraine’s current needs in military equipment far exceed its industrial production capacities while the EU and its Member States provide military assistance from their own - largely depleted – stocks and with a defence industry tailored for peace time. In this context, both industry’s interests are to engage in a more in-depth cooperation. Failing to create a strong relationship between the respective industrial bases may result in a missed business opportunity in the short-term and in economic and strategic dependencies in the medium to long-term. In view of Ukraine’s future accession to the EU, it is necessary that EDIP enhances cooperation with Ukraine at industrial level. As part of the EU’s future security commitments to Ukraine 1 , the EU should foster greater cooperation with the Ukrainian DTIB to boost its capacity to deliver for the immediate needs, as well as to work towards alignment of standards and improved interoperability. A stronger cooperation with the Ukrainian DTIB will contribute to strengthen Ukraine’s ability to defend itself, and will benefit the EDTIB’s capacity to support both Member States’ and Ukraine’s needs.

• Consistency with existing policy provisions in the policy area

The support under EDIP will be consistent and complementary with existing collaborative EU initiatives in the field of defence industrial policy and with other forms of bilateral support for Ukraine provided through other EU instruments, including the Ukraine Facility. It will complement, the EU’s main programme in this policy area, the European Defence Fund (EDF), notably by supporting, at a later stage of the life-cycle of defence equipment, the EDF’s projects, thereby helping the future market uptake of the programme’s results. EDIP will also build on the experience acquired in the context of other EU programmes, such as EDIRPA or ASAP, in particular by extending their financial support logic and expanding their scope to other types of equipment. It will finally consolidate the efforts and dialogue undertaken as part of the DJPTF.

• Consistency with other Union policies

EDIP will generate synergies with the EU defence policy and the implementation of the Strategic Compass for Security and Defence. It will be implemented in full consistency with the EU Capability Development Plan (CDP) identifying the defence capability priorities at EU level, as well as with the EU Coordinated Annual Review on Defence (CARD), which inter alia identifies new opportunities for defence cooperation. EDIP will also facilitate Member States cooperation efforts in the Permanent Structured Cooperation (PESCO) framework. It should serve the implementation of PESCO projects, and contribute to speed up, ease and support the fulfilment of the more binding commitments undertaken by Member States in this context. EDIP will complement the European Defence Agency’s (EDA) pre-existing action in the field of SoS. EDIP will also build notably upon EDA’s Key Strategic Activities work strand to inform discussions held in the framework of the Defence Industrial Readiness Board. EDIP will also be implemented in full consistency with the EU’s military assistance to Ukraine in the context of the European Peace Facility (EPF). EDIP will usefully complement the objectives of recovery and reconstruction pursued by the EU under the Ukraine Facility, notably by strengthening Ukraine’s ability to defend itself by relying on a resilient and responsive DTIB. More broadly, account may also be taken of relevant activities carried out by the North Atlantic Treaty Organisation (NATO) and other partners where they serve the Union's security and defence interests and do not exclude any Member State from participating.

By providing an EU-wide SoS Regime through notably a two-tier crisis framework, EDIP will complement the Internal market emergency and resilience act’ (IMERA), which does not concern defence products. Measures available to the Commission within the EDIP crisis framework for certain non-defence products critical for the supply of defence products identified as having priority only aims at ensuring that concerned defence supply chains may access, as a matter of priority, the components and materials required for ensuring an adequate level of SoS at EU level.

2. LEGAL BASIS, SUBSIDIARITY AND PROPORTIONALITY

• Legal basis

EDIP establishes a set of measures and lays down a budget aimed at supporting defence readiness of the Union and its Member States through the strengthening of the competitiveness, responsiveness and ability of the EDTIB to ensure the timely availability and supply of defence products and at contributing to the recovery, reconstruction and modernisation of the Ukrainian DTIB. Hence the regulation relies on 3 different legal bases:

–Article 173 TFEU in relation to the competitiveness of the EDTIB

–Article 114 TFEU in relation to the European Defence Equipment Market (EDEM)

–Article 212 TFEU in relation to the strengthening of the Ukrainian DTIB

–Article 322 TFEU in relation to the financial provisions.

To reflect these multiple legal bases, EDIP is structured around 3 pillars, each corresponding to one of the legal bases of this regulation.

–The first pillar is composed of measures to ensure that the conditions necessary for the competitiveness of the EDTIB exist, the appropriate legal basis for such measures is Article 173. As described in the EDIS, Russia’s unlawful war of aggression against Ukraine has drastically and structurally modifed the security environment in Europe which results into a new market situation for the EDTIB. Yet two years after the outbreak of Russia’s unjustified war in Ukraine, the EDTIB still needs to adapt to this new reality. Also, as stated in the EDIS, the EDTIB needs to adopt a flexible production apparatus, able to adapt and adjust to the evolution of European demand. Hence, in line with Article 173 paragraph 1, the Commission can take action aiming at speeding up the adjustment of the defence industry to structural changes. Measures like the extension of the EDIRPA and ASAP logic, the set-up of the SEAP legal framework as well as the establishment of the fund will aim at helping the EDTIB to adapt to the new market reality. Finally, according to Article 173 paragraph 2, the Commission may take any useful initiative to promote coordination amongst Member States in the field of defence industrial policy.

–The second pillar is composed of measures which have as their object the functioning of the internal market and in particular the EDEM, the appropriate legal basis for such measures is Article 114. Ensuring the public security of the territory of the Union constitutes an overriding public policy objective and this security depends also on the availability of defence goods and services in sufficient quantities. As described in the EDIS, the current geopolitical context results in a general increase for defence equipment and potential future peak of demand for specific defence products in the Union and possibly at global scale. This situation affects the functioning of internal market for these products and threatens their security of supply. Member States are primarily responsible to ensure their military SoS, as a matter of national defence. However, as explained in the EDIS, there is an increasingly European dimension to SoS. Also, notably as illustrated in the supply crisis of ammunition addressed by ASAP, divergent national legislation, in particular regarding the certification of defence products and divergent approaches to national security have proven to be bottlenecks for European defence products supply chains and obstacles to interoperability. Therefore, ensuring the functioning of the internal market, by avoiding shortages of defence products in the Union, can be best addressed through Union harmonising legislation based on Article 114 of the Treaty. The set-up of an EU-wide SoS regime for defence equipment relies on several aspects. Firstly, EDIP includes measures to enhance the preparedness of Member States in the new geopolitical context characterized notably by the need to replenish stocks and further expand defence capabuilities as soon as possible. EDIP notably includes measures to simplify the re-opening of existing and future framework contracts with the EDTIB to other Member States. Secondly, EDIP entails measures to perform an identification and monitoring of critical products and industrial capacities in the supply chains of certain defence products. Finally, when a supply crisis arises, EDIP provides for a modular and gradual crisis management framework, with the possibility given to the Board to decide on the most appropriate mode of crisis management and, for the more serious crises, on measures to be activated. Hence, EDIP will ensure that supply disruption are well anticipated and addressed without delay in order to preserve the functioning of the internal market and ensure an adequate level of SoS for Member States.

–The third pillar is composed of measures contributing to the recovery, reconstruction and modernisation of the Ukrainian DTIB and progressive integration into the EDTIB. The appropriate legal basis for such measures is Article 212. Special attention shall be given to the objective to support Ukraine to progressively align with Union rules, standards, policies and practices (‘acquis’) with a view to future Union membership. With this third pillar, the Union's operations will complement and reinforce those of the Member States.

Other articles of the TFEU or each article on its own cannot justify the three of the above pillars and the measures they entail. The proposed elements are provided in one act, as all the measures constitute a coherent approach to address, in different ways, the need for strengthening of the Union’s defence industrial readiness.

• Subsidiarity (for non-exclusive competence)

Member States critically rely on the capacity of the EDTIB to meet the needs of their armed forces in time and scale. The size of damages caused to Ukraine and to the Ukraine defence industrial base by Russia’s war of aggression is such that Ukraine will require extensive and sustained support that no Member State can provide alone. It is therefore key to ensure that both the EDTIB and the Ukrainian DTIB are capable of performing this strategic role. Action at European level appears to be the most suitable in this area.

Contents

1.

As for the support to the competitiveness of the EDTIB:


–The Union and its Member States are faced on one side with a brutal change of their security environment resulting in an increase of European demand for defence equipment, and on the other side an EDTIB constrained by limited “peace time” production capacity. If this situation persists over the long term, it will continue to structurally affect and worsen the competitiveness of the EDTIB. Although at lower tier levels, the EDTIB’s supply chains tend to span across borders, the latter remains structurally divided along national lines in the higher tier levels. This results from EU Member States’ demand for defence equipment, which, despite its recent increase, remains fundamentally fragmented and thereby deprives the EDTIB of the benefits of a trully functional EU defence market. Member States never achieved the collective benchmark of dedicating 35% of their total defence equipment procurement to European collaborative procurement, that they set for themselves in 2007. This demonstrates that Member States face considerable difficulties preventing them from increasing their joint procurement of defence equipment. Therefore, the Union is best placed to take measures to incentivise aggregation and harmonisation of EU demand for defence equipment, as well as to facilitate Member States’ long-term cooperation throughout the life cycle of defence equipment.

–Also, lack of coordination and over-concentration of Member States’ demand on the same type of defence products, in the same time-frame, and possibly coupled with shortages of supplies, would result in spiralling prices and crowding-out effect (i.e. difficulties for Member States with more limited purchasing power to secure required defence items). Therefore, by preventing potential conflicts between parallel national procurement efforts, measures put in place at European level to aggregate EU Member States’ demand, will also strengthen solidarity between Member States.

–Uncoordinated demand also reduces the visibility of market trends. In turn, the lack of visibility and predictability of European demand hampers the capacity of industry to invest, in a sector that is entirely demand driven. Yet, pressed by a new security environment, the Union cannot afford to wait until the EDTIB has sufficient predictability of orders to invest in adapting its production capacity. The European defence industry needs to adapt as quickly as possible to the new market situation. This means that there is a need to support de-risking industry’s investments in flexible manufacturing capacities. An intervention of this type at Member State level only could lead to inbalances in the geographical distribution of investment and in an increase of the fragmentation of supply chains. The European level would also appear to be the most appropriate for taking action to de-risk investment in the EDTIB, throughout the Union and with a view to helping the sector develop a flexible production apparatus.

–It is also important for the EDTIB’s competitiveness to capitalise on the results of the EDF, both in terms of products or technologies resulting from the programmes’ projects, and of the opening up of supply chains achieved thanks to them. However, several issues might hamper or even deter common procurement of end products stemming from EDF R&D. This means that EDF project results may face a new ‘commercialisation gap’ in their post R&D phases that Member States alone cannot address. The Union is best positioned to take action to ensure that collaborative efforts initiated under EDF continue beyond the R&D phase.

2.

As for the SoS of defence equipment in Europe:


-Even though defence SoS has been primarily defined at Member State’s level since defence is a national competence, there is an increasingly European dimension to SoS, as industrial supply chains increasingly span across the EU internal market and beyond. This is in particular true for critical components and raw materials on which Member States are also increasingly interdependent. Also as illustrated by the ammunition plan, Member States have little visibility on the overall capacities and of the supply chains of the EDTIB, preventing them from making informed decisions. Therefore, in order to ensure a sufficient level of SoS, including in crisis time, it is appropriate to envisage at Union level the establishment of an EU-wide SoS regime under EDIP. Such framework will enhance the coordination of responses to supply crises of defence products and Member States’ trust in cross-border supply chains, as well as strenghtening the EDTIB’s resilience, for the benefit of all Member States, in a more effective way than through a patchwork of parallel national measures.

3.

As for the strengthening of the Ukrainian DTIB:


-The Ukraine’s defence industry is a strategically important sector of the Ukrainian’s economy. The country is seeking to maintain and increase its production capacity to meet its national defence equipment needs. However, the scale of damage caused by Russia’s war of aggression to the Ukrainian DTIB infrastructures is such that Ukraine will require a specific support that no Member State could provide alone. Measures proposed under EDIP will directly strengthen the Ukrainian DTIB and enhance its industrial cooperation with the EDTIB. With EDIP, the EU is in a unique position to encourage in time and at scale both DTIBs to meet in a joint effort the needs of Ukraine and of Member States. With its presence on the ground in Ukraine through its Delegation, the EU can ensure comprehensive access to information on developments affecting the country. The EU is a major actor in the field of military assistance provided to Ukraine and also participates in most of the multilateral processes aimed at addressing defence challenges that Ukraine is facing. This allows the EU to be constantly aware of new needs in terms of defence equipment and circumstances of Ukraine’s defence production capacities and, therefore, to adapt support according to evolving needs, coordinating closely with other national or industrial stakeholders. The objective of preparing candidate countries and potential candidates for Union membership can also be best addressed at Union level.

• Proportionality

The proposal complies with the proportionality principle in that it does not go beyond the minimum required to achieve the stated objectives at the European level and which is necessary for that purpose.

In view of the unprecedented geopolitical situation and the significant threat for security of the Union, the proposed policy approach is proportionate to the scale and gravity of the problems that have been identified. The need to support the adjustment of industry to structural changes, enhance the EU’s SoS for defence equipment, and strengthen the Ukrainian DTIB are adequately addressed, within the limits of possible Union intervention under the Treaties. The measures set out in EDIP do not go beyond what is strictly necessary to achieve their objectives, are proportionate to the scale and gravity of the problems that have been identified to those objectives. The financial support to various actions aiming at reinforcing the competitiveness of the industry within a system of open and competitive markets. The support to the Ukrainian DTIB is based on the extension of the logic of existing support to Ukraine and constitutes a targeted response to the specific circumstances of Ukraine due to the Russian war of aggression.

• Choice of the instrument

The Commission proposes a Regulation of the European Parliament and of the Council. This is the most suitable legal instrument as only a Regulation, with its uniform application, binding nature and direct applicability, can provide the necessary degree of uniformity needed to strengthen the defence industrial readiness across Europe and ensure the SoS of defence products in Europe. In addition, this is in line with Article 114, 173 and 212 of the Treaty on the Functioning of the European Union, which all set out the ordinary legislative procedure to be used to adopt measures in their respective fields of application.

3. RESULTS OF EX-POST EVALUATIONS, STAKEHOLDER CONSULTATIONS AND IMPACT ASSESSMENTS

• Stakeholder consultations

A formal stakeholder consultation could not be carried out due to the urgency of preparing the proposal so that it can be adopted in a timely manner by the co-legislators to render it operational as of beginning of 2025, when new needs will have to be met relating to the geopolitical situation as well as for recovery and reconstruction of the Ukraine defence industrial base.

The Commission, in close cooperation with the High Representative, has conducted a comprehensive consultation process with Member States, Industry, the financial sector and think tanks to inform the work on the EDIS. The consultation was based on contributions from stakeholders during events (workshops, meetings) and written contributions.. Ahead of these workshops, the Commission shared issue papers (publicised on the website of the European Commission), notably covering thematics pertaining to EDIP’s measures, to serve as a basis for the discussion during the events. Those same issue papers also served as a basis for the written contributions that were shared by the consulted stakeholders with the Commission and the High Representative. Any EU citizen willing to take part in the consultation was invited to send a written contribution to a dedicated email address. In total, more than 270 written contributions from over 90 different stakeholders have been sent to the Commission and the High Representative and have been analysed to feed the preparatory work of EDIS. A meeting with Ukraine’s representatives has also been organised and the latter have also shared written contributions to express their views on the upcoming EDIS.

EDIP’s purpose being to start implementing the vision developed in EDIS and translating into effect actions anounced in this strategy, the inputs received in the context of EDIS, have been largely taken into account to devise EDIP’s measures. In broad terms, the inputs received related to the main actions of EDIP can be described as followed:

–on the support to the EDTIB’s adaptation to the structural changes resulting from the new security situation, most stakeholders were supportive of the idea. The extension of ASAP and EDIRPA intervention logic as well as the need to capitalise on the results of the EDF were often seen positively. These mostly converging positions have been considered by the Commission, as illustrated, inter alia, by the proposal of measures to expand the logic of ASAP and EDIRPA and to ensure the market uptake of EDF products.

–On SoS, most stakeholders underlined the importance of the issue at EU level. Most of contributions also underlined that a satisfactory balance should be struck between the need to improve SoS at EU level and the respect of Member States’ sovereignty and prerogatives in the field of defence. In order to strike such a balance, the Commission notably proposes a gradual and proportionate regime for SoS, where Member States are fully and constantly involved, and where industry’s economic interests are duly considered and proportionately protected.

–On the mainstreaming of a defence industrial readiness culture, most stakeholders consulted aknowledged the need to ensure a sufficient access to finance for the defence sector and in particular for SMEs active in the EDTIB. The Commission paid particular attention to the views expressed in this regard, notably by proposing the Fund to Accelerate defence Supply-chains Transformation (FAST) which by design will benefit SMEs and small mid-caps.

–On the cooperation with Ukraine on defence industrial matters, most stakeholders were sympathetic to the idea. The Commission has taken into account stakeholders’ inputs as well as Ukraine’s views to tailor in the most appropriate way dedicated actions under EDIP.

The EU will ensure appropriate communication and visibility around the objectives and the actions delivered within the scope of this Regulation, within the Union, in Ukraine and beyond.

• Collection and use of expertise

The EDIS comprehensive consultation has enabled the Commission and the High Representative, to receive a large number of inputs from different types of experts (e.g. National administration experts, defence industry experts, financial sector experts, think tank experts, Academics). The expertise gathered by the Commission and High Representative in the context of EDIS has been used to developped the measures proposed under EDIP.

• Impact assessment

Due to the urgent nature of the proposal, which is designed to support the rapid adaptation of the European defence industry to the new geopolitical environment and provide assistance to a country at war as of beginning of 2024, no impact assessment could be carried out.

The geopolitical context and in particular the continuation in time of Russia’s military aggression against Ukraine, led the Commission to decide to quickly move from adopting punctual emergency responses in July (i.e. ASAP) and October (i.e. EDIRPA) 2023, to taking a more structural approach to address the long-term consequences faced by the EDTIB and continue to support Ukraine.

In addition, the European Council called in its Conclusions of 14 and 15 December 2023 to “swiftly” present a proposal for the EDIP and indicated in its Conclusions of 1 February 2024 that it “will revert to the matter of security and defence, including Europe’s need to increase its overall defence readiness and further strengthen its defence technological and industrial base, at its next meeting in March 2024, with a view to agreeing on further steps to make the European defence industry more resilient, innovative and competitive”.

Hence, it was not possible to deliver an impact assessment in the timeframe available to table an EDIP proposal in time for the discussion that will take place at the European Council of March 2024. However, the EDIP proposal draws on the work undertaken in the framework of the DJPTF, on the early lessons learned from the implementation of ASAP and EDIRPA, and builds on the comprehensive consultation process that has been conducted in the context of EDIS. Within 3 months after the publication of this regulation proposal, the Commission will publish a Staff working document to present the justification for this legislative EU action and explain its appropriateness to achieve the identified policy objectives.

• Regulatory fitness and simplification

EDIP is not expected to increase the administrative burden. The proposed performance-based approach available for its eligible actions, relying on the conditionality between the disbursement of payments and the achievement of milestones and targets by the consortium, is also an element of simplification in the implementation of the instrument.

• Fundamental rights

Enhancing the security of EU citizens can contribute to safeguarding their fundamental rights.

Also, actions related to defence common procurement of goods or services, which are prohibited by applicable international law, shall not be eligible for support from the Programme. Moreover, actions with a view to the common procurement of lethal autonomous weapons without the possibility for meaningful human control over selection and engagement decisions when carrying out strikes against humans shall not be eligible for support from the EDIP.

In addition, Article 16 of the Charter of Fundamental Rights of the European Union (‘the Charter’) provides for the freedom to conduct a business. Nevertheless, some measures under pillar 2 needed to ensure the SoS of defence equipment in the Union may temporarily limit the freedom to conduct a business and the freedom of contract, protected by Article 16 and the right to property, protected by Article 17 of the Charter. Any limitation of those rights in this proposal will, in accordance with Article 52 i of the Charter, be provided for by law, respect the essence of those rights and freedoms, and comply with the principle of proportionality.

–First EDIP entails provisions on requests for information and prioritization mechanisms (priority rated orders and priority rated requests) which are strictly conditional on the activation of the most appropriate crisis mode through the adoption of a Council implementing act when it comes to a supply crisis mode and when it comes to a security-related supply crisis mode.

–Second, the obligation to disclose specific information to the Commission, provided that certain conditions are met, respects the essence of and will not disproportionately affect the freedom to conduct a business (Article 16 of the Charter). Any information request serves the objective of general interest of the Union to enable the information gathering about the production capabilities, production capacities and primary disruptions of potential mitigation measures to shortages affecting the production of crisis-relevant products or defence products. These information requests are appropriate and effective to attain the objective by providing information strictly necessary to assess the crisis at hand. The Commission in principle only requests the desired information from representative organisations and may issue requests to individual undertakings only if it is necessary in addition. Since information on the supply situation is not available otherwise, there is not any equally effective measure to attain the information necessary to enable European decision-makers to take mitigation action. In light of the serious geopolitical and security consequences of defence products shortages and the respective importance of mitigation measures, information requests are proportionate to the desired aim. Furthermore, the limitation to the freedom to conduct a business and the right to property are offset by appropriate safeguards. Any request for information may only be launched for crisis-relevant defence products, raw materials or components thereof, that are specifically identified by the Commission through an implementing act, and that are affected by disruptions or potential disruptions leading to significant shortages.

–Third, the obligation to accept and prioritise priority rated orders respects the essence of and will not disproportionately affect the freedom to conduct a business and the freedom of contract (Article 16 of the Charter) and the right to property (Article 17 of the Charter). This obligation serves the objective of general interest of the Union to address crisis-relevant products supply disruptions. The obligation is appropriate and effective to attain this objective by ensuring the available resources are preferentially utilised for production of such relevant defence products. There is no equally effective measure. When it comes to crisis-relevant products idenfied as affected by a supply crisis, it is proportionate to oblige undertakings which are involved in the supply chain of the latter to accept and prioritise certain orders. Appropriate safeguards ensure that any negative impact of the prioritisation obligation on the freedom to conduct a business, the freedom of contract and the right to property does not amount to a violation of these rights. Any obligation to prioritise certain orders may only be launched for crisis-relevant products that are specifically identified, by the Commission and through an implementing act, and that are affected by disruptions or potential disruptions leading to significant shortages. The undertaking concerned may request the Commission to review the priority rated order if it is unable to perform the order or if performing the order would place unreasonable economic burden on them and entail particular hardship. Furthermore, the subject of the obligation is exempt from any liability for damages for the violation of contractual obligations resulting from compliance with the obligation.

4. BUDGETARY IMPLICATIONS

The financial envelope for the implementation of the Regulation for the period from period XX XX XXXX to 31/12/2027 shall be EUR 1 500 million in current prices.

The impact on the multi-annual financial framework period in terms of required budget and human resources is detailed in the legislative financial statement annexed to the proposal.

5. OTHER ELEMENTS

• Implementation plans and monitoring, evaluation and reporting arrangements

The Commission should draw up an evaluation report for the Programme and communicate it to the European Parliament and to the Council no later than 30/6/2027. This report will notably assess the progress made towards the achievement of the objectives set in the proposal. Also, taking into account the evaluation report, the Commission may submit proposals for any appropriate amendments to this Regulation, notably with a view to addressing any persisting risks hampering the defence industrial readiness of the EU or in relation to the security of supply of defence products in Europe.