Proposal for a REGULATION OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL establishing the European Defence Fund (First reading) - Partial mandate for negotiations with the European Parliament - Main contents

Document date	25-01-2019
Publication date	26-01-2019
Reference	5676/19
From	General Secretariat of the Council
External link	original article
Original document in PDF

Council of the European Union

Brussels, 25 January 2019 (OR. en)

5676/19

Interinstitutional File:

2018/0254(COD) i LIMITE

POLMIL 5 COMPET 66 RECH 50 CFSP/PESC 50 CSDP/PSDC 44 COPS 20 EUMC 15 ECOFIN 59 IND 16 MI 59 EMPL 35 EDUC 26 CADREFIN 40 CODEC 174

'I' ITEM NOTE

From: General Secretariat of the Council

To: Permanent Representatives Committee

No. Cion doc.: 10084/18 + ADD 1 + ADD 2

Subject: Proposal for a REGULATION OF THE EUROPEAN PARLIAMENT AND

OF THE COUNCIL establishing the European Defence Fund (First reading) - Partial mandate for negotiations with the European Parliament

• I. 

  INTRODUCTION

• 1. 

  On 13 June 2018, the Commission submitted to the European Parliament and the Council its

  proposal establishing the European Defence Fund 1 .

• 2. 

  At its meeting on 19 November 2018, the Council reached a partial General Approach 2 on the

  proposal.

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• 3. 

  The European Parliament adopted its report at committee level on 21 November 2018 3 . On 12

  December 2018, the plenary adopted the report and provided the mandate to enter into

  informal negotiations with the Council.

II. STATE OF PLAY

• 4. 

  Following the trilogues held on 16 January and a technical meeting, the Friends of the

  Presidency group on the European Defence Fund (EDF) aimed at preparing further

  negotiations with the European Parliament and reached agreement on a draft text at its

  meeting of 22 and 23 January 2019, as set out in the Annex to this note.

• 5. 

  Since the proposed Regulation is one of the package of proposals linked to the MFF, all

  provisions with budgetary implications or of horizontal nature have been set aside, and thus

  excluded from the partial General Approach, pending further progress on the MFF. These

  provisions, which appear between square brackets, concern the protection of the Union's

  budget in case of generalised deficiencies as regards the rule of law in the Member States

  (Recital 37), the overall target of the EU budget expenditures supporting climate objectives

  (Recital 41), the overall financial envelope for the implementation of the Programme (Article

  4(1)) and the indicative amounts allocated to research and development actions (Article 4(2)),

  provisions regarding the resources allocated to Member States under shared management

  (Article 4(5)), and the reference to the InvestEU Regulation (Article 8(2a)).

• 6. 

  Provisions on the protection of the Union's financial interests (Recitals 38 and 39 and Article

  • 34) 

    have also been adapted in the Annex to this note in line with horizontal guidance 4 .

• 7. 

  Provisions related to third countries to be considered associated countries under the Fund

  (Article 5), which in the Commission proposal concern exclusively European Free Trade

  Association (EFTA) members which are members of the European Economic Area (EEA),

  were also bracketed and thus excluded from the informal negotiations with the Parliament.

  For its part, however, the Parliament expressed its desire to also include this element in the

  negotiations.

3 A8-0412/2018 , the responsible committee: the Committee on Industry, Research and Energy

(ITRE), rapporteur Mr Zdzisław Krasnodębski; Mr David McAllister (AFET) as co-rapporteur.

4 5146/19 and 5148/19.

III. CONCLUSION

• 8. 

  Coreper is invited to endorse the overall approach as set out in the Annex, thus granting a

  negotiating mandate on this basis with a view to the second trilogue on 5 February 2019.

ANNEX

STATE OF PLAY FOLLOWING THE FoP EDF MEETING OF 22-23 JANUARY 2019

Explanatory note

The fourth column contains both compromise proposals (including provisional agreements) and explanations. Regarding the compromise proposals:

• 1) 

  underlined italics text indicates text as it was proposed by the EP; 2) underlined bold text indicates text from the Council revised negotiating

mandate; 3) underlined italics bold text indicated text that is identical in both the EP and Council texts; and 4) bold only text indicates compromise

texts proposed by the Presidency. If both the first (i.e. Commission proposal) and the fourth columns are left empty, it indicates that the relevant EP

amendment and/or the Council addition is not taken.

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• 1. 

  Proposal for a Commission proposal unchanged Commission proposal unchanged Proposal for a

  REGULATION OF THE EUROPEAN REGULATION OF THE EUROPEAN PARLIAMENT AND OF THE PARLIAMENT AND OF THE COUNCIL COUNCIL

  establishing the European Defence establishing the European Defence Fund

Fund (Text with EEA relevance)

(Text with EEA relevance)

• 2. 

  THE EUROPEAN PARLIAMENT Commission proposal unchanged Commission proposal unchanged THE EUROPEAN PARLIAMENT AND AND THE COUNCIL OF THE THE COUNCIL OF THE EUROPEAN

  EUROPEAN UNION, UNION,

  Having regard to the Treaty on the Having regard to the Treaty on the Functioning of the European Union, Functioning of the European Union, and and in particular Article 173(3), Article in particular Article 173(3), Article 182(4), Article 183 and the second 182(4), Article 183 and the second paragraph of Article 188 thereof, paragraph of Article 188 thereof,

  Having regard to the proposal from the Having regard to the proposal from the European Commission, European Commission,

  After transmission of the draft After transmission of the draft legislative legislative act to the national act to the national parliaments,

  parliaments, Having regard to the opinion of the

  Having regard to the opinion of the European Economic and Social European Economic and Social Committee,

  Committee, Acting in accordance with the ordinary

  Acting in accordance with the ordinary legislative procedure,

  legislative procedure, Whereas:

  Whereas:

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• 3. 

  (-1a) Defence is considered to be a clear example of how a greater

  effectiveness could be achieved by transferring certain competences and actions currently performed by the Member States and the corresponding appropriations to the European level, resulting in a demonstration of the European added value and allowing a limitation of the overall burden of public expenditure in the Union.

• 4. 

  (-1b) The Union’s geopolitical (-1b) The Union’s geopolitical context context has changed dramatically in has changed dramatically in the last

  the last decade. The situation in decade. The situation in Europe's Europe's neighbouring regions is neighbouring regions is unstable and the unstable and the Union faces a Union faces a complex and challenging complex and challenging environment, combining the emergence of environment combining the new threats, like hybrid and cyber emergence of new threats like hybrid attacks, and the return of more and cyber-attacks and the return of conventional challenges. Faced with that more conventional challenges. context, both European citizens and their Faced with that context both political leaders share the view that more European citizens and their political has to be done collectively in the area of leaders share the view that more has defence. to be done collectively in the area of defence. 75 % of Europeans support a common defence and security policy. The Rome Declaration of the leaders of 27 Member States and of the European Council, the European Parliament and the Commission of 25 March 2017 stated that the Union will strengthen its common security

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and defence and foster a more competitive and integrated defence industry.

• 5. 

  (1) In the European Defence Action (1) In its Communication of 30 (1) In the European Defence Action (1) In the European Defence Action Plan, adopted on 30 November 2016, November 2016 on the European Plan, adopted on 30 November 2016, the Plan, adopted on 30 November 2016, the the Commission committed to Defence Action Plan, adopted on 30 Commission committed to complement, Commission committed to complement, complement, leverage and consolidate November 2016, the Commission leverage and consolidate collaborative leverage and consolidate collaborative collaborative efforts by Member States committed to complement, leverage efforts by Member States in developing efforts by Member States in developing in developing defence technological and consolidate collaborative efforts defence technological and industrial defence technological and industrial

  and industrial capabilities to respond to by Member States in developing capabilities to respond to security capabilities to respond to security security challenges, as well as to foster defence technological and industrial challenges, as well as to foster a globally challenges, as well as to foster a globally a competitive, innovative and efficient capabilities to respond to security competitive, innovative and efficient competitive, innovative and efficient European defence industry. It proposed challenges, as well as to foster a European defence industry throughout European defence industry throughout in particular to launch a European competitive, innovative and efficient the Union. It proposed in particular to the Union, thus also supporting the Defence Fund (the 'Fund') to support European defence industry and to launch a European Defence Fund (the creation of a more integrated defence investments in joint research and the create a more integrated defence 'Fund') to support investments in joint market in Europe and notably fostering joint development of defence products market throughout the Union. It research and the joint development of the internal market uptake of and technologies, thus fostering proposed in particular to launch a defence products and technologies, thus European defence products and synergies and cost-effectiveness, and European Defence Fund (the 'Fund') fostering synergies and costtechnologies. It proposed in particular to to promote the Member States’ joint to support investments in joint effectiveness, and to promote the launch a European Defence Fund (the purchase and maintenance of defence research and the joint development of Member States’ joint purchase and 'Fund') to support investments in joint equipment. This Fund would defence products and technologies, maintenance of defence equipment. This research and the joint development of complement national funding already thus fostering synergies and cost Fund would complement national defence products and technologies, thus used for this purpose and should act as effectiveness, and to promote the funding already used for this purpose and fostering synergies and costan incentive for Member States to Member States’ joint purchase and should act as an incentive for Member effectiveness, and to promote the cooperate and invest more in defence. maintenance of defence equipment. States to cooperate and invest more in Member States’ joint purchase and The Fund would support cooperation This Fund would complement defence. The Fund would support maintenance of defence equipment. This during the whole cycle of defence national funding already used for this cooperation during the whole life cycle Fund would complement national products and technologies. purpose and should act as an of defence products and technologies. funding already used for this purpose and incentive for Member States to should act as an incentive for Member cooperate cross-border and invest States to cooperate and invest more in more in defence. The Fund would defence. The Fund would support support cooperation during the whole cooperation during the whole cycle of cycle of defence products and defence products and technologies.

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technologies.

• 6. 

  (1a) On 7 June 2017, the Commission adopted a

  Communication launching the European Defence Fund. A two-step approach was proposed: first, in order to test the approach, initial financing for both research and development has been made available under the 2014-2020 Multi-Annual Financial Framework ('MFF') by the adoption of Regulation (EU) 2018/1092 of the European Parliament and of the Council 1 ; second, a dedicated Fund would be established under the MFF 2021 to2027, scaling up the funding for collaborative research in innovative defence products and technologies and for subsequent stages of the development cycle, including the development of prototypes. There should be a consistent and coherent approach between those two steps.

  -----

  1 Regulation (EU) 2018/1092 of the European Parliament and of the Council of 18 July 2018 establishing the European Defence Industrial Development Programme aiming at supporting the competitiveness and innovation capacity of the Union's

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defence industry (OJ L 200, 7.8.2018, p. 30).

• 7. 

  (1b) The defence sector is (1b) The defence sector is characterised by increasing costs of characterised by increasing costs of defence equipment and by high defence equipment and by high research research and development (R&D) and development ('R&D') costs that limit costs that limit the launch of new the launch of new defence programmes defence programmes and directly and directly impact on the

  impact on the competitiveness and competitiveness and innovation capacity innovation capacity of the Union’s of the European Defence Technological industry. In view of the cost and Industrial Base. In view of this cost escalation, of the magnitude of nonescalation, the development of a new recurring R&D expenses and of the generation of major defence systems and small series that can be procured of new defence technologies should be nationally, the development of a new supported at the Union level. generation of major defence systems and of new defence technologies is increasingly beyond the reach of single Member State.

• 8. 

  (1c) In its resolution of 14 March 2018 on the next MFF: Preparing the Parliament’s position on the

  MFF post-2020, the European Parliament reiterated its support for the creation of a European Defence Union, with a specific research programme in the area of defence of the Union and an industrial development programme in which Member States invest, in order to eliminate duplication and increase the strategic autonomy and efficiency of the European defence

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industry. It also reiterated that the Union could be stronger and more ambitious only if additional financial means were made available to it and called, therefore, for ongoing support to be provided in the context of existing policies which increase resources for the Union’s flagship programmes, and for additional responsibilities to be matched with additional financial means.

• 9. 

  (1d) The situation of the defence sector has been further exacerbated by significant cuts in defence

  budgets across Europe in the last 10 years, affecting in particular R&D and equipment expenditures. Between 2006 and 2013 real defence expenditure levels in the EDA participating Member States were reduced by 12 %. Considering that defence R&D is the basis for the development of the future cuttingedge defence technologies, such trends are particularly worrying and pose a serious challenge to the capacity to maintain Union’s defence industry competitiveness in the long term.

• 10. 

  (1e) Despite the interplay between increasing costs and decreasing

  spending, defence planning and

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defence spending on R&D and procurement of equipment has remained largely at national level with very limited cooperation between Member States in defence equipment investments. Additionally, when implemented, only few programmes are also linked to Union capability priorities - in 2015 only 16 % of equipment was procured through European collaborative procurement, far below the agreed collective benchmark of 35 %.

• 11. 

  (2) The Fund would contribute to (2) The Fund would contribute to (2) The Fund would contribute to the (2) The Fund would contribute to the the establishment of a strong, the establishment of a strong, establishment of a strong, competitive establishment of a strong, competitive

  competitive and innovative defence competitive and innovative defence and innovative European defence and innovative European defence industrial and technological base and industrial and technological base and technological and industrial and technological and industrial base and go go hand in hand with the Union's go hand in hand with the Union's technological base and go hand in hand hand in hand with the Union's initiatives initiatives towards a more integrated initiatives towards a more integrated with the Union's initiatives towards a towards a more integrated European European Defence Market and in European Defence Market and in more integrated European Defence Defence Market and in particular, the two particular, the two Directives 1 on particular, the two Directives 2 on Market and in particular, the two Directives 1 on procurement and on EU procurement and on EU transfers in the procurement and on EU transfers in Directives 1 on procurement and on EU transfers in the defence sector adopted in defence sector adopted in 2009. the defence sector adopted in 2009. It transfers in the defence sector adopted in 2009.

  ----- is therefore of crucial importance 2009. that key regulatory preconditions are -----

  1 Directive 2009/43/EC i of the fulfilled, especially the full ----- 1 Directive 2009/43/EC i of the European

  European Parliament and of the implementation of those Directives. 1 Directive 2009/43/EC i of the European Parliament and of the Council, Council, simplifying terms and The Fund is intended to form the Parliament and of the Council, simplifying terms and conditions of conditions of transfers of defencecornerstone of a sound European simplifying terms and conditions of transfers of defence-related products related products within the defence industrial policy. transfers of defence-related products within the Community, OJ L 146, Community, OJ L 146, 10.6.2009, p. 1;

  Directive 2009/81/EC i of the European -----

  within the Community, OJ L 146, 10.6.2009, p. 1; Directive 2009/81/EC i of 10.6.2009, p. 1; Directive 2009/81/EC i of the European Parliament and of the

Parliament and of the Council on the 2 Directive 2009/43/EC i of the the European Parliament and of the Council on the coordination of

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coordination of procedures for the European Parliament and of the Council on the coordination of procedures for the award of certain works award of certain works contracts, Council, simplifying terms and procedures for the award of certain contracts, supply contracts and service supply contracts and service contracts conditions of transfers of defenceworks contracts, supply contracts and contracts by contracting authorities or by contracting authorities or entities in related products within the service contracts by contracting entities in the fields of defence and the fields of defence and security, OJ L Community, OJ L 146, 10.6.2009, p. authorities or entities in the fields of security, OJ L 216, 20.8.2009, p. 76. 216, 20.8.2009, p. 76. 1; Directive 2009/81/EC i of the defence and security, OJ L 216, European Parliament and of the 20.8.2009, p. 76. Council on the coordination of procedures for the award of certain works contracts, supply contracts and service contracts by contracting authorities or entities in the fields of defence and security, OJ L 216, 20.8.2009, p. 76.

• 12. 

  (3) Following an integrated (3) Following an integrated (3) Following an integrated approach (3) Following an integrated approach approach and in order to contribute to approach and in order to contribute to and in order to contribute to the and in order to contribute to the

  the enhancement of the the enhancement of the enhancement of the competitiveness and enhancement of the competitiveness and competitiveness and innovation competitiveness and innovation innovation capacity of the Union's innovation capacity of the Union's capacity of the Union's defence capacity of the Union's defence defence industry, a European Defence defence industry, a European Defence industry, a European Defence Fund industry, a European Defence Fund Fund should be established. The Fund Fund should be established. The Fund should be established. The Fund should be established. The Fund should aim at enhancing the should aim at enhancing the should aim at enhancing the should aim at enhancing the competitiveness, innovation, efficiency competitiveness, innovation, efficiency competitiveness, innovation, efficiency competitiveness, innovation, and autonomy of the Union's defence and technological autonomy of the and autonomy of the Union's defence efficiency and technological and industry thereby contributing to the Union's defence industry thereby industry thereby contributing to the industrial autonomy of the Union's Union's strategic autonomy by contributing to the Union's strategic Union's strategic autonomy by defence industry thereby contributing supporting the cross border cooperation autonomy by supporting the cross border supporting the cross border to the Union's strategic autonomy by between Member States and cooperation cooperation between Member States and cooperation between Member States supporting the cross border between enterprises, research centres, cooperation between enterprises, and between enterprises, research cooperation between Member States national administrations, international research centres, national administrations, centres, national administrations, and between enterprises, research organisations and universities, in the international organisations and international organisations and centres, national administrations, research phase and in the development universities throughout the Union, in the universities, in the research phase and international organisations and phase of defence products and research phase and in the development in the development phase of defence universities throughout the Union, in technologies. To achieve more phase of defence products and products and technologies. To achieve the research phase and in the innovative solutions and an open internal technologies. To achieve more innovative

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more innovative solutions and an open development phase of defence market, the Fund should support the solutions and an open internal market, the

internal market, the Fund should products and technologies. To cross-border participation of defence Fund should support and facilitate the

support the cross-border participation achieve more innovative solutions small- and medium-sized enterprises cross-border participation of defence

of defence small and medium sized and an open internal market, the Fund ('SMEs') and middle capitalisation small- and medium-sized enterprises

enterprises (SMEs) and middle should support the cross-border companies ('mid-caps'). ('SMEs') and middle capitalisation

capitalisation companies (mid-caps). participation of defence small and companies ('mid-caps').

medium sized enterprises (SMEs) and

middle capitalisation companies

(mid-caps). In order to foster an

open internal market, the Fund

should facilitate the widening of

cross-border cooperation between

legal entities, in particular the crossborder

participation of SMEs and

mid-caps.

• 13. 

  (3a) European security is dependent on strong and robust relations with strategic partners around the world and the

  Programme should enhance the competitiveness of the European defence industrial market by further strengthening partnerships through R&D, thereby promoting European strategic capacity and capability.

• 14. 

  (4) The research phase is a crucial (4) The research phase is a (4) The research and technology (4) The research and technology element as it conditions the capacity of crucial element as it conditions the phase is a crucial element as it conditions phase is crucial, as it conditions the the European industry and the capacity of the European industry and the capacity of the European industry capacity and the autonomy of the

  autonomy of the European industry to the autonomy of the European and the autonomy of the European European industry to develop products develop products and the independence industry to develop products and the industry to develop products and the and the independence of Member States of Member States as defence endindependence of Member States as independence of Member States as as defence end-users. The research phase users. The research phase linked to the defence end-users. The research defence end-users. The research phase linked to the development of defence development of defence capabilities phase linked to the development of linked to the development of defence capabilities may include significant risks,

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may include significant risks, in defence capabilities may include capabilities may include significant risks, in particular related to the low level of particular related to the low level of significant risks, in particular related in particular related to the low level of maturity and the disruption of maturity and the disruption of to the low level of maturity and the maturity and the disruption of technologies. The development phase, technologies. The development phase, disruption of technologies. The technologies. The development phase, which usually follows the research and which follows the research and development phase, which follows which usually follows the research and technology phase, also entails significant technology phase, also entails the research and technology phase, technology phase, also entails significant risks and costs that hamper the further significant risks and costs that hamper also entails significant risks and costs risks and costs that hamper the further exploitation of the results of research and the further exploitation of the results of that hamper the further exploitation of exploitation of the results of research and adversely impact the competitiveness and research and adversely impact the the results of research and adversely adversely impact the competitiveness and innovation of the Union's defence competitiveness and innovation of the impact the competitiveness and innovation of the Union's defence industry. Union's defence industry. innovation of the Union's defence industry. industry. The Fund should foster the link between the R&D phases of defence products and technologies in order to bridge the Valley of Death.

• 15. 

  (5) The Fund should not support (5) The Fund should not support (5) The Fund should not support pure (5) The Fund should not support basic pure basic research which should pure basic research which should basic or blue sky research, which should or blue sky research, which should

  instead be supported through other instead be supported through other instead be supported through other instead be supported through other schemes but may include defence schemes but may include defence schemes, but may include defenceschemes, but may include defenceoriented basic research likely to form oriented basic research likely to form oriented fundamental basic research oriented fundamental research likely to the basis of the solution to recognised the basis of the solution to recognised likely to form the basis of the solution to form the basis of the solution to or expected problems or possibilities. or expected problems or possibilities. recognised or expected problems or recognised or expected problems or possibilities. possibilities.

• 16. 

  (6) The Fund could support actions (6) The Fund could support (6) The Fund could support actions (6) The Fund could support actions pertaining to both new and the upgrade actions pertaining to both new and the pertaining to both new and the upgrade pertaining to both new and the upgrade of of existing products and technologies, upgrade of existing products and of existing products and technologies, existing products and technologies.

  wherever the use of pre-existing technologies, wherever the use of prewherever the use of. Actions for the Actions for the upgrade of existing information needed to perform the existing information needed to upgrade of existing defence products defence products and technologies action for the upgrade is not subject to perform the action for the upgrade is and technologies should be eligible should be eligible only where prerestriction by non-associated third not subject to restriction by nononly where pre-existing information existing information needed to carry out countries or non-associated third associated third countries or nonneeded to perform carry out the action the action is not subject to any restriction country entities. When applying for the associated third country entities. for the upgrade is not subject to any by non-associated third countries or non Union funding, legal entities should be When applying for the Union restriction by non-associated third associated third country entities in such a

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required to provide the relevant funding, legal entities should be countries or non-associated third country way that the action cannot be carried information to establish the absence of required to provide the relevant entities in such a way that the action out. When applying for Union funding, restrictions. In the absence of such information to establish the absence cannot be carried out. When applying legal entities should be required to information, the Union funding should of restrictions. In the absence of such for the Union funding, legal entities provide the relevant information to not be possible. information, the Union funding should be required to provide the establish the absence of restrictions. In should not be possible. relevant information to establish the the absence of such information, Union absence of restrictions. In the absence of funding should not be possible. such information, the Union funding should not be possible.

• 17. 

  (6a) The Fund should adequately (6a) The Fund should support actions support R&D actions in the area of conducive to developing disruptive

  disruptive technologies for defence. technologies for defence. As disruptive As disruptive technologies can be technologies can be based on concepts or based on concepts or ideas ideas originating from non-traditional originating from non-traditional defence actors, the Fund should allow for defence R&D actors, the Fund sufficient flexibility regarding their should allow for sufficient flexibility implementation. in consulting stakeholders, as well as in funding and managing actions.

• 18. 

  (7) In order to ensure that the (7) In order to ensure that the (7) In order to ensure that the Union's (7) In order to ensure that the Union's Union's and its Member States' Union's and its Member States' and its Member States' international and its Member States' international

  international obligations are respected international obligations are respected obligations are respected in the obligations are respected in the in the implementation of this in the implementation of this implementation of this Regulation, implementation of this Regulation, Regulation, actions relating to products Regulation, actions relating to actions relating to products or actions relating to products or or technologies the use, development products or technologies the use, technologies the use, development or technologies the use, development or or production of which are prohibited development or production of which production of which are prohibited by production of which are prohibited by by international law should not receive are prohibited by international law international law should not receive international law should not be funding under the Fund. In this respect, should not receive funding under the funding under be supported by the financially supported by the Fund. In the eligibility of actions related to new Fund. In this respect, the eligibility of Fund. In this respect, the eligibility of this respect, the eligibility of actions defence products or technologies, such actions related to new defence actions related to new defence products related to new defence products or as those that are specifically designed products or technologies, such as or technologies, such as those that are technologies, such as those that are to carry out lethal strikes without any those that are specifically designed to specifically designed to carry out lethal specifically designed to carry out lethal human control over the engagement carry out lethal strikes without any strikes without any human control over strikes without any human control over

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decisions, should also be subject to human control over the engagement the engagement decisions, should also be the engagement decisions, should also be developments in international law. decisions, should also be subject to subject to developments in international subject to developments in international developments in international law. law. law.

• 19. 

  (7a) Regarding exports of products which would be the result of R&D

  actions of the Programme, particular attention should be paid to Article 7(1) of the 2013 UN Arms Trade Treaty, which provides that even if the export is not prohibited, exporting State Parties are, in an objective and non-discriminatory manner and taking into account relevant factors, to assess the potential that the conventional arms or items: (a) would contribute to or undermine peace and security or (b) could be used to (i) commit or facilitate a serious violation of international humanitarian law, (ii) commit or facilitate a serious violation of international human rights law, (iii) commit or facilitate an act constituting an offence under international conventions or protocols relating to terrorism to which the exporting State is a Party, or (iv) commit or facilitate an act constituting an offence under international conventions or protocols relating to transnational organized crime to which the exporting State is a Party.

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• 20. 

  (8) The difficulty to agree on (8) The difficulty to agree on (8) The difficulty to agree on (8) The difficulty to agree on consolidated defence capability consolidated defence capability consolidated defence capability consolidated defence capability requirements and common technical requirements and common technical requirements and common technical requirements and common technical specifications or standards hampers specifications or standards hampers specifications or standards hampers specifications or standards hampers cross-border collaboration between cross-border collaboration between cross-border collaboration between cross-border collaboration between Member States and between legal Member States and between legal Member States and between legal entities Member States and between legal entities entities based in different Member entities based in different Member based in different Member States. The based in different Member States. The States. The absence of such States. The absence of such absence of such requirements, absence of such requirements,

  requirements, specifications and requirements, specifications and specifications and standards has led to specifications and standards has led to standards has led to increased standards has led to increased increased fragmentation of the defence increased fragmentation of the defence fragmentation of the defence sector, fragmentation of the defence sector, sector, technical complexity, delays and sector, technical complexity, delays and technical complexity, delays and technical complexity, delays, and inflated costs as well as decreased inflated costs as well as decreased inflated costs as well as decreased inflated costs, unnecessary interoperability. The agreement on interoperability. The agreement on interoperability. The agreement on duplication of capabilities as well as common technical specifications should common technical specifications should common technical specifications decreased interoperability. The be a prerequisite for actions involving a be a prerequisite for actions involving a should be a prerequisite for actions agreement on common technical higher level of technological readiness. higher level of technological readiness. involving a higher level of specifications should be a prerequisite Activities of Member States leading to Activities leading to common defence technological readiness. Activities of for actions involving a higher level of common defence capability requirements capability requirements as well as Member States leading to common technological readiness. Activities of and supporting studies as well as actions activities aiming at supporting the defence capability requirements and Member States fostering activities aiming at supporting the creation of a common definition of supporting studies as well as actions interoperability, leading to common creation of a common definition of technical specifications or standards aiming at supporting the creation of a defence capability requirements and technical specifications or standards should also be eligible for support by the common definition of technical supporting studies as well as actions should also be eligible for support by the Fund, in particular where they foster specifications or standards should also aiming at supporting the creation of a Fund. interoperability. be eligible for support by the Fund. common definition of technical specifications or standards should also be eligible for support by the Fund in order to avoid competing specifications or standards from undermining interoperability.

• 21. 

  (9) As the objective of the Fund is (9) As the objective of the Fund is (9) As the objective of the Fund is to (9) As the objective of the Fund is to to support the competitiveness and to support the competitiveness, support the competitiveness and support the competitiveness, efficiency innovation of the Union defence efficiency, industrial autonomy and innovation of the Union defence industry and innovation of the Union defence

industry by leveraging and innovation of the Union defence by leveraging and complementing industry by leveraging and

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complementing collaborative defence industry by leveraging and collaborative defence research and complementing collaborative defence research and technology activities and complementing collaborative defence technology activities and de-risking the research and technology activities and dede-risking the development phase of research and technology activities and development phase of cooperative risking the development phase of cooperative projects, actions related to de-risking the development phase of projects, actions related to the research cooperative projects, actions related to the research and development of a cooperative projects, actions related and development of a defence product or the research and the development of a defence product or technology should to the research and development technology should be eligible to benefit defence product or technology should be be eligible to benefit from it. This will R&D of a defence product or from it. This will also apply to the eligible to benefit from it. This will also also apply to the upgrade, including the technology should be eligible to upgrade, including the interoperability apply to the upgrade, including the interoperability thereof, of existing benefit from it. This will also apply to thereof, of existing defence products and interoperability thereof, of existing defence products and technologies. the upgrade, including the technologies. defence products and technologies. interoperability thereof, of existing defence products and technologies.

• 22. 

  (10) Given that the Fund aims (10) Given that the Fund aims (10) Given that the Fund aims (10) Given that the Fund aims particularly at enhancing cooperation particularly at enhancing cooperation particularly at enhancing cooperation particularly at enhancing cooperation between legal entities and Member between legal entities and Member between legal entities and Member States between legal entities and Member States States across Europe, an action should States across Europe, an action should across Europe, an action should be across Europe, an action should be be eligible for funding only if it is be eligible for funding only if it is eligible for funding only if it is eligible for funding if it is undertaken by undertaken by a cooperation of at least undertaken by a cooperation within a undertaken by a cooperation of at least a cooperation within a consortium of at three legal entities based in at least consortium of at least three legal three legal entities based in at least three least three legal entities based in at least three different Member States and/or entities based in at least three different Member States and/or three different Member States or associated countries. At least three of different Member States and/or associated countries. At least three of associated countries. At least three of these legal eligible entities established associated countries. Any additional these legal eligible entities established in these eligible entities established in at in at least two different Member States legal entity participating in the at least two different Member States least two different Member States or and/or associated countries should not consortium should be permitted to be and/or associated countries should not be associated countries should not be be effectively controlled, directly or established in an associated country. effectively controlled, directly or controlled, directly or indirectly, by the indirectly, by the same entity or should In every type of cooperation, legal indirectly, by the same entity or should same entity or should not control each not control each other. In order to entities established in Member States not control each other. In this context, other. In this context, control should be boost the cooperation between should be a majority within the control should be understood as the understood as the ability to exercise a Member States the Fund may support consortium. At least three of these ability to exercise a decisive influence decisive influence on a legal entity joint pre-commercial procurement. legal eligible entities established in at on a legal entity directly or indirectly directly or indirectly through one or least two different Member States through one or more intermediate more intermediate legal entities. and/or associated countries should not legal entities. Taking into account the Taking into account the specificities of be effectively controlled, directly or specificities of disruptive technologies disruptive technologies for defence, as indirectly, by the same entity or for defence, as well as of studies, these well as of studies, these activities could

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should not control each other. In activities could be carried out by a be carried out by a single legal entity. order to boost the cooperation single legal entity. In order to boost the In order to boost the cooperation between between Member States the Fund cooperation between Member States, the Member States, the Fund may also may support joint pre-commercial Fund may also support joint presupport joint pre-commercial procurement. commercial procurement. procurement.

• 23. 

  (11) Pursuant to [reference to be (11) Pursuant to [reference to be (11) Pursuant to [reference to be (11) Pursuant to [reference to be updated as appropriate according to a updated as appropriate according to a updated as appropriate according to a updated as appropriate according to a new decision on OCTs: Article 94 of new decision on OCTs: Article 94 of new decision on OCTs: Article 94 of new decision on OCTs: Article 94 of Council Decision 2013/755 i/EU 2 ], Council Decision 2013/755 i/EU 3 ], Council Decision 2013/755 i/EU 2 ], entities Council Decision 2013/755 i/EU 2 ], entities entities established in overseas entities established in overseas established in oOverseas cCountries and established in Overseas Countries and countries and Territories (OCTs) are to countries and Territories (OCTs) are Territories (OCTs) are to should be Territories (OCTs) should be eligible for be eligible for funding subject to the to be eligible for funding subject to eligible for funding subject to the rules funding subject to the rules and

  rules and objectives of the Fund and the rules and objectives of the Fund and objectives of the Fund and possible objectives of the Fund and possible possible arrangements applicable to the and possible arrangements applicable arrangements applicable to the Member arrangements applicable to the Member Member State to which the OCTs is to the Member State to which the State to which the OCTs is linked. State to which the OCTs is linked.

  linked. OCTs is linked. ----- ----- ----- ----- 2 Council Decision 2013/755 i/EU of 25 2 Council Decision 2013/755 i/EU of 25

  2 Council Decision 2013/755 i/EU of 25 3 Council Decision 2013/755 i/EU of November 2013 on the association of the November 2013 on the association of the November 2013 on the association of 25 November 2013 on the association overseas countries and territories with overseas countries and territories with the the overseas countries and territories of the overseas countries and the European Union (Overseas European Union (Overseas Association with the European Union (Overseas territories with the European Union Association Decision) (OJ L 344, Decision) (OJ L 344, 19.12.2013, p. 1). Association Decision) (OJ L 344, (Overseas Association Decision) (OJ 19.12.2013, p. 1). 19.12.2013, p. 1). L 344, 19.12.2013, p. 1).

• 24. 

  (12) As the Fund aims at enhancing (12) As the Fund aims at enhancing (12) As the Fund aims at enhancing (12) As the Fund aims at enhancing the the competitiveness, efficiency and the competitiveness, efficiency and the competitiveness, and efficiency and competitiveness and efficiency of the

  autonomy of the Union's defence autonomy of the Union's defence autonomy of the Union's defence Union's defence industry, only entities industry, only entities established in industry, only entities established in industry, only entities established in the established in the Union or in associated the Union or associated countries and the Union or associated countries and Union or in associated countries and not countries and not subject to control by not subject to control by nonnot subject to control by nonsubject to control by non-associated third non-associated third countries or nonassociated third countries or nonassociated third countries or noncountries or non-associated third country associated third country entities should in associated third country entities should associated third country entities entities should in principle be eligible for principle be eligible for support. In this in principle be eligible for support. should in principle be eligible for support. In this context, control should context, control should be understood

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Additionally, in order to ensure the support. Additionally, in order to be understood as the ability to exercise as the ability to exercise a decisive protection of essential security and ensure the protection of essential a decisive influence on a legal entity influence on a legal entity directly or defence interests of the Union and its security and defence interests of the directly or indirectly through one or indirectly through one or more Member States, the infrastructure, Union and its Member States, the more intermediate legal entities. intermediate legal entities. Additionally, facilities, assets and resources used by infrastructure, facilities, assets and Additionally, in order to ensure the in order to ensure the protection of the recipients and their subcontractors resources used by the recipients and protection of essential security and essential security and defence interests of in actions supported by the Fund their subcontractors in actions defence interests of the Union and its the Union and its Member States, the should not be located on the territory supported by the Fund should not be Member States, the infrastructure, infrastructure, facilities, assets and of non-associated third countries. located on the territory the Union or facilities, assets and resources used by resources used by the recipients and their of non-associated third countries. the recipients and their subcontractors in subcontractors in actions financially actions supported by the Fund should not supported by the Fund should not be be located on the territory of nonlocated on the territory of non-associated associated third countries, and their third countries, and their executive executive management structures management structures should be should be established in the Union or established in the Union or in an in an associated country. Accordingly, associated country. Accordingly, an an entity which is established in a nonentity which is established in a nonassociated third country or an entity associated third country or an entity which is established in the Union or in which is established in the Union or in an associated country but which has an associated country but which has its its executive management structures in executive management structures in a a non-associated third country is not non-associated third country is not eligible to be a recipient or eligible to be a recipient or subcontractor involved in the action. subcontractor involved in the action.

• 25. 

  (13) In certain circumstances, if this (13) In certain circumstances, if (13) In certain circumstances, if this is (13) In certain circumstances, it should is necessary for achieving the this is necessary for achieving the necessary for achieving the objectives of be possible to derogate from the principle objectives of the action, it should be objectives of the action, it should be the action, it should be possible to that recipients and their subcontractors

  possible to derogate from the principle possible to derogate from the derogate from the principle that involved in an action financially that recipients and their subcontractors principle that recipients and their recipients and their subcontractors supported by the Fund are not subject should not be subject to control by subcontractors should not be subject involved in an action supported by the to control by non-associated third non-associated third countries or nonto control by non-associated third Fund should are not be subject to countries or non-associated third country associated third country entities. In that countries or non-associated third control by non-associated third countries entities. In that context, legal entities perspective, legal entities established country entities. In that perspective, or non-associated third country entities. established in the Union or in an in the Union that are controlled by a legal entities established in the Union In that context perspective, legal entities associated country that are controlled by

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non-associated third country or a nonthat are controlled by a nonestablished in the Union or in an a non-associated third country or a nonassociated third country entity can be associated third country or a nonassociated country that are controlled associated third country entity should be eligible if relevant and strict conditions associated third country entity can be by a non-associated third country or a eligible as recipients or subcontractors relating to the security and defence eligible if relevant and strict non-associated third country entity involved in the action provided that interests of the Union and its Member conditions relating to the security and should can be eligible as recipients or strict conditions relating to the security States are fulfilled. The participation of defence interests of the Union and its subcontractors involved in the action and defence interests of the Union and its such entities should not contravene the Member States are fulfilled. The provided that, if relevant and strict Member States are fulfilled. The objectives of the Fund. Applicants participation of such entities should conditions relating to the security and participation of such legal entities should should provide all relevant information not contravene the objectives of the defence interests of the Union and its not contravene the objectives of the Fund. about the infrastructure, facilities, Fund. Applicants should provide all Member States, are fulfilled. The Applicants should provide all relevant assets and resources to be used in the relevant information about the participation of such legal entities should information about the infrastructure, action. infrastructure, facilities, assets and not contravene the objectives of the facilities, assets and resources to be used resources to be used in the action. In Fund. Applicants should provide all in the action. Member States' concerns any event, no derogation should be relevant information about the regarding security of supply should granted to applicants controlled by a infrastructure, facilities, assets and also be taken into account in this non-associated third country subject resources to be used in the action. respect. to any Union restrictive measures or Member States' concerns regarding by a non-associated third-country security of supply should also be taken entity subject to any Union into account. (13-a) In the framework of the EU's restrictive measures. restrictive measures, adopted on the basis of Article 215 TFEU and 29 TEU, no funds or economic resources may be made available, directly or indirectly, to or for the benefit of natural or legal persons, entities or bodies subject to such restrictive measures. Entities which are subject to such EU restrictive measures, and entities which are owned or controlled by entities which are subject to such EU restrictive measures, may therefore not be financially supported by the Fund.

• 26. 

  (13a) Union funding should be (13a) Union funding should be granted following competitive calls for granted following competitive calls for

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proposals issued in accordance with proposals issued in accordance with the Regulation (EU, Euratom) the Regulation (EU, Euratom) 2018/1046 of the European Parliament 2018/1046 of the European Parliament and of the Council (the ‘Financial and of the Council (the ‘Financial Regulation’) 3 . However, in certain Regulation’) 3 . However, in certain duly duly justified and exceptional justified and exceptional circumstances, Union funding may circumstances, Union funding may also also be granted in accordance with be granted in accordance with Article Article 195(e) of the Financial 195(e) of the Financial Regulation. As Regulation. As the award of funding in the award of funding in accordance accordance with Article 195(e) of the with Article 195(e) of the Financial Financial Regulation constitutes a Regulation constitutes a derogation derogation from the general rule of from the general rule of following following competitive calls for competitive calls for proposals, those proposals, those exceptional exceptional circumstances should be circumstances should be interpreted interpreted strictly. In this context, for strictly. In this context, for a grant to a grant to be awarded without a call be awarded without a call for for proposals, the degree to which the proposals, the degree to which the proposed action corresponds to the proposed action corresponds to the objectives of the Fund with respect to objectives of the Fund with respect to cross-border industrial collaboration cross-border industrial collaboration and competition throughout the supply and competition throughout the chain should be assessed by the supply chain should be assessed by the Commission assisted by the committee Commission assisted by the committee of Member States (the 'committee').

of Member States (the 'committee'). ----- ----- 3 Regulation (EU, Euratom) 2018/1046

3 Regulation (EU, Euratom) 2018/1046 of the European Parliament and of the of the European Parliament and of the Council of 18 July 2018 on the Council of 18 July 2018 on the financial rules applicable to the general financial rules applicable to the budget of the Union, amending general budget of the Union, amending Regulations (EU) No 1296/2013 i, (EU) Regulations (EU) No 1296/2013 i, (EU) No 1301/2013, (EU) No 1303/2013,

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No 1301/2013, (EU) No 1303/2013, (EU) No 1304/2013, (EU) No (EU) No 1304/2013, (EU) No 1309/2013, (EU) No 1316/2013, (EU) 1309/2013, (EU) No 1316/2013, (EU) No 223/2014, (EU) No 283/2014, and No 223/2014, (EU) No 283/2014, and Decision No 541/2014/EU and Decision No 541/2014/EU and repealing Regulation (EU, Euratom) repealing Regulation (EU, Euratom) No 966/2012. No 966/2012.

• 27. 

  (14) If a consortium wishes to Commission proposal unchanged Commission proposal unchanged (14) If a consortium wishes to participate in an eligible action and the participate in an eligible action and the financial assistance of the Union is to financial assistance of the Union is to take the form of a grant, the take the form of a grant, the consortium consortium should appoint one of its should appoint one of its members as a members as a coordinator who will be coordinator who will be the principal the principal point of contact. point of contact.

• 28. 

  (15) In case a development action (15) In case a development action (15) In case a development an action (15) In case an action financially supported by the Fund is managed by a supported by the Fund is managed by supported by the Fund is managed by a supported by the Fund is managed by a project manager appointed by Member a project manager appointed by project manager appointed by Member project manager appointed by Member States or associated countries, the Member States or associated States or associated countries, the States or associated countries, the

  Commission should inform the project countries, the Commission should Commission should consult inform the Commission should consult the project manager prior to executing the inform consult the project manager project manager prior to executing the manager prior to executing the payment payment to the recipient so that the prior to executing the payment to the payment to the recipients, so that the to the recipients, so that the project project manager can ensure that the recipient so that the project manager project manager can ensure that the timemanager can ensure that the time-frames time-frames are respected by the can ensure that the time-frames are frames are respected by the recipients. are respected by the recipients. The recipients. Under certain respected by the recipients. Under Under certain circumstances, the project project manager could provide the circumstances, the project manager certain circumstances, tThe project manager could provide the Commission Commission with observations on the could provide the Commission with its manager should could provide the with its observations on the progress of progress of the action so that the observations on the progress of the Commission with its observations on the action so that the Commission can Commission can validate whether the action so that the Commission can the progress of the action so that the validate whether the conditions to conditions to proceed to the payment are validate whether the conditions to Commission can validate whether the proceed to the payment are fulfilled. fulfilled. proceed to the payment are fulfilled. conditions to proceed to the payment are fulfilled.

• 29. 

  (15a) When a project manager has (15a) When a project manager has been appointed by Member States been appointed by Member States

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cofinancing an action, the budget cofinancing an action, the budget implementation tasks could be implementation tasks could be entrusted for this specific project to entrusted for this specific project to the the project manager in the case of project manager in the case of indirect indirect management of this specific management of this specific project. project.

• 30. 

  (16) In order to ensure that the (16) In order to ensure that the (16) In order to ensure that the funded (16) In order to ensure that the funded funded actions are financially viable, it funded actions are financially viable, actions are financially viable, it is actions are financially viable, it is

  is necessary that the beneficiaries it is necessary that the beneficiaries necessary that the beneficiaries necessary that the applicants demonstrate that the costs of the action demonstrate that the costs of the applicants demonstrate that the costs of demonstrate that the costs of the action not covered by the Union's funding are action not covered by the Union's the action not covered by the Union's not covered by the Union's funding are covered by other means of financing. funding are covered by other means funding are covered by other means of covered by other means of financing. of financing. financing.

• 31. 

  (17) Different types of financial (17) Different types of financial (17) Different types of financial (17) Different types of financial arrangement should be at the disposal arrangement should be at the disposal arrangements should be at the disposal to arrangements should be at the disposal of to Member States for the joint to Member States for the joint of Member States for the joint Member States for the joint development development and acquisition of development and acquisition of development and acquisition of defence and acquisition of defence capabilities. defence capabilities. The Financial defence capabilities. The Financial capabilities. The Financial Toolbox The Commission could provide different Toolbox developed by the Commission Toolbox developed by the developed by the Commission could types of arrangements that Member should provide different types of Commission should provide different should provide different types of States could use on a voluntary basis to arrangements that Member States can types of arrangements that Member arrangements that Member States can address challenges for collaborative use to address challenges for States can use to address challenges could use on a voluntary basis to development and procurement from a collaborative development and for collaborative development and address challenges for collaborative financing perspective. The use of such procurement from a financing procurement from a financing development and procurement from a financial arrangements could further perspective. The use of such financial perspective. The use of such financial financing perspective. The use of such foster the launch of collaborative and arrangements could further foster the arrangements could further foster the financial arrangements could further cross-border defence projects and launch of collaborative defence launch of collaborative and crossfoster the launch of collaborative defence increase the efficiency of defence projects and increase the efficiency of border defence projects, contribute to projects and increase the efficiency of spending, including for projects

  defence spending, including for avoiding duplications and increase defence spending, including for projects supported by the Fund. projects supported under the European the efficiency of defence spending, supported under by the European Defence Fund. including for projects supported under Defence Fund. the European Defence Fund.

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• 32. 

  (18) Given the specificities of the (18) Given the specificities of the (18) Given the specificities of the (18) Given the specificities of the defence industry where demand comes defence industry where demand defence industry, where demand comes defence industry, where demand comes almost exclusively from Member comes almost exclusively from almost exclusively from Member States almost exclusively from Member States States and associated countries, which Member States and associated and associated countries, which also and associated countries, which also also control all acquisition of defencecountries, which also control all control all acquisition of defence-related control all acquisition of defence-related related products and technologies, acquisition of defence-related products and technologies, including products and technologies, including including exports, the functioning of products and technologies, including exports, the functioning of the defence exports, the functioning of the defence the defence sector is unique and does exports, the functioning of the sector is unique and does not follow the sector is unique and does not follow the not follow the conventional rules and defence sector is unique and does not conventional rules and business models conventional rules and business models business models that govern more follow the conventional rules and that govern more traditional markets. that govern more traditional markets. traditional markets. Industry therefore business models that govern more Industry therefore cannot undertake Industry therefore cannot undertake cannot undertake substantial selftraditional markets. Industry therefore substantial self-funded defence Research substantial self-funded defence Research funded defence Research and cannot undertake substantial selfand Development (R&D) projects and and Development ('R&D') projects and Development (R&D) projects and funded defence Research and Member States and associated countries Member States and associated countries Member States and associated Development R&D projects and normally often fully fund all R&D costs. often fully fund all R&D costs. To countries normally fully fund all R&D Member States and associated To achieve the objectives of the Fund, achieve the objectives of the Fund, cost. To achieve the objectives of the countries normally fully fund all notably to incentivise cooperation notably to incentivise cooperation

  Fund, notably to incentivise R&D cost. To achieve the objectives between legal entities companies from between legal entities from different cooperation between companies from of the Fund, notably to incentivise different Member States and associated Member States and associated countries, different Member States and associated cooperation between companies from countries, and taking into account the and taking into account the specificities countries, and taking into account the different Member States and specificities of the defence sector, up to of the defence sector, up to the totality of specifics of the defence sector, up to associated countries, and taking into the totality of the eligible costs should be the eligible costs should be covered for totality of the eligible costs should be account the specifics of the defence covered for actions that take place ahead actions that take place ahead of the covered for actions that take place sector, up to the totality of the eligible of the development of prototypes phase. development of prototypes phase. ahead of the development of costs should be covered for actions prototypes phase. that take place ahead of the development of prototypes phase.

• 33. 

  (19) The prototype phase is a crucial Commission proposal unchanged Commission proposal unchanged (19) The prototype phase is a crucial phase where Member States or phase where Member States or associated associated countries usually decide on countries usually decide on their

  their consolidated investment and start consolidated investment and start the the acquisition process of their future acquisition process of their future defence defence products or technologies. This products or technologies. This is the is the reason why, at this specific stage, reason why, at this specific stage,

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Member States and associated Member States and associated countries countries agree on the necessary agree on the necessary commitments commitments including cost-sharing including cost-sharing and ownership of and ownership of the project. To the project. To ensure the credibility of ensure the credibility of their their commitment, the financial commitment, the financial assistance assistance of the Union under the Fund of the Union under the Fund should should normally not exceed 20 % of the normally not exceed 20 % of the eligible costs. eligible costs.

• 34. 

  (20) For actions beyond the Commission proposal unchanged Commission proposal unchanged (20) For actions beyond the prototype prototype phase, funding up to 80% phase, funding up to 80% should be

  should be foreseen. These actions foreseen. These actions which are closer which are closer to product and to product and technology finalisation technology finalisation may still may still involve substantial costs. involve substantial costs.

• 35. 

  (21) Stakeholders in the defence (21) Stakeholders in the defence (21) Stakeholders in the defence sector (21) Stakeholders in the defence sector sector are facing specific indirect costs, sector are facing specific indirect are facing specific indirect costs, such as are facing specific indirect costs, such as such as costs for security. Furthermore, costs, such as costs for security. costs for security. Furthermore, costs for security. Furthermore,

  stakeholders are working in a specific Furthermore, stakeholders are stakeholders are working in a specific stakeholders are working in a specific market where they – without any working in a specific market where market where they – without any demand market where they – without any demand demand on the buyers' side – cannot they – without any demand on the on the buyers' side – cannot recover the on the buyers' side – cannot recover the recover the research and development buyers' side – cannot recover the research and development costs like in R&D costs like in the civilian sector. costs like in the civilian sector. R&D research and development costs the civilian sector. Therefore, it is Therefore, it is justified to allow a flat Therefore, it is justified to allow a flat like in the civilian sector. Therefore, justified to allow a flat rate of 25 % as rate of 25 % as well as the possibility, on rate of 25 % as well as the possibility, it is justified to allow a flat rate of 25 well as the possibility, on a project case a case by case basis, to charge indirect on a project base, to charge indirect % as well as the possibility, on a by case basise, to charge indirect costs costs calculated in accordance with the costs calculated in accordance with the project base, to charge indirect costs calculated in accordance with the usual usual accounting practices of the usual accounting practises of calculated in accordance with the accounting practisces of the recipients recipients if these practices are accepted beneficiaries if these practises are usual accounting practises of beneficiaries if these practisces are by their national authorities for accepted by their national authorities beneficiaries if these practises are accepted by their national authorities comparable activities in the defence under comparable national funding accepted by their national authorities under for comparable activities in the domain, which have been communicated schemes, which have been under comparable national funding defence domain national funding to the Commission. The authorising communicated to the Commission. The schemes, which have been schemes, which have been officer responsible should justify the

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authorising officer responsible should communicated to the Commission. communicated to the Commission. The decision to accept indirect eligible costs justify its decision to accept indirect The authorising officer responsible authorising officer responsible should of up to 80 % of the total direct eligible eligible costs beyond the flat rate of 25 should justify its decision to accept justify its the decision to accept indirect costs in the work programme or in the % in the work programme or in the call indirect eligible costs beyond the flat eligible costs of up to 80 % of the total call for proposals. for proposals. rate of 25 % in the work programme direct eligible costs beyond the flat rate or in the call for proposals. of 25 % in the work programme or in the call for proposals.

• 36. 

  (21a) Projects with participation of (21a) Actions with participation of cross-border SMEs and mid-caps cross-border SMEs and mid-caps support support the opening up of the supply the opening up of the supply chains and chains and contribute to the contribute to the objectives of the Fund. objectives of the Fund. Such actions Such actions should therefore be eligible should therefore be eligible for an for an increased funding rate benefitting increased funding rate benefitting all all participating entities.

  entities participating in the consortium.

• 37. 

  (22) In order to ensure that the (22) In order to ensure that the (22) In order to ensure that the funded (22) In order to ensure that the funded funded actions will contribute to the funded actions will contribute to the actions will contribute to the actions will contribute to the

  competitiveness and efficiency of the competitiveness and efficiency of the competitiveness and efficiency of the competitiveness and efficiency of the European defence industry, it is European defence industry, it is European defence industry, it is European defence industry, it is important that Member States already important that Member States already important that Member States already important that Member States intend to intend to jointly procure the final intend to jointly procure the final intend to jointly procure the final product jointly procure the final product or use product or use the technology, notably product or use the technology, or use the technology, notably through the technology, notably through joint through joint cross-border notably through joint cross-border joint cross-border procurement, where cross-border procurement, where procurement, where Member States procurement, where Member States Member States jointly organise their Member States jointly organise their jointly organise their procurement jointly organise their procurement procurement procedures in particular procurement procedures in particular procedures in particular with the use of procedures in particular with the use with the use of a central purchasing with the use of a central purchasing body. a central purchasing body. of a central purchasing body. As body. defence ministries of Member States are exclusive customers and defence industries are the sole providers of defence products, in order to facilitate procurement, ministries of

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defence of Member States should be involved in the project from the technical specification all the way until the project is finished.

• 38. 

  (22 a) To respond to increased instability and conflicts in their neighbourhood and new security and geopolitical threats, Member States and the Union need to

  coordinate investment decisions, and thus require a common definition of threats, needs and priorities, including anticipated military capability needs, which could be identified via procedures such as the Capability Development Plan (CDP).

• 39. 

  (23) The promotion of innovation (23) The promotion of innovation (23) The promotion of innovation and (23) The promotion of innovation and and technological development in the and technological development in the technological development in the Union technological development in the Union Union defence industry should take Union defence industry should take defence industry should take place in a defence industry should take place in a place in a manner coherent with the place in a manner coherent with the manner coherent with the security and manner coherent with the security and

  security and defence interests of the security and defence interests of the defence interests of the Union. defence interests of the Union. Union. Accordingly, the action's Union. Accordingly, the action's Accordingly, the action's' contributions Accordingly, the action's' contributions to contribution to those interests and to contribution to those interests and to to those interests and to the defence those interests and to the defence the defence research and capability the defence research and capability research and capability priorities research and capability priorities priorities commonly agreed by priorities commonly agreed by commonly agreed by Member States commonly agreed by Member States Member States should serve as an Member States should serve as an should serve as an award criterion. should serve as an award criterion. award criterion. Within the Union, award criterion. Within the Union, Within the Union, common defence Within the Union, common defence common defence research and common defence research and research and capability shortfalls are capability shortfalls are identified in the capability shortfalls are identified in capability shortfalls are identified in identified in the Common Security and Common Security and Defence Policy the Common Security and Defence the Common Security and Defence Defence Policy (CSDP) framework framework notably through the Policy (CSDP) framework notably Policy (CSDP) framework notably notably through Overarching Strategic Capability Development Plan, while the through Overarching Strategic through Overarching Strategic Research Agenda and the Capability Overarching Strategic Research Research Agenda and the Capability Research Agenda and the Capability Development Plan, while the Agenda also identifies common defence

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Development Plan. Other Union Development Plan CDP, including Overarching Strategic Research research objectives. Other Union processes such as the Coordinated the CDP Strategic Context Cases. Agenda also identifies common processes such as the Coordinated Annual Review on Defence and the Other Union processes such as the defence research objectives. Other Annual Review on Defence and Permanent Structured Cooperation will Coordinated Annual Review on Union processes such as the Coordinated Permanent Structured Cooperation will support the implementation of relevant Defence and the Permanent Annual Review on Defence and the support the implementation of relevant priorities through identifying and Structured Cooperation will support Permanent Structured Cooperation will priorities through identifying and taking taking forward opportunities for the implementation of relevant support the implementation of relevant forward opportunities for enhanced enhanced cooperation with a view to priorities through identifying and priorities through identifying and taking cooperation with a view to fulfilling the fulfilling the EU level of ambition on taking forward opportunities for forward opportunities for enhanced EU level of ambition on security and security and defence. Where enhanced cooperation with a view to cooperation with a view to fulfilling the defence. Where appropriate, regional and appropriate, regional and international fulfilling the EU level of ambition on EU level of ambition on security and international priorities, including those in priorities, including those in the North security and defence. Where defence. Where appropriate, regional and the North Atlantic Treaty Organisation Atlantic Treaty Organisation context, appropriate, regional and international international priorities, including those in context, may also be taken into account if may also be taken into account if they priorities, including those in the North the North Atlantic Treaty Organisation they are in line with Union priorities and are in line with Union priorities and do Atlantic Treaty Organisation context, context, may also be taken into account if do not prevent any Member State or an not prevent any Member State or an may should also be taken into they are in line with Union priorities and associated country from participating, associated country from participating, account if they are in line with Union do not prevent any Member State or an while also taking into account that while also taking into account that priorities and do not prevent any associated country from participating, unnecessary duplication should be unnecessary duplication should be Member State or an associated while also taking into account that avoided. avoided. country from participating, while also unnecessary duplication should be taking into account that unnecessary avoided. duplication should be avoided.

• 40. 

  (24) Eligible actions developed in Commission proposal unchanged Commission proposal unchanged (24) Eligible actions developed in the the context of Permanent Structured context of Permanent Structured

  Cooperation (PESCO) in the Cooperation in the institutional institutional framework of the Union framework of the Union should ensure should ensure enhanced cooperation enhanced cooperation between legal between legal entities in the different entities in the different Member States on Member States on a continuous basis a continuous basis and thus directly and thus directly contribute to the aims contribute to the aims of the Fund. If of the Fund. If selected, such projects selected, such projects should thus be should thus be eligible for an increased eligible for an increased funding rate. funding rate.

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• 41. 

  (24 a) The Fund should take into account the Action Plan on Military Mobility as part of the next

  Connecting Europe Facility, European Peace Facility to support, and, inter alia, Common Foreign and Security Policy CFSP/CSDP Missions and efforts to counter Hybrid Threats, that together with CDP, CARD and PESCO help to coordinate capability planning, development, procurement and operations.

• 42. 

  (25) The Commission will take into (25) The Commission will take into (25) The Commission will take into (25) The Commission will take into account the other activities financed account the other activities financed account the other activities financed account other activities financed under under the Horizon Europe Framework under the Horizon Europe Framework under the Horizon Europe Framework the Horizon Europe Framework

  programme in order to avoid programme in order to avoid programme in order to avoid unnecessary programme in order to avoid unnecessary unnecessary duplication and ensure the unnecessary duplication and ensure duplication and ensure the crossduplication and ensure cross-fertilisation cross-fertilisation between civil and the cross-fertilisation and synergy fertilisation between civil and defence and synergies between civil and defence defence research. between civil and defence research research. research. and ensure that Horizon Europe remains a purely civil research programme.

• 43. 

  (26) Cybersecurity and cyber (26) Cybersecurity and cyber (26) Cybersecurity and cyber defence (26) Cybersecurity and cyber defence defence are increasingly important defence are increasingly important are increasingly important challenges and are increasingly important challenges and challenges and the Commission and challenges and the Commission and the Commission and the High the Commission and the High

  the High Representative recognised the the High Representative recognised Representative of the Union for Foreign Representative of the Union for Foreign need to establish synergies between the need to establish synergies Affairs and Security Policy recognised Affairs and Security Policy recognised cyber defence actions within the scope between cyber defence actions within the need to establish synergies between the need to establish synergies between of the Fund and Union initiatives in the the scope of the Fund and Union cyber defence actions within the scope of cyber defence actions within the scope of field of cybersecurity, such as those initiatives in the field of the Fund and Union initiatives in the the Fund and Union initiatives in the field announced in the Joint Communication cybersecurity, such as those field of cybersecurity, such as those of cybersecurity, such as those on cybersecurity. In particular, the announced in the Joint announced in the Joint Communication announced in the Joint Communication

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European Cybersecurity Industrial, Communication on cybersecurity. In on cybersecurity. [In particular, the on cybersecurity. [In particular, the Technology and Research Competence particular, the European European Cybersecurity Industrial, European Cybersecurity Industrial, Centre to be set up should seek Cybersecurity Industrial, Technology Technology and Research Competence Technology and Research Competence synergies between the civilian and and Research Competence Centre to Centre to be set up should seek synergies Centre to be set up should seek synergies defence dimensions of cybersecurity. It be set up should seek synergies between the civilian and defence between the civilian and defence could actively support Member States between the civilian and defence dimensions of cybersecurity. It could dimensions of cybersecurity. It could and other relevant actors by providing dimensions of cybersecurity. It could actively support Member States and actively support Member States and other advice, sharing expertise and actively support Member States and other relevant actors by providing advice, relevant actors by providing advice, facilitating collaboration with regard to other relevant actors by providing sharing expertise and facilitating sharing expertise and facilitating projects and actions as well as when advice, sharing expertise and collaboration with regard to projects and collaboration with regard to projects and requested by Member States acting as facilitating collaboration with regard actions as well as when requested by actions as well as when requested by a project manager in relation to the to projects and actions as well as Member States acting as a project Member States acting as a project European Defence Fund. when requested by Member States manager in relation to the European manager in relation to the Fund.] acting as a project manager in relation Defence Fund.] to the European Defence Fund.

• 44. 

  (27) An integrated approach should (27) An integrated approach should (27) An integrated approach should be (27) An integrated approach should be be ensured by bringing together be ensured by bringing together ensured by bringing together activities ensured by bringing together activities

  activities covered by the Preparatory activities covered by the Preparatory covered by the Preparatory Action on covered by the Preparatory Action on Action on Defence Research launched Action on Defence Research launched Defence Research launched by the Defence Research ('PADR') launched by by the Commission within the meaning by the Commission within the Commission within the meaning of the Commission within the meaning of of Article [58 (2) (b)] of Regulation meaning of Article [58 (2) (b)] of Article [58(2)(b)] of the Financial Article 58(2)(b) of the Financial (EU, Euratom) 2018/…of the Regulation (EU, Euratom) 2018/…of Regulation (EU, Euratom) 2018/…of the Regulation and the European Defence European Parliament and of the the European Parliament and of the European Parliament and of the Council Industrial Development Programme Council (the ‘Financial Regulation’) Council (the ‘Financial Regulation’) (the ‘Financial Regulation’) and the ('EDIDP') established by Regulation and the European Defence Industrial and the European Defence Industrial European Defence Industrial (EU) 2018/1092 of the European Development Programme established Development Programme established Development Programme established by Parliament and of the Council, and to by Regulation (EC) No … of the by Regulation (EC) No … of the Regulation (EUC) No… 2018/1092 of harmonise the conditions for European Parliament and of the European Parliament and of the the European Parliament and of the participation, to create a more coherent Council and to harmonise the Council and to harmonise the Council, and to harmonise the conditions set of instruments, and to increase the conditions for participation, to create a conditions for participation, to create for participation, to create a more innovative, collaborative and economic more coherent set of instruments, to a more coherent set of instruments, to coherent set of instruments, and to impact, while avoiding unnecessary increase the innovative, collaborative increase the innovative, collaborative increase the innovative, collaborative and duplication and fragmentation. With this and economic impact, while avoiding and economic impact, while avoiding economic impact, while avoiding integrated approach, the Fund would also unnecessary duplication and unnecessary duplication and unnecessary duplication and contribute to a better exploitation of the

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fragmentation. With this integrated fragmentation. With this integrated fragmentation. With this integrated results of defence research, covering the approach, the Fund would also approach, the Fund would also approach, the Fund would also contribute gap between the research and the contribute to a better exploitation of contribute to a better exploitation of to a better exploitation of the results of development phases taking into account the results of defence research, the results of defence research, defence research, covering the gap the specificities of the defence sector, and covering the gap between research and covering the gap between research between research and development promoting all forms of innovation, development taking into account the and development R&D taking into taking into account the specificities of including disruptive innovation. Positive specificities of the defence sector, and account the specificities of the the defence sector, and promoting all spillover effects can also be expected, promoting all forms of innovation, defence sector, and promoting all forms of innovation, including disruptive where applicable, in the civilian field. including disruptive innovation where forms of innovation, and as positive innovation where possible failure should possible failure should be accepted. spillover effects can be expected, be accepted. where applicable, in the civil field, including disruptive innovation where possible failure should be accepted.

• 45. 

  (28) The policy objectives of this Commission proposal unchanged (28) Where appropriate in view of (28) Where appropriate in view of Fund will be also addressed through the specificities of the action, tThe the specificities of the action, the

  financial instruments and budgetary policy objectives of this the Fund will objectives of the Fund should be also guarantees under the policy window(s) should be also addressed through addressed through financial instruments [...] of the InvestEU Fund. financial instruments and budgetary and budgetary guarantees. guarantees under the policy window(s) [...] of the InvestEU Fund.

• 46. 

  (29) Financial support should be Commission proposal unchanged (29) Financial support should be used (29) Financial support should be used used to address market failures or subto address market failures or sub-optimal to address market failures or sub-optimal optimal investment situations, in a investment situations in a proportionate investment situations in a proportionate proportionate manner and actions manner and actions should not duplicate manner and actions should not duplicate should not duplicate or crowd out or crowd out private financing or distort or crowd out private financing or distort private financing or distort competition competition in the internal market. competition in the internal market.

  in the internal market. Actions should Actions should have a clear European Actions should have a clear added value have a clear European added value. added value for the Union. for the Union.

• 47. 

  (30) The types of financing and the Commission proposal unchanged (30) The types of financing and the (30) The types of financing and the methods of implementation under this methods of implementation under this methods of implementation of the Fund Regulation should be chosen on the Regulation of the Fund should be should be chosen on the basis of their basis of their ability to achieve the chosen on the basis of their ability to ability to achieve the specific objectives specific objectives of the actions and to achieve the specific objectives of the of the actions and to deliver results,

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deliver results, taking into account, in actions and to deliver results, taking into taking into account, in particular, the particular, the costs of controls, the account, in particular, the costs of costs of controls, the administrative administrative burden, and the controls, the administrative burden, and burden, and the expected risk of nonexpected risk of non-compliance. This the expected risk of non-compliance. compliance. This should include should include consideration of the use This should include consideration of the consideration of the use of lump sums, of lump sums, flat rates and unit costs, use of lump sums, flat rates and unit flat rates and unit costs, as well as as well as financing not linked to costs costs, as well as financing not linked to financing not linked to costs as referred as referred to in Article [125(1)] of the costs as referred to in Article [125(1)] of to in Article 125(1) of the Financial Financial Regulation. the Financial Regulation. Regulation.

• 48. 

  (31) The Commission should (31) The Commission should (31) The Commission should establish (31) The Commission should establish establish annual or multiannual work establish annual or multiannual work annual or multiannual work programmes annual or multiannual work programmes programmes in line with the objectives programmes in line with the in line with the objectives of the Fund. in line with the objectives of the Fund,

  of the Fund. The Commission should objectives of the Fund. The work The Commission should be assisted in and taking into account the initial be assisted in the establishment of the programmes should take into the establishment of the work lessons learned from the EDIDP and the work programme by a committee of account the initial lessons learned programme by a the committee of PADR. The Commission should be Member States. In order to benefit from of the European Defence Member States. The Commission assisted in the establishment of the work from its expertise in the defence sector, Industrial Development Programme, should endeavour to find solutions programme by the committee. The the European Defence Agency will be the Pilot Project and the Preparatory which command the widest possible Commission should endeavour to find given the status of an observer in the Action on Defence Research. The support within the committee. In that solutions which command the widest committee. Given the specificities of Commission should be assisted in the context, the committee may meet in possible support within the committee. the defence area, the European establishment of the work programme the configuration of national defence In that context, the committee may External Action Service should also by a committee of Member States. In and security experts to provide specific meet in the configuration of national assist in the committee of Member order to benefit from its expertise in assistance to the Commission, defence and security experts to provide States. the defence sector, the European including to provide advice with specific assistance to the Commission, Defence Agency will be given the regard to the protection of classified including to provide advice with status of an observer in the information in the framework of the regard to the protection of classified committee. Given the specificities of actions. It is for the Member States to information in the framework of the the defence area, the European designate their respective actions. It is for the Member States to External Action Service should also representatives on that committee. designate their respective assist in the committee of Member Committee members should be given representatives on that committee. States. early and effective opportunities to Committee members should be given examine the draft implementing acts early and effective opportunities to and express their views. examine the draft implementing acts and express their views.

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• 49. 

  (31a) The categories of the work (31a) The categories of the work programmes should contain functional programmes should contain functional requirements in order to clarify for requirements in order to clarify for industry what functionalities and tasks industry what functionalities and tasks have to be carried out by the have to be carried out by the

  capabilities which will be developed. capabilities which will be developed. Such requirements should give a clear Such requirements should give a clear indication of the expected indication of the expected performances but should not be performances but should not be directed to specific solutions or specific directed to specific solutions or specific entities and should not prevent entities and should not prevent competition at the level of the calls for competition at the level of the calls for proposals. proposals.

• 50. 

  (31b) During the elaboration of the (31b) During the elaboration of the work programmes, the Commission work programmes, the Commission should also ensure, through should also ensure, through

  appropriate consultations with the appropriate consultations with the committee, that the proposed research committee, that the proposed research or development actions avoid or development actions avoid unnecessary duplication. unnecessary duplication. In this context, the Commission may carry out an upfront assessment of possible duplication cases with existing capabilities or already funded research or development projects within the Union.

  (31bb) The Commission should ensure the coherence of the work programmes throughout the industrial cycle of defence products and technologies.

• 51. 

  (31c) In order to benefit from its (31c) In order to benefit from its expertise in the defence sector, the expertise in the defence sector, the

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European Defence Agency will be given European Defence Agency will be given the status of an observer in the the status of an observer in the committee. Given the specificities of the committee. Given the specificities of the defence area, the European External defence area, the European External Action Service should also assist in the Action Service should also assist in the committee of Member States . committee.

• 52. 

  (32) In order to ensure uniform Commission proposal unchanged Commission proposal unchanged (32) In order to ensure uniform conditions for the implementation of conditions for the implementation of this this Regulation implementing powers Regulation implementing powers should should be conferred on the be conferred on the Commission as Commission as regards the adoption of regards the adoption of the work the work programme and for awarding programme and for awarding the funding the funding to selected development to selected development actions. In actions. In particular, while particular, while implementing

  implementing development actions, the development actions, the specificities of specificities of the defence sector, the defence sector, notably the notably the responsibility of Member responsibility of Member States and/or States and/or associated countries for associated countries for the planning and the planning and acquisition process, acquisition process, should be taken into should be taken into account. These account. These implementing powers implementing powers should be should be exercised in accordance with exercised in accordance with Regulation (EU) No 182/2011 i of the Regulation (EU) [No 182/2011 of the European Parliament and of the Council 4 . European Parliament and of the

  Council] 3 . -----

  4

  ----- Regulation (EU) No 182/2011 i of the European Parliament and of the Council

  3 Regulation (EU) No 182/2011 i of the of 16 February 2011 laying down the European Parliament and of the rules and general principles concerning Council of 16 February 2011 laying mechanisms for control by Member down the rules and general principles States of the Commission’s exercise of concerning mechanisms for control by implementing powers (OJ L 55, Member States of the Commission’s 28.2.2011, p. 13). exercise of implementing powers (OJ

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L 55, 28.2.2011, p. 13).

• 53. 

  (32a) After evaluation of the (32a) After evaluation of the proposals with the help of independent proposals with the help of independent experts, whose security credentials experts, whose security credentials should be validated by the relevant should be validated by the relevant Member States, the Commission Member States, the Commission should select the actions to be should select the actions to be supported by the Fund. The financially supported by the Fund. The Commission should establish a Commission should establish a database of independent experts. The database of independent experts. The database should not be made public. database should not be made public. The independent experts should be The independent experts should be appointed on the basis of their skills, appointed on the basis of their skills, experience and knowledge, taking experience and knowledge, taking account of the tasks to be assigned to account of the tasks to be assigned to them. As far as possible, when them. As far as possible, when appointing the independent experts, appointing the independent experts, the Commission should take the Commission should take appropriate measures to seek a appropriate measures to seek a balanced composition within the balanced composition within the expert expert groups and evaluation panels in groups and evaluation panels in terms terms of variety of skills, experience, of variety of skills, experience, knowledge, geographical diversity and knowledge, geographical diversity and gender, taking into account the gender, taking into account the situation in the field of the action. An situation in the field of the action. An appropriate rotation of experts and appropriate rotation of experts and appropriate private-public sector appropriate private-public sector balance should also be sought. balance should also be sought. Member Member States should be informed of States should be informed of the the evaluation results with the ranking evaluation results with the ranking list list of selected actions and of the of selected actions and of the progress progress of the funded actions. In of the funded actions. In order to order to ensure uniform conditions for ensure uniform conditions for the the implementation of this Regulation, implementation of this Regulation,

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implementing powers should be implementing powers should be conferred on the Commission as conferred on the Commission as regards the adoption and the regards the adoption and the implementation of the work implementation of the work programme, as well as for the programme, as well as for the adoption adoption of the award decisions. Those of the award decisions. Those powers powers should be exercised in should be exercised in accordance with accordance with Regulation (EU) No Regulation (EU) No 182/2011 i of the 182/2011 of the European Parliament European Parliament and of the and of the Council. Council.

• 54. 

  (32b) Independent experts should not (32b) Independent experts should not evaluate, advise or assist on matters evaluate, advise or assist on matters

  with regard to which they have a with regard to which they have a conflict of interests, in particular as conflict of interests, in particular as regards their current position. In regards their current position. In particular, they should not be in a particular, they should not be in a position where they could use the position where they could use the information received to the detriment information received to the detriment of the consortium they evaluate. of the consortium they evaluate.

• 55. 

  (33) In order to support an open (33) In order to support an open (33) In order to support an open (33) In order to support an open internal market, participation of crossinternal market, participation of internal market, the participation of internal market, the participation of border SMEs and mid-caps, either as cross-border SMEs and mid-caps, cross-border SMEs and mid-caps, either cross-border SMEs and mid-caps, either members of consortia or as either as members of consortia or as as members of consortia or as as members of consortia or as

  subcontractors, should be encouraged. subcontractors, should be encouraged. subcontractors, should be encouraged. subcontractors, should be encouraged. The work programme should ensure

  that a credible proportion of the overall budget benefits actions enabling the cross-border participation of SMEs and mid-caps.

• 56. 

  (34) The Commission should (34) The Commission should (34) The Commission should (34) The Commission should endeavour to maintain dialogue with endeavour to maintain dialogue with endeavour to maintain a dialogue with endeavour to maintain a dialogue with Member States and industry to ensure the European Parliament, Member Member States and industry to ensure the Member States and industry to ensure the States and industry to ensure the success of the Fund. As a co-legislator

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the success of the Fund. success of the Fund through the success of the Fund. and key stakeholder, the European impact it brings to the defence Parliament should also be engaged in industry. this regard.

• 57. 

  (35) This Regulation lays down a (35) This Regulation lays down a (35) This Regulation lays down a (35) This Regulation lays down a financial envelope for the European financial envelope for the European financial envelope for the European financial envelope for the European Defence Fund which is to constitute Defence Fund which is to constitute Defence Fund which is to constitute the Defence Fund which is to constitute the the prime reference amount, within the the prime reference amount, within prime reference amount, within the prime reference amount, within the meaning of [the new inter-institutional the meaning of [the new intermeaning of [the new inter-institutional meaning of [the new inter-institutional agreement] between the European institutional agreement] between the agreement] between the European agreement] between the European Parliament, the Council and the European Parliament, the Council and Parliament, the Council and the Parliament, the Council and the

  Commission on budgetary discipline, the Commission on budgetary Commission on budgetary discipline, on Commission on budgetary discipline, on on cooperation in budgetary matters discipline, on cooperation in cooperation in budgetary matters and on cooperation in budgetary matters and on and on sound financial management 4 , budgetary matters and on sound sound financial management 5 , for the sound financial management 5 , for the for the European Parliament and the financial management 5 , for the European Parliament and the Council European Parliament and the Council Council during the annual budgetary European Parliament and the Council during the annual budgetary procedure. during the annual budgetary procedure.

  procedure. during the annual budgetary ----- The Commission should ensure that

  ----- procedure. The Commission should administrative procedures are kept as ensure that administrative 5 Reference to be updated: OJ C 373, simple as possible and incur a minimum

  4 Reference to be updated: OJ C 373, procedures are kept as simple as 20.12.2013, p. 1. The agreement is amount of additional expenses. 20.12.2013, p. 1. The agreement is possible and incur a minimum available at: http://euravailable

  at: http://euramount of additional expenses. lex.europa.eu/legal-----

  lex.europa.eu/legal 5

  content/EN/TXT/?uri=uriserv: -----

  content/EN/TXT/?uri=uriserv:OJ.C_. Reference to be updated: OJ C 373, 2013.373.01.0001.01.ENG&toc= 20.12.2013, p. 1. The agreement is

  OJ.C_.2013.373.01.0001.01. 5 Reference to be updated: OJ C 373, OJ:C:2013:373:TOC available at: https://eur ENG&toc=OJ:C:2013:373:TOC 20.12.2013, p. 1. The agreement is lex.europa.eu/legalavailable at: http://eurcontent/EN/TXT/PDF/?uri=CELEX:32 lex.europa.eu/legal 013Q1220(01)&from=EN content/EN/TXT/?uri=uriserv: OJ.C_.2013.373.01.0001.01. ENG&toc=OJ:C:2013:373:TOC (35a) In the Inter-Institutional Agreement of [reference to be updated], the European Parliament, Council and Commission have undertaken not to depart, within the

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annual budgetary procedure, by more than [X%] from the amount set in this Regulation as its budget for duration of the Fund. In order to respond to unforeseen situations or new developments and needs, the Commission may, therefore, propose to deviate from the indicative amounts set out in this Regulation by up to [X%].

• 58. 

  (36) The Financial Regulation Commission proposal unchanged Commission proposal unchanged (36) The Financial Regulation applies applies to the Fund, unless otherwise to the Fund, unless otherwise specified. It specified. It lays down rules on the lays down rules on the implementation of implementation of the Union budget, the Union budget, including the rules on including the rules on grants, prizes, grants, prizes, procurement, financial

  procurement, financial assistance, assistance, financial instruments and financial instruments and budgetary budgetary guarantees. guarantees.

• 59. 

  (37) Horizontal financial rules Commission proposal unchanged (37) Horizontal financial rules adopted (37) Horizontal financial rules adopted adopted by the European Parliament by the European Parliament and the by the European Parliament and the

  and the Council on the basis of Article Council on the basis of Article 322 of the Council on the basis of Article 322 of the 322 of the Treaty on the Functioning of Treaty on the Functioning of the Treaty on the Functioning of the the European Union apply to this European Union (TFEU) apply to this European Union (TFEU) apply to this Regulation. These rules are laid down Regulation. These rules are laid down in Regulation. These rules are laid down in in the Financial Regulation and the Financial Regulation and determine the Financial Regulation and determine in determine in particular the procedure in particular the procedure for particular the procedure for establishing for establishing and implementing the establishing and implementing the and implementing the budget through budget through grants, procurement, budget through grants, procurement, grants, procurement, prizes, indirect prizes, indirect implementation, and prizes, indirect implementation, and implementation, and provide for checks provide for checks on the provide for checks on the responsibility on the responsibility of financial actors. responsibility of financial actors. Rules of financial actors. [Rules adopted on the [Rules adopted on the basis of Article adopted on the basis of Article 322 basis of Article 322 TFEU also concern 322 TFEU also concern the protection of TFEU also concern the protection of the protection of the Union's budget in the Union's budget in case of generalised the Union's budget in case of case of generalised deficiencies as deficiencies as regards the rule of law in

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generalised deficiencies as regards the regards the rule of law in the Member the Member States, as the respect for the rule of law in the Member States, as States, as the respect for the rule of law is rule of law is an essential precondition the respect for the rule of law is an an essential precondition for sound for sound financial management and essential precondition for sound financial management and effective EU effective EU funding.] financial management and effective funding.] EU funding.

• 60. 

  (38) In accordance with the Commission proposal unchanged (38) In accordance with the Financial (38) In accordance with the Financial

  Financial Regulation, Regulation (EU, Regulation, Regulation (EU, Euratom) Regulation, Regulation (EU, Euratom) Euratom) No 883/2013 of the No 883/2013 of the European Parliament No 883/2013 of the European Parliament European Parliament and of the and of the Council 6 , Council Regulation and of the Council 6 , Council Regulation Council 5 , Council Regulation (Euratom, EC) No 2988/95 7 Council (Euratom, EC) No 2988/95 7 , Council (Euratom, EC) No 2988/95 6 , Council Regulation (Euratom, EC) No 2185/96 8 Regulation (Euratom, EC) No 2185/96 8 Regulation (Euratom, EC) No and Council Regulation (EU) and Council Regulation (EU) 2185/96 i 7 and Council Regulation 2017/1939 9 , the financial interests of the 2017/1939 9 , the financial interests of the (EU) 2017/1939 8 , the financial Union are to be protected through Union are to be protected through interests of the Union are to be proportionate measures, including the proportionate measures, including the protected through proportionate prevention, detection, correction and prevention, detection, correction and measures, including the prevention, investigation of irregularities and fraud, investigation of irregularities, including detection, correction and investigation the recovery of funds lost, wrongly paid fraud, the recovery of funds lost, wrongly of irregularities and fraud, the recovery or incorrectly used and, where paid or incorrectly used and, where of funds lost, wrongly paid or appropriate, the imposition of appropriate, the imposition of incorrectly used and, where administrative sanctions. In particular, in administrative sanctions. In particular, in appropriate, the imposition of accordance with Regulation (EU, accordance with Regulation (EU, administrative sanctions. In particular, Euratom) No 883/2013 and Regulation Euratom) No 883/2013 i and Regulation in accordance with Regulation (EU, (Euratom, EC) No 2185/96 the European (Euratom, EC) No 2185/96, the European Euratom) No 883/2013 and Regulation Anti-Fraud Office (OLAF) may carry out Anti-Fraud Office (OLAF) may carry out (Euratom, EC) No 2185/96 the administrative investigations, including administrative investigations, including European Anti-Fraud Office (OLAF) on-the-spot checks and inspections, with on-the-spot checks and inspections, with may carry out administrative a view to establishing whether there has a view to establishing whether there has investigations, including on-the-spot been fraud, corruption or any other been fraud, corruption or any other illegal checks and inspections, with a view to illegal activity affecting the financial activity affecting the financial interests of establishing whether there has been interests of the Union. In accordance the Union. In accordance with Regulation fraud, corruption or any other illegal with Regulation (EU) 2017/1939, the (EU) 2017/1939, the European Public activity affecting the financial interests European Public Prosecutor's Office Prosecutor's Office (the 'EPPO') may

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of the Union. In accordance with (EPPO) may investigate and prosecute investigate and prosecute offences Regulation (EU) 2017/1939, the fraud and other criminal offences against the Union's financial interests, European Public Prosecutor's Office affecting the financial interests of the as provided for in Directive (EU) (EPPO) may investigate and prosecute Union as provided for in Directive (EU) 2017/1371 of the European Parliament fraud and other criminal offences 2017/1371 of the European Parliament and of the Council 10 . In accordance with affecting the financial interests of the and of the Council 10 . In accordance with the Financial Regulation, any person or Union as provided for in Directive the Financial Regulation, any person or entity receiving Union funds is to fully (EU) 2017/1371 of the European entity receiving Union funds is to fully cooperate in the protection of the Union’s Parliament and of the Council 9 . In cooperate in the protection of the financial interests, to grant the necessary accordance with the Financial Union’s financial interests, to grant the rights and access to the Commission, Regulation, any person or entity necessary rights and access to the OLAF, the EPPO in respect of those receiving Union funds is to fully Commission, OLAF, the EPPO in Member States participating in cooperate in the protection of the respect of those Member States enhanced cooperation pursuant to Union’s financial interests, to grant the participating in enhanced cooperation Regulation (EU) 2017/1939, and the necessary rights and access to the pursuant to Regulation (EU) European Court of Auditors (ECA), and Commission, OLAF, the EPPO and the 2017/1939 and the European Court of to ensure that any third parties involved European Court of Auditors (ECA) and Auditors (ECA) and to ensure that any in the implementation of Union funds to ensure that any third parties third parties involved in the grant equivalent rights. involved in the implementation of implementation of Union funds grant

Union funds grant equivalent rights. equivalent rights. -----

6

----- ----- Regulation (EU, Euratom) No 883/2013 of the European Parliament and of the

5 Regulation (EU, Euratom) No 6 Regulation (EU, Euratom) No 883/2013 Council of 11 September 2013 883/2013 of the European Parliament of the European Parliament and of the concerning investigations conducted by and of the Council of 11 September Council of 11 September 2013 the European Anti-Fraud Office (OLAF) 2013 concerning investigations concerning investigations conducted by and repealing Regulation (EC) No conducted by the European Anti-Fraud the European Anti-Fraud Office (OLAF) 1073/1999 of the European Parliament Office (OLAF) and repealing and repealing Regulation (EC) No and of the Council and Council Regulation (EC) No 1073/1999 i of the 1073/1999 of the European Parliament Regulation (Euratom) No 1074/1999 (OJ European Parliament and of the and of the Council and Council L 248, 18.9.2013, p. 1).

Council and Council Regulation Regulation (Euratom) No 1074/1999 (OJ 7

(Euratom) No 1074/1999,(OJ L248, L 248, 18.9.2013, p. 1). Council Regulation (EC, Euratom) No

18.9.2013, p. 1. 2988/95 of 18 December 1995 on the 7 Council Regulation (EC, Euratom) No protection of the European Communities

6 Council Regulation (EC, Euratom) 2988/95 of 18 December 1995 on the financial interests (OJ L 312, 23.12.95, p.

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No 2988/95 of 18 December 1995 on protection of the European Communities 1).

the protection of the European financial interests (OJ L 312, 23.12.95, p. 8

Communities financial interests (OJ L 1). Council Regulation (Euratom, EC) No

312, 23.12.95, p.1) 2185/96 of 11 November 1996 8 Council Regulation (Euratom, EC) No concerning on-the-spot checks and

7 Council Regulation (Euratom, EC) 2185/96 of 11 November 1996 inspections carried out by the No 2185/96 of 11 November 1996 concerning on-the-spot checks and Commission in order to protect the concerning on-the-spot checks and inspections carried out by the European Communities' financial inspections carried out by the Commission in order to protect the interests against fraud and other Commission in order to protect the European Communities' financial irregularities (OJ L 292, 15.11.96, p. 2).

European Communities' financial interests against fraud and other 9 Council Regulation (EU) 2017/1939 of interests against fraud and other irregularities (OJ L 292, 15.11.96, p. 2). 12 October 2017 implementing enhanced

irregularities (OJ L292,15.11.96 , p.2) 9 Council Regulation (EU) 2017/1939 of cooperation on the establishment of the

8 Council Regulation (EU) 2017/1939 12 October 2017 implementing enhanced European Public Prosecutor’s Office of 12 October 2017 implementing cooperation on the establishment of the (‘the EPPO’) (OJ L 283, 31.10.2017, p. enhanced cooperation on the European Public Prosecutor’s Office 1). establishment of the European Public (‘the EPPO’) (OJ L 283, 31.10.2017, p. 10 Prosecutor’s Office (‘the EPPO’) (OJ 1).

Directive (EU) 2017/1371 of the

European Parliament and of the Council L 283, 31.10.2017, p. 1). 10 Directive (EU) 2017/1371 of the of 5 July 2017 on the fight against fraud

European Parliament and of the Council to the Union's financial interests by

9 Directive (EU) 2017/1371 of the of 5 July 2017 on the fight against fraud means of criminal law (OJ L 198, European Parliament and of the to the Union's financial interests by 28.7.2017, p. 29). Council of 5 July 2017 on the fight means of criminal law (OJ L 198, against fraud to the Union's financial 28.7.2017, p. 29).

interests by means of criminal law (OJ L198, 28.7.2017, p.29).

• 61. 

  (39) Third countries which are Commission proposal unchanged (39) [Third countries which are (39) [Third countries which are members of the European Economic members of the European Economic members of the European Economic Area Area (EEA) may participate in Union Area (EEA) may participate in Union (EEA) may participate in Union programmes in the framework of the programmes in the framework of the programmes in the framework of the cooperation established under the EEA cooperation established under the EEA cooperation established under the EEA agreement, which provides for the agreement, which provides for the agreement, which provides for the implementation of the programmes by implementation of the programmes by a implementation of the programmes by a

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a decision under that agreement. A decision under that agreement.] A decision under that agreement.] A specific provision should be introduced specific provision should be introduced specific provision should be introduced in in this Regulation to grant the in this Regulation to grant the necessary this Regulation to grant the necessary necessary rights for and access to the rights for and access to the authorising rights for and access to the authorising authorising officer responsible, the officer responsible, the European Antiofficer responsible, the European Anti European Anti-Fraud Office (OLAF) Fraud Office (OLAF) as well as the Fraud Office (OLAF) as well as the as well as the European Court of European Court of Auditors to European Court of Auditors to Auditors to comprehensively exert comprehensively exert their respective comprehensively exert their respective their respective competences. competences. competences.

• 62. 

  (40) Pursuant to paragraph 22 and 23 (40) Pursuant to paragraph 22 and (40) Pursuant to paragraph 22 and 23 (40) Pursuant to paragraph 22 and 23 of the Inter-institutional agreement for 23 of the Inter-institutional agreement of the Inter-institutional agreement for of the Inter-institutional agreement for Better Law-Making of 13 April 2016, for Better Law-Making of 13 April Better Law-Making of 13 April 2016, Better Law-Making of 13 April 2016,

  there is a need to evaluate this 2016, there is a need to evaluate this there is a need to evaluate this regulation there is a need to evaluate this regulation regulation on the basis of information regulation on the basis of information on the basis of information collected on the basis of information collected collected through specific monitoring collected through specific monitoring through specific monitoring through specific monitoring requirements, while avoiding requirements, while avoiding requirements, while avoiding requirements, while avoiding overregulation and administrative overregulation and administrative overregulation and administrative overregulation and administrative burdens, in particular on Member burdens, in particular on Member burdens, in particular on Member States. burdens, in particular on Member States. States. These requirements, where States. These requirements, where These requirements, where appropriate, These requirements, where appropriate, appropriate, can include measurable appropriate, can include measurable can include measurable indicators, as a can include measurable indicators, as a indicators, as a basis for evaluating the indicators, as a basis for evaluating basis for evaluating the effects of the basis for evaluating the effects of the effects of the regulation on the ground. the effects of the regulation on the regulation on the ground. The regulation on the ground. The The Commission should carry out an ground. The Commission should Commission should carry out an interim Commission should carry out an interim interim evaluation no later than four carry out an interim evaluation no evaluation no later than four years after evaluation no later than four years after years after the start of the Fund later than four years after the start of the start of the Fund implementation, the start of the Fund implementation, implementation and a final evaluation the Fund implementation and a final including with a view to submitting including with a view to submitting at the end of the implementation period evaluation at the end of the proposals for any appropriate proposals for any appropriate of the Fund, examining the financial implementation period of the Fund, amendments to the present amendments to the present Regulation, activities in terms of financial examining the financial activities in Regulation, and a final evaluation at the and a final evaluation at the end of the implementation results and to the terms of financial implementation end of the implementation period of the implementation period of the Fund, extent possible at that point in time, results and to the extent possible at Fund, examining the financial activities examining the financial activities in terms results and impact. This report should that point in time, results and impact. in terms of financial implementation of financial implementation results and to also analyse the cross-border This Those reports should also results and to the extent possible at that the extent possible at that point in time, participation of SMEs and mid-caps in analyse the cross-border participation point in time, results and impact. In this results and impact. In this context, the

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projects supported by the Fund as well of SMEs and mid-caps in projects context, the final evaluation report final evaluation report should also help

as the participation of SMEs and midsupported by the Fund as well as the should also help identify where the identify where the Union is dependent

caps to the global value chain. The participation of SMEs and mid-caps Union is dependent on third countries on third countries for the development

Commission may also propose to the global value chain and should for the development of defence of defence products and technologies.

amendments to this Regulation to react also contain information on the products and technologies. This final This final report should also analyse the

on possible developments during the countries of origin of the recipients, report should also analyse the crosscross-border participation of SMEs and

implementation of the Fund. the number of countries involved in border participation of SMEs and midmid-caps in projects financially

individual projects and, where caps in projects supported by the Fund as supported by the Fund as well as the

possible, the distribution of the well as the participation of SMEs and participation of SMEs and mid-caps to

generated intellectual property mid-caps to the global value chain, and the global value chain, and the

rights. The Commission may also the contribution of the Fund to contribution of the Fund to addressing

propose amendments to this addressing the shortfalls identified in the shortfalls identified in the

Regulation to react on possible the Capability Development Plan, and Capability Development Plan, and

developments during the should include information on the should include information on the

implementation of the Fund. origin of the recipients and the origin of the recipients, the number of

distribution of the generated Member States and associated

intellectual property rights. The countries involved in individual actions

Commission may also propose and the distribution of the generated

amendments to this Regulation to react intellectual property rights. The

on possible developments during the Commission may also propose

implementation of the Fund. amendments to this Regulation to react

on possible developments during the

implementation of the Fund.

• 63. 

  (40a) The Commission should (40a) The Commission should regularly monitor the implementation regularly monitor the implementation of the Fund and annually report on the of the Fund and annually report on the progress made, including the progress made, including the

  implementation of lessons identified implementation of lessons identified and lessons learned from the and lessons learned from the EDIDP European Defence Industrial and the PADR. To this end, the Development Programme ('EDIDP') Commission should put in place and the Preparatory Action on necessary monitoring arrangements. Defence Research ('PADR'). To this This report should be presented to the end, the Commission should put in European Parliament and to the

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place necessary monitoring Council, and should not contain arrangements. sensitive information.

• 64. 

  (41) Reflecting the importance of Commission proposal unchanged (41) Reflecting the importance of (41) Reflecting the importance of tackling climate change in line with the tackling climate change in line with the tackling climate change in line with the Union's commitments to implement the Union's commitments to implement the Union's commitments to implement the Paris Agreement and the United Paris Agreement and the United Nations Paris Agreement and the United Nations Nations Sustainable Development Sustainable Development Goals, this Sustainable Development Goals, this Goals, this Fund will contribute to Fund will contribute to mainstream Fund will contribute to mainstream mainstream climate action in the climate action in the Union's policies and climate action in the Union's policies and Union's policies and to the to the achievement of an overall target of to the achievement of an overall target of achievement of an overall target of 25 [25 %] of the EU budget expenditures [25 %] of the EU budget expenditures % of the EU budget expenditures supporting climate objectives. Relevant supporting climate objectives. Relevant supporting climate objectives. actions will be identified during the actions will be identified during the Relevant actions will be identified Fund's preparation and implementation, Fund's preparation and implementation, during the Fund's preparation and and reassessed in the context of its midand reassessed in the context of its midimplementation, and reassessed in the term evaluation. term evaluation.

  context of its mid-term evaluation.

• 65. 

  (42) As the Fund supports only the (42) As the Fund supports only the (42) As the Fund supports only the (42) As the Fund supports only the research and development phases of R&D research and development research and development phases of research and the development phases of defence products and technologies, in phases of defence products and defence products and technologies, in defence products and technologies, in principle the Union should not have technologies, in principle the Union principle the Union should not have principle the Union should not have ownership or intellectual property should not have ownership or ownership or intellectual property rights ownership or intellectual property rights rights (IPRs) over the products or intellectual property rights (IPRs) (IPRs) over the products or technologies (IPRs) over the products or technologies technologies resulting from the funded over the products or technologies resulting from the funded actions unless resulting from the funded actions unless actions unless the Union assistance is resulting from the funded actions the Union assistance is provided through the Union assistance is provided through provided through procurement. unless the Union assistance is public procurement. However, for public procurement.

  However, for research actions, provided through procurement. research actions, interested Member interested Member States and However, for research actions, States and associated countries should associated countries should have the interested Member States and have the possibility to use the results of possibility to use the results of funded associated countries should have the funded actions and participate in followactions and participate in follow-up possibility to use the results of funded up cooperative development and cooperative development and therefore actions and participate in follow-up therefore derogations to that principle derogations to that principle should be cooperative development and should be allowed.

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allowed. therefore derogations to that principle should be allowed.

• 66. 

  (43) The Union financial support (43) The Union financial support (43) The Union financial support (43) The Union financial support should not affect the transfer of should not affect the transfer of should not affect the transfer of defenceshould not affect the transfer of defencedefence-related products within the defence-related products within the related products within the Union in related products within the Union in Union in accordance with Directive Union in accordance with be accordance with Directive 2009/43 i/CEC accordance with Directive 2009/43 i/EC of 2009/43/CE of the European accompanied by the full and proper of the European Parliament and the the European Parliament and the

  Parliament and the Council 10 , nor the implementation of Directive Council 11 , nor the export of products, Council 11 , nor the export of products,

export of products, equipment or 2009/43/CEC of the European equipment or technologies. equipment or technologies.

technologies. Parliament and of the Council 11 on ----- -----

----- the transfer of defence-related products within the Union, and 11 Directive 2009/43/EC i of the European 11 Directive 2009/43/EC i of the European

10 Directive 2009/43/EC i of the should not affect nor the export of Parliament and the Council of 6 May Parliament and the Council of 6 May European Parliament and the Council products, equipment or technologies. 2009 simplifying terms and conditions of 2009 simplifying terms and conditions of of 6 May 2009 simplifying terms and transfers of defence-related products transfers of defence-related products

conditions of transfers of defence----- within the Community (OJ L 146, within the Community (OJ L 146,

related products within the Community 11 Directive 2009/43/EC i of the 10.6.2009, p. 1). 10.6.2009, p. 1). (OJ L 146, 10.6.2009, p. 1). European Parliament and the Council of 6 May 2009 simplifying terms and conditions of transfers of defencerelated products within the Community (OJ L 146, 10.6.2009, p. 1).

• 67. 

  (43 a) Entities which have been found guilty in a court of law of a criminal offence such as, but not limited to, bribing an official or breaching EU restrictive measures, should not be eligible for funding. The Commission may decide that any such entity, or an entity where senior executives have been found guilty, shall be barred from applying

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for funding for a period of no less than 36 months following conviction. The Commission shall maintain a publicly accessible database of all barred undertakings. Where an entity is under a credible and relevant investigation for a criminal offence, the Commission should reserve the right to await the outcome of the investigation before awarding funding.

• 68. 

  (43 b) The Fund should support industry best practice in corporate governance and procurement

  practices. This should include the possibility for anonymous and confidential whistleblowing, through hotlines operated by third parties and with procedures in place to prevent retaliation. The award procedure should reflect those corporate governance standards with the goal of raising corporate accountability standards in the European defence sector.

• 69. 

  (44) Use of sensitive background Commission proposal unchanged (44) The uUse of sensitive (44) The use of sensitive background information or access by unauthorised background information, including data, information, including data, know how individuals to sensitive results know how or information, generated or information, generated before or

  generated by research projects may before or outside the performance of outside the performance of the Fund, have an adverse impact on the interests the Fund, or access by unauthorised or access by unauthorised individuals to of the Union or of one or more of the individuals to sensitive results generated results generated in connection to Member States. Thus handling of by research projects in connection to actions financially supported by the confidential data and classified actions supported by the Fund may Fund may have an adverse impact on the

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information should be governed by all have an adverse impact on the interests interests of the Union or of one or more relevant Union law, including the of the Union or of one or more of the of the Member States. Thus handling of Institutions' internal rules, such as Member States. Thus handling of sensitive and classified information Commission Decision (EU, Euratom) confidential data sensitive and classified should be governed by relevant Union 2015/444 11 . information should be governed by all and national law.

----- relevant Union and national law, including the Institutions' internal rules,

11 Commission Decision (EU, such as Commission Decision (EU,

Euratom) 2015/444 of 13 March 2015 Euratom) 2015/444 11 .

on the security rules for protecting EU

classified information (OJ L 72, -----

17.3.2015, p. 53) 11 Commission Decision (EU, Euratom) 2015/444 of 13 March 2015 on the

security rules for protecting EU classified information (OJ L 72, 17.3.2015, p. 53)

• 70. 

  (44a) The minimum standards on (44a) The minimum standards on industrial security should be complied industrial security should be complied with when signing classified funding with when signing classified funding and financing agreements. For that and financing agreements. For that purpose, the Commission should purpose, the Commission should

  communicate the Programme Security communicate the Programme Security Instructions including the Security Instructions including the Security Classification Guide for advice to the Classification Guide for advice to the experts designated by Member States. experts designated by Member States.

• 71. 

  (45) In order to be able to (45) In order to be able to Commission proposal unchanged (45) In order to be able to supplement supplement or amend the impact supplement or amend the impact or amend the impact pathway indicators, pathway indicators, where considered pathway indicators, where considered where considered necessary, the power to necessary, the power to adopt acts in necessary this Regulation, the power adopt acts in accordance with Article 290 accordance with Article 290 of the to adopt acts in accordance with of the Treaty on the Functioning of the Treaty on the Functioning of the Article 290 of the Treaty on the European Union should be delegated to European Union should be delegated to Functioning of the European Union the Commission. It is of particular

  the Commission. It is of particular should be delegated to the importance that the Commission carry

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importance that the Commission carry Commission in respect of the award out appropriate consultations during its out appropriate consultations during its of funding for development actions, preparatory work, including at expert preparatory work, including at expert the adoption of the work level, and that those consultations be level, and that those consultations be programmes and the impact pathway conducted in accordance with the conducted in accordance with the indicators. It is of particular principles laid down in the principles laid down in the importance that the Commission carry Interinstitutional Agreement on Better Interinstitutional Agreement on Better out appropriate consultations during Law-Making of 13 April 2016. In Law-Making of 13 April 2016. In its preparatory work, including at particular, to ensure equal participation in particular, to ensure equal participation expert level, and that those the preparation of delegated acts, the in the preparation of delegated acts, the consultations be conducted in European Parliament and the Council European Parliament and the Council accordance with the principles laid receive all documents at the same time as receive all documents at the same time down in the Interinstitutional Member States' experts, and their experts as Member States' experts, and their Agreement on Better Law-Making of systematically have access to meetings of experts systematically have access to 13 April 2016. In particular, to ensure Commission expert groups dealing with meetings of Commission expert groups equal participation in the preparation the preparation of delegated acts. dealing with the preparation of of delegated acts, the European delegated acts. Parliament and the Council receive all documents at the same time as Member States' experts, and their experts systematically have access to meetings of Commission expert groups dealing with the preparation of delegated acts.

• 72. 

  (46) The Commission should (46) The Commission should (46) The Commission should manage manage the Fund having due regard to manage the Fund having due regard the Fund having due regard to the

  the requirements of confidentiality and to the requirements of confidentiality requirements of confidentiality and security, in particular classified and security, in particular classified security, in particular classified information and sensitive information. information and sensitive information and sensitive information. information.

• 73. 

  (46 a) Undertakings, when proposing new defence products or technologies or proposing to repurpose existing ones, are bound by

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the applicable legislation. Where no readily applicable legislation exists, they should commit themselves to respecting a body of universal ethical principles relating to the fundamental rights and the welfare of human beings, the protection of the human genome, the treatment of animals, the preservation of the natural environment, the protection of the cultural heritage, and the equitable access to global commons, including space and the cyberspace. The Commission should ensure that proposals are systematically screened to identify those actions raising serious ethics issues and submit them to an ethics assessment. Actions which are not ethically acceptable should not receive Union funding.

• 74. 

  (46 b) The Council should endeavour to establish a decision on the use of armed unmanned aerial vehicles before [31 December 2020]. No funding should be made available for developing armed unmanned aerial vehicles before that decision has entered into force.

• 75. 

  HAVE ADOPTED THIS HAVE ADOPTED THIS HAVE ADOPTED THIS HAVE ADOPTED THIS REGULATION: REGULATION: REGULATION: REGULATION:

• 76. 

  TITLE I TITLE I TITLE I TITLE I COMMON PROVISIONS COMMON PROVISIONS COMMON PROVISIONS COMMON PROVISIONS

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APPLICABLE FOR RESEARCH APPLICABLE FOR RESEARCH APPLICABLE FOR RESEARCH APPLICABLE FOR RESEARCH AND DEVELOPMENT AND DEVELOPMENT AND DEVELOPMENT AND DEVELOPMENT

• 77. 

  CHAPTER I CHAPTER I CHAPTER I Chapters deleted GENERAL PROVISIONS GENERAL PROVISIONS GENERAL PROVISIONS

• 78. 

  Article 1 Article 1 Article 1 Article 1 Subject matter Subject matter Subject matter Subject matter

• 79. 

  This Regulation establishes the Commission proposal unchanged This Regulation establishes the European This Regulation establishes the European European Defence Fund ('the Fund'). Defence Fund ('the Fund'), [as set out in Defence Fund ('the Fund'), [as set out in Article 1(3)(b) of Regulation Article 1(3)(b) of Regulation

  …/…/EU]. …/…/EU].

• 80. 

  It lays down the objectives of the Commission proposal unchanged Commission proposal unchanged It lays down the objectives of the Fund, Fund, the budget for the period 2021- the budget for the period 2021-2027, the 2027, the forms of Union funding and forms of Union funding and the rules for the rules for providing such funding. providing such funding.

• 81. 

  Article 2 Article 2 Article 2 Article 2 Definitions Definitions Definitions Definitions

• 82. 

  For the purposes of this Regulation, the Commission proposal unchanged Commission proposal unchanged For the purposes of this Regulation, the following definitions apply: following definitions apply:

• 83. 

  (0) 'applicant' means a legal entity (0) 'applicant' means a legal entity submitting an application for support submitting an application for support by the Fund after a call for proposals by the Fund after a call for proposals or in accordance with Article 195(e) of or in accordance with Article 195(e) of the Financial Regulation; the Financial Regulation;

• 84. 

  (1) 'blending operations' (1) 'blending operations' (1) 'blending operations' means (1) 'blending operations' means means actions supported by the EU means actions supported by the EU actions supported by the EU budget, actions supported by the EU budget, budget, including within blending budget, including within blending including within blending facilities including within blending facilities facilities pursuant to Article [2(6)] of facilities pursuant to Article [2(6)] of pursuant to Article [2(6)] of the Financial pursuant to Article 2(6) of the Financial the Financial Regulation, combining the Financial Regulation, combining Regulation, combining non-repayable Regulation, combining non-repayable non-repayable forms of support and/or non-repayable forms of support forms of support and/or financial forms of support or financial instruments financial instruments from the EU and/or financial instruments from the instruments from the EU budget with from the EU budget with repayable forms

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budget with repayable forms of support EU budget with repayable forms of repayable forms of support from of support from development or other from development or other public support from development or other development or other public finance public finance institutions, as well as finance institutions, as well as from public finance institutions, as well as institutions, as well as from commercial from commercial finance institutions and commercial finance institutions and from commercial finance institutions finance institutions and investors; investors; investors; and investors;

• 85. 

  (1a) 'certification' means the process (1a) 'certification' means the process by which a national authority certifies by which a national authority certifies that the defence product, tangible or that the defence product, tangible or

  intangible component or technology intangible component or technology complies with the applicable complies with the applicable regulations; regulations;

• 86. 

  (1b) 'classified information' means (1b) 'classified information' means any information or material, in any any information or material, in any form, the unauthorised disclosure of form, the unauthorised disclosure of which could cause varying degrees of which could cause varying degrees of prejudice to the interests of the prejudice to the interests of the

  European Union, or of one or more of European Union, or of one or more of the Member States, and which bears the Member States, and which bears an EU classification marking or a an EU classification marking or a corresponding classification marking, corresponding classification marking, in line with the agreement between the in line with the agreement between the Member States of the European Member States of the European Union, Union, meeting within the Council, meeting within the Council, regarding regarding the protection of classified the protection of classified information information exchanged in the interests exchanged in the interests of the of the European Union (2011/C European Union (2011/C 202/05); 202/05);

• 87. 

  (1c) 'consortium' means a (1c) 'consortium' means a collaborative grouping of applicants or collaborative grouping of applicants or recipients bound by a consortium recipients bound by a consortium agreement and constituted to carry out agreement and constituted to carry out an action under the Fund; an action under the Fund;

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• 88. 

  (1d) 'coordinator' means a legal (1d) 'coordinator' means a legal entity which is a member of a entity which is a member of a

  consortium and has been appointed by consortium and has been appointed by all the members of the consortium to all the members of the consortium to be the principal point of contact in be the principal point of contact in relations with the Commission; relations with the Commission;

• 89. 

  (2) 'control' means the ability Commission proposal unchanged Commission proposal unchanged (2) 'control' means the ability to to exercise a decisive influence on an exercise a decisive influence on an legal legal entity directly or indirectly entity directly or indirectly through one through one or more intermediate legal or more intermediate legal entities; entities;

• 90. 

  (3) 'development action' Commission proposal unchanged (3) 'development action' means any (3) 'development action' means any means any action consisting primarily action consisting primarily of defenceaction consisting of defence-oriented

  of defence-oriented activities in the oriented activities primarily in the activities primarily in the development development phase, covering new development phase, covering new phase, covering new products or products or technologies or the products or technologies or the technologies or the upgrading of existing upgrading of existing ones, excluding upgrading of existing ones, excluding the ones, excluding the production or use of the production or use of weapons; production or use of weapons; weapons;

• 91. 

  (4) 'disruptive technology for Commission proposal unchanged (4) 'disruptive technology for (4) 'disruptive technology for defence' means a technology the defence' means a technology inducing defence' means a technology inducing application of which can radically radical change, including an enhanced radical change, notably completely new change the concepts and conduct of or completely new technology, technologies but also including

  defence affairs; inducing the application of which can enhanced ones, inducing a paradigm radically a paradigm shift change in the shift in the concepts and conduct of

  concepts and conduct of defence affairs defence affairs including by replacing including by replacing existing defence existing defence technologies or technologies or rendering them rendering them obsolete; obsolete;

• 92. 

  (5) 'executive management Commission proposal unchanged (5) 'executive management (5) 'executive management structures' means any body or bodies, structures' means any body or bodies of structures' means body of a legal entity appointed in accordance with national a legal entity, appointed in accordance appointed in accordance with national law, which are empowered to set the with national law, and, where law, and, where applicable, reporting

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legal entity's strategy, objectives and applicable, reporting to the chief to the chief executive officer, which is overall direction, and which oversee executive officer, which are is empowered to establish the legal entity's and monitor management decisionempowered to set establish the legal strategy, objectives and overall direction, making; entity's strategy, objectives and overall and which oversees and monitors direction, and which oversees and management decision-making; monitors management decision-making;

• 93. 

  (5a) 'foreground information' means (5a) 'foreground information' means data, know-how or information data, know-how or information

  generated in the performance of the generated in the performance of the Fund, whatever its form or nature; Fund, whatever its form or nature;

• 94. 

  (6) 'legal entity' means any Commission proposal unchanged (6) 'legal entity' means any natural (6) 'legal entity' means any legal natural or legal person created and or legal person created and recognised as person created and recognised as such recognised as such under national law, such under national law, Union law or under national law, Union law or

  Union law or international law, which international law, which has legal international law, which has legal has legal personality and which may, personality and which may, acting in its personality and which may, acting in its acting in its own name, exercise rights own name, exercise rights and be subject own name, exercise rights and be subject and be subject to obligations, or an to obligations, or an entity without a to obligations, or an entity without a legal entity without a legal personality in legal personality in accordance with personality in accordance with Article accordance with Article [197(2)(c)] of Article [197(2)(c)] of the Financial 197(2)(c) of the Financial Regulation; the Financial Regulation; Regulation;

• 95. 

  (7) 'mid-cap' means an Commission proposal unchanged (7) 'middle capitalisation company' (7) 'middle capitalisation company' enterprise that is not a micro-, small - or 'mid-cap' means an enterprise that is or 'mid-cap' means an enterprise that is and medium size enterprises ('SME'), not a micro-, small - and medium size not a SME and that has up to 3 000

  as defined in Commission enterprises ('SME'), as defined in employees, where the staff headcount is recommendation 2003/361/EC 12 and Commission recommendation calculated in accordance with Articles 3 that has a number of employees of up 2003/361/EC 12 and that has a number of to 6 of the Annex to Commission to 3 000 employees, where the staff employees of up to 3 000 employees, Recommendation 2003/361/EC 12 ; headcount is calculated in accordance where the staff headcount is calculated in

  with Articles 3, 4, 5 and 6 of Title I of accordance with Articles 3, 4, 5 and to 6 -----

  the Annex to that Recommendation; of Title I of the Annex to that 12 Commission Recommendation

  ----- Commission Recommendation 2003/361/EC of 6 May 2003 concerning 2003/361/EC 12 ; the definition of micro, small and

  12 Commission Recommendation medium-sized enterprises (OJ L 124,

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2003/361/EC of 6 May 2003 ----- 20.5.2003, p. 36).

concerning the definition of micro,

small and medium-sized enterprises 12 Commission Recommendation (OJ L 124, 20.5.2003, p. 36). 2003/361/EC of 6 May 2003 concerning

the definition of micro, small and medium-sized enterprises (OJ L 124, 20.5.2003, p. 36).

• 96. 

  (8) 'pre-commercial Commission proposal unchanged Commission proposal unchanged (8) 'pre-commercial procurement' procurement' means the procurement means the procurement of research and of research and development services development services involving riskinvolving

  risk-benefit sharing under benefit sharing under market conditions, market conditions, competitive competitive development in phases, development in phases, where there is where there is a clear separation of the a clear separation of the research and research and development services development services procured from procured from the deployment of the deployment of commercial commercial volumes of end-products; volumes of end-products;

• 97. 

  (9) ‘project manager' means Commission proposal unchanged (9) 'project manager' means any (9) 'project manager' means any any contracting authority established in contracting authority established in a contracting authority established in a a Member State or an associated Member State or an associated country, Member State or an associated country, country, set up by a Member State or set up tasked by a Member State or an tasked by a Member State or an

  an associated country or a group of associated country or a group of Member associated country or a group of Member Member States and/or associated States and/or associated countries to States or associated countries to manage countries to manage multinational manage multinational armament projects multinational armament projects armament projects permanently or on permanently or on an ad-hoc basis; permanently or on an ad-hoc basis; an ad-hoc basis;

• 98. 

  (9a) 'qualification' means the entire (9a) 'qualification' means the entire process of demonstrating that the process of demonstrating that the

  design of a defence product, tangible design of a defence product, tangible or

  or intangible component or technology intangible component or technology

  meets the specified requirements, meets the specified requirements,

  providing objective evidence by which providing objective evidence by which

  particular requirements of a design particular requirements of a design are

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are demonstrated to have been met; demonstrated to have been met;

• 99. 

  (10) 'recipient' means any legal Commission proposal unchanged (10) 'recipient' means any legal entity (10) 'recipient' means any legal entity entity receiving funding under this receiving funding under this Fund with with which a funding or financing

  Fund; which a funding or financing agreement has been signed or to which agreement has been signed or to which a funding or financing decision has

  a funding or financing decision has been notified; been notified;

• 100. 

  (11) 'research action' means Commission proposal unchanged (11) 'research action' means any (11) 'research action' means any any action consisting of research action consisting primarily of research action consisting primarily of research activities with an exclusive focus on activities, notably applied research and activities, notably applied research and defence applications; where necessary fundamental where necessary fundamental

  research, with the aim of acquiring research, with the aim of acquiring new knowledge and with an exclusive new knowledge and with an exclusive focus on defence applications; focus on defence applications;

• 101. 

  (12) 'results' means any tangible Commission proposal unchanged Commission proposal unchanged (12) 'results' means any tangible or or intangible effect of the action, such intangible effect of the action, such as as data, know-how or information, data, know-how or information, whatever whatever its form or nature, whether or its form or nature, whether or not it can not it can be protected, as well as any be protected, as well as any rights

  rights attached to it, including attached to it, including intellectual intellectual property rights; property rights;

• 102. 

  (12a) 'sensitive information' means (12a) 'sensitive information' means information and data, including information and data, including

  classified information, that must be classified information, that must be protected from unauthorised access or protected from unauthorised access or disclosure because of obligations laid disclosure because of obligations laid down in national or Union law or in down in national or Union law or in order to safeguard the privacy or order to safeguard the privacy or security of an individual or security of an individual or organisation; organisation;

• 103. 

  (12b) 'small and medium-sized (12b) 'small and medium-sized enterprises' or 'SMEs' means small enterprises' or 'SMEs' means small

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and medium-sized enterprises as and medium-sized enterprises as defined in Commission defined in Commission Recommendation 2003/361/EC; Recommendation 2003/361/EC;

• 104. 

  (13) 'special report' means a Commission proposal unchanged (13) 'special report' means a specific (13) 'special report' means a specific specific deliverable of a research deliverable of a research action deliverable of a research action

  action summarising its results, summarising its results, providing summarising its results, providing providing extensive information on the extensive information on the basic extensive information on the basic basic principles, the aims, the actual principles, the aims, the actual outcomes, principles, the aims, the actual outcomes, outcomes, the basic properties, the the basic properties, the performed tests, the basic properties, the performed tests, performed tests, the potential benefits, the potential benefits, the potential the potential benefits, the potential the potential defence applications and defence applications and the expected defence applications and the expected the expected exploitation path of the exploitation path of the research towards exploitation path of the research towards research; development, including information on development, including information on the ownership of IPRs but not the ownership of IPRs but not requiring the inclusion of IPR requiring the inclusion of IPR information; information;

• 105. 

  (14) 'system prototype' means a Commission proposal unchanged Commission proposal unchanged (14) 'system prototype' means a model of a product or technology that model of a product or technology that can can demonstrate performance in an demonstrate performance in an

  operational environment; operational environment;

• 106. 

  (15) 'third country' means a Commission proposal unchanged Commission proposal unchanged (15) 'third country' means a country country that is not a member of the that is not a member of the Union;

  Union;

• 107. 

  (16) 'non-associated third Commission proposal unchanged Commission proposal unchanged (16) 'non-associated third country' country' means a third country that is means a third country that is not an

  not an associated country in associated country in accordance with accordance with Article 5; Article 5;

• 108. 

  (17) 'non-associated third Commission proposal unchanged (17) 'non-associated third country (17) 'non-associated third country country entity' means a legal entity entity' means a legal entity established in entity' means a legal entity established in established in a non-associated third a non-associated third country or, where a non-associated third country or, where country or having its executive it is established in the Union or in an it is established in the Union or in an management structures in a nonassociated country, having its executive associated country, having its executive

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associated third country. management structures in a nonmanagement structures in a nonassociated third country. associated third country.

• 109. 

  (17a) ‘qualification’ means the Covered under 9a Council entire process of demonstrating that

  the design of a defence product, tangible or intangible component or technology meets the specified requirements. That process provides objective evidence by which particular requirements of a design are demonstrated to have been achieved;

• 110. 

  (17 b) ‘consortium' means a Covered under 1c Council collaborative grouping of legal

  entities constituted to undertake an action under the Fund;

• 111. 

  (17 c) ‘certification’ means the Covered under 1a Council process according to which a

  national authority certifies that the defence product, tangible or intangible component or technology complies with the applicable regulations;

• 112. 

  (17 d) 'coordinator' means a legal Covered under 1d Council entity belonging to a consortium and

  appointed by all consortium members to be the principal point of contact with the Commission for the grant agreement.

• 113. 

  Article 3 Article 3 Article 3 Article 3 Objectives of the Fund Objectives of the Fund Objectives of the Fund Objectives of the Fund

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• 114. 

  1. The general objective of the 1. The general objective of the 1. The general objective of the Fund 1. The general objective of the Fund Fund is to foster the competitiveness, Fund is to foster the competitiveness, is to foster the global competitiveness, is to foster the global competitiveness,

  efficiency and innovation capacity of efficiency and innovation capacity of efficiency and innovation capacity of the efficiency and innovation capacity of the the European defence industry, by the European defence industry, by European defence technological and European defence technological and supporting collaborative actions and supporting collaborative actions and industryial base throughout the Union, industrial base throughout the Union, cross-border cooperation between legal cross-border cooperation between by supporting collaborative actions and by supporting collaborative actions and entities throughout the Union, legal entities throughout the Union, cross-border cooperation between legal cross-border cooperation between legal including SMEs and mid-caps as well including SMEs and mid-caps as well entities throughout the Union, including entities throughout the Union, in as fostering the better exploitation of as strengthening and improving the in particular SMEs and mid-caps, as particular SMEs and mid-caps, as well the industrial potential of innovation, agility of both defence supply and well as fostering the better exploitation as strengthening and improving the research and technological value chains, widening cross-border of the industrial potential of innovation, agility of both defence supply and value development, at each stage of the cooperation between legal entities research and technological development, chains, widening cross-border industrial life cycle, thus contributing and fostering the better exploitation at each stage of the industrial life cycle cooperation between legal entities and to the Union strategic autonomy. The of the industrial potential of of defence products and technologies, fostering the better exploitation of the Fund should also contribute to the innovation, research and thus contributing to the Union strategic industrial potential of innovation, freedom of action of the Union and its technological development, at each autonomy and its The Fund should also research and technological development, autonomy, in particular in stage of the industrial life cycle of contribute to the freedom of action of the at each stage of the industrial life cycle of technological and industrial terms. defence products and technologies, Union and its autonomy, in particular in defence products and technologies, thus thus contributing to the Union technological and industrial terms. contributing to the Union strategic strategic autonomy. The Fund shall autonomy and its freedom of action. should also contribute to the freedom of action of the Union and its strategic autonomy, in particular in technological and industrial terms.

• 115. 

  2. The Fund shall have the Commission proposal unchanged Commission proposal unchanged 2. The Fund shall have the following following specific objectives: specific objectives:

• 116. 

  (a) support collaborative (a) support highly efficient (a) support collaborative research (a) support collaborative research that research projects that could collaborative research projects that projects that could significantly boost the could significantly boost the performance significantly boost the performance of could significantly boost the performance of future capabilities of future capabilities throughout the

  future capabilities, aiming at performance of European future throughout the Union, aiming at Union, aiming at maximising innovation maximising innovation and introducing capabilities, aiming at maximising maximising innovation and introducing and introducing new defence products new defence products and innovation and introducing new new defence products and technologies, and technologies, including disruptive technologies, including disruptive defence products and technologies, including disruptive ones; ones;

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ones; including disruptive ones;

• 117. 

  (b) support collaborative (b) support collaborative (b) support collaborative (b) support collaborative development development projects of defence European development projects of development projects of defence of defence products and technologies,

  products and technologies consistent defence products and technologies products and technologies consistent thus contributing to greater efficiency of with defence capability priorities consistent with defence capability with defence capability and technology defence spending within the Union, commonly agreed by Member States priorities commonly agreed by priorities commonly agreed by Member achieving greater economies of scale, within the framework of the Common Member States within the framework States within the framework of the reducing the risk of unnecessary Foreign and Security Policy, thus of the Common Foreign and Security Common Foreign and Security Policy duplication and as such incentivising the contributing to greater efficiency of Policy, particularly in the context of and particularly in the context of the market uptake of European products defence spending within the Union, the Capability Development Plan of Capability Development Plan, thus and technologies and reducing the achieving greater economies of scale, the Common Security and Defence contributing to greater efficiency of fragmentation of defence products and reducing the risk of unnecessary Policy, thus contributing to greater defence spending within the Union, technologies throughout the Union. duplication and as such reducing the efficiency of defence spending within achieving greater economies of scale, Ultimately, the Fund will lead to an fragmentation of defence products and the Union, achieving greater reducing the risk of unnecessary increase in the standardisation of defence technologies throughout the Union. economies of scale, reducing the risk duplication and as such reducing the systems and greater interoperability Ultimately, the Fund will lead to of unnecessary duplication, reducing fragmentation of defence products and between Member States' capabilities. greater interoperability between the over-dependence on imports technologies throughout the Union. Member States' capabilities. from third countries thus increasing Ultimately, the Fund will lead to greater the acquisition of European interoperability between Member States' equipment by Member States, and as capabilities. such reducing the fragmentation of the market in defence products and technologies throughout the Union, as well as seeking to increase the standardisation of defence systems and the Ultimately, the Fund will lead to greater interoperability between Member States' capabilities.

• 118. 

  3. Regional and international Such cooperation shall be consistent priorities, when they serve the Union's with defence capability priorities

  security and defence interests as commonly agreed by Member States determined under the Common within the framework of the Common Foreign and Security Policy, and Foreign and Security Policy and

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taking into account the need to avoid particularly in the context of the unnecessary duplication, may also be Capability Development Plan. taken into account, where appropriate,

wherever they do not exclude the In this regard, regional and possibility of participation of any international priorities, when they

Member State or associated country. serve the Union's security and defence interests as determined under the

Common Foreign and Security Policy, and taking into account the need to avoid unnecessary duplication, may also be taken into account, where appropriate, wherever they do not exclude the possibility of participation of any Member State or associated country.

• 119. 

  Article 4 Article 4 Article 4 Article 4 Budget Budget Budget Budget

• 120. 

  1. The financial envelope for the 1. The financial envelope for the 1. [In accordance with Article 9(1) 1. [In accordance with Article 9(1) implementation of the European implementation of the European of Regulation …/…/EU], tThe financial of Regulation …/…/EU], the financial Defence Fund for the period 2021 – Defence Fund for the period 2021 – envelope for the implementation of the envelope for the implementation of the

  2027 shall be EUR 13 000 000 000 in 2027 shall be EUR 11 453 260 000 in European Defence Fund for the period European Defence Fund for the period current prices. 2018 prices (EUR 13 000 000 000 in 2021 – 2027 shall be [EUR 13 000 000 2021 – 2027 shall be [EUR 13 000 000 current prices). 000] in current prices. 000] in current prices.

• 121. 

  2. The indicative distribution of 2. The indicative distribution of Commission proposal unchanged 2. The indicative distribution of the the amount referred to in paragraph 1 the amount referred to in paragraph 1 amount referred to in paragraph 1 shall shall be: shall be: be:

• 122. 

  (a) up to EUR (a) up to EUR 3 612 182 000 in (a) up to [EUR 4 100 000 000] for (a) [EUR 4 100 000 000] for research 4 100 000 000 for research actions; 2018 prices (EUR 4 100 000 000 for research actions; actions;

  research actions in current prices);

• 123. 

  (b) up to EUR (b) up to EUR 7 841 078 000 in (b) up to [EUR 8 900 000 000] for (b) [EUR 8 900 000 000] for 8 900 000 000 for development 2018 prices (EUR 8 900 000 000 in development actions. development actions.

  actions. current prices) for development

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actions.

• 124. 

  2a. In order to respond to unforeseen situations or to new developments and needs, the Commission may, within the annual budgetary procedure, deviate from the amounts referred to in

  paragraph 2 by a maximum of 10 %.

• 125. 

  3. The amount referred to in 3. The amount referred to in Commission proposal unchanged 3. The amount referred to in paragraph 1 may be used for technical paragraph 1 may be used for technical paragraph 1 may be used for technical and administrative assistance for the and administrative assistance for the and administrative assistance for the implementation of the Fund, such as implementation of the Fund, such as implementation of the Fund, such as preparatory, monitoring, control, audit preparatory, monitoring, control, preparatory, monitoring, control, audit and evaluation activities including audit and evaluation activities and evaluation activities including corporate information technology including corporate information corporate information technology systems. technology systems. That amount systems.

  shall not exceed 5 % of the value of the financial envelope referred to in paragraph 1.

• 126. 

  4. Up to 5 % of the financial 4. At least 5 % and up to 10 % of 4. Up to 5 % of the financial 4. At least 2 % and up to 8 % of the envelope referred to in paragraph 1 the financial envelope referred to in envelope referred to in paragraph 1 shall financial envelope referred to in

  shall be devoted to support disruptive paragraph 1 shall be devoted to be devoted to supporting disruptive paragraph 1 shall be allocated to calls technologies for defence. support disruptive technologies for technologies for defence. for proposals or awards of funding defence. supporting disruptive technologies for defence.

• 127. 

  5. Resources allocated to Member 5. Resources allocated to 5. [Resources allocated to Member 5. [Resources allocated to Member States under shared management may, Member States under shared States under shared management may, at States under shared management may, at at their request, be transferred to the management may, at their request, be their request, be transferred to the Fund. their request, be transferred to the Fund. Fund. The Commission shall transferred to the Fund. The The Commission shall implement those The Commission shall implement those implement those resources directly in Commission shall implement those resources directly in accordance with resources directly in accordance with

  accordance with Article [62(1)(a)] of resources directly in accordance with Article [62(1)(a)] of the Financial Article 62(1)(a) of the Financial the Financial Regulation. Where Article [62(1)(a)] of the Financial Regulation. Where possible those Regulation. Where possible those

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possible those resources shall be used Regulation. Where possible those resources shall be used for the benefit of resources shall be used for the benefit of for the benefit of the Member State resources shall be used for the benefit the Member State concerned.] the Member State concerned.] concerned. of the Member State concerned.

• 128. 

  Article 5 Article 5 [Article 5 [Article 5 Associated countries Associated countries Associated countries Associated countries

• 129. 

  The Fund shall be open to the The Fund shall be open to the The Fund shall be open to the European The Fund shall be open to the European

European Free Trade Association European Free Trade Association Free Trade Association (EFTA) members Free Trade Association (EFTA) members (EFTA) members which are members which are members of the European which are members of the European

(EFTA) members which are members of the European Economic Area Economic Area (EEA), in accordance Economic Area (EEA), in accordance

of the European Economic Area (EEA), in accordance with the with the conditions laid down in the EEA with the conditions laid down in the EEA conditions laid down in the EEA agreement.] agreement.]

(EEA), in accordance with the agreement. Any financial

conditions laid down in the EEA contribution to the Fund pursuant to this Article shall constitute assigned

agreement. revenue in accordance with Article [21(5)] of the Financial Regulation.

• 130. 

  Article 6 Article 6 Article 6 Article 6 Support to disruptive technologies for Support to disruptive technologies for Support to disruptive technologies for Support to disruptive technologies for defence defence defence defence

• 131. 

  1. The Commission shall award 1. The Commission shall award 1. The Commission shall award 1. The Commission shall award funding through open and public funding through open and public funding through following open and funding following open and public consultations on the areas of consultations on disruptive public consultations on technologies consultations on technologies with a intervention defined in the work technologies with an exclusive focus with potential to disrupt defence focus on defence applications having the programmes. on defence applications on the areas affairs in the areas of intervention potential to disrupt defence affairs in of intervention defined in the work defined in the work programmes. the areas of intervention defined in the programmes in accordance with the work programmes.

  procedure provided for in Article 27.

• 132. 

  2. The Commission may, on a 2. The Commission may shall, 2. The Commission may work 2. The work programmes shall lay case by case basis, find the most on a case by case basis, find the most programmes shall lay down, on a case down the most appropriate forms of

  appropriate form of funding to finance appropriate form of funding to by case basis, find the most appropriate funding to finance these disruptive innovative solutions. finance innovative solutions forms of funding to finance these technological solutions. innovative disruptive technological

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disruptive technologies. solutions.

• 133. 

  Article 7 Article 7 Article 7 Article 7 Ethics Ethics Ethics Ethics

• 134. 

  1. Actions carried out under the 1. Actions carried out under the 1. The implementation of actions 1. The implementation of actions Fund shall comply with ethical Fund shall comply with: carried out under the Fund shall comply carried out under the Fund shall comply principles and relevant national, Union

  and international legislation. - ethical principles and relevant

  with ethical principles and in relevant with ethical principles in relevant

  national, Union and international national, Union and international national, Union and international law. legislation including the Charter of legislation law.

  Fundamental Rights of the European Union and the European Convention on Human Rights and its Supplementary Protocols and international humanitarian law;

  • - 

    anti-corruption and anti-money laundering rules and initiatives.

• 135. 

  2. Proposals shall be 2. Proposals shall be 2. Proposals shall be systematically 2. Proposals shall be systematically systematically screened to identify systematically, on an ex-ante basis, screened to identify those actions raising screened, on an ex-ante basis, by the

  those actions raising complex or screened by the Commission to complex or serious ethicsal issues with Commission to identify those raising serious ethics issues and submit them identify those actions raising complex regard to their implementation and serious ethical issues with regard to to an ethics assessment. Ethics or serious ethics issues and, where submit them to an ethics assessment. their implementation and, where screenings and assessments shall be appropriate, submit them to an ethics Ethics screenings and assessments shall appropriate, shall be submitted to an carried out by the Commission with assessment. Ethics screenings and be carried out by the Commission with ethics assessment. the support of experts on defence assessments shall be carried out by the support of independent experts on

  ethics. The Commission shall ensure the Commission with the support of defence ethics. The Commission shall Ethics screenings and assessments shall the transparency of the ethics independent experts on defence ensure the transparency of the ethics be carried out by the Commission with procedures as much as possible. ethics with various backgrounds. The procedures as much as possible. the support of independent experts on Commission shall ensure the defence ethics. The Commission shall transparency of the ethics procedures ensure the transparency of the ethics as much as possible and report on procedures as much as possible and shall this in the framework of its reporting report on this in the framework of its and evaluation obligations under obligations under Article 32. Experts Articles 31 and 32. All experts shall shall be nationals of as broad a range of

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be citizens of the Union and shall be Member States as possible. nationals of as broad a range of Member States as possible.

• 136. 

  3. Entities participating in the Commission proposal unchanged 3. Entities participating in the action 3. Entities participating in the action action shall obtain all approvals or shall obtain all relevant approvals or shall obtain all relevant approvals or

  other mandatory documents from the other mandatory documents required by other mandatory documents required by relevant national, local ethics from the relevant national or, local ethics national or local ethics committees or committees or other bodies such as committees or other bodies such as data other bodies such as data protection data protection authorities before the protection authorities before the start of authorities before the start of the relevant start of the relevant activities. Those the relevant activities. Those documents activities. Those documents shall be kept documents shall be kept on file and shall be kept on file and provided to the on file and provided to the Commission. provided to the Commission. Commission.

• 137. 

  4. If appropriate, ethics checks 4. If appropriate, ethics checks 4. If appropriate, ethics checks shall Deleted shall be carried out by the Commission shall be carried out by the be carried out by the Commission during

  during the implementation of the Commission during the the implementation of the action. For action. For serious or complex ethics implementation of the action. For serious or complex ethics issues, the issues, the checks shall be carried out serious or complex ethics issues, the checks shall be carried out by the by the Commission with the support of checks shall be carried out by the Commission with the support of experts experts on defence ethics. Commission with the support of on defence ethics. experts on defence ethics.

• 138. 

  5. Actions which are not ethically 5. Actions which are not ethically 5. Actions which are not ethically 5. Proposals which are not ethically acceptable may be rejected or acceptable shall may be rejected or acceptable may be rejected or terminated acceptable shall be rejected.

  terminated at any time. terminated at any time. at any time.

• 139. 

  CHAPTER II CHAPTER II CHAPTER II Chapters deleted FINANCIAL PROVISIONS FINANCIAL PROVISIONS FINANCIAL PROVISIONS

• 140. 

  Article 8 Article 8 Article 8 Article 8 Implementation and forms of EU Implementation and forms of EU Implementation and forms of EU funding Implementation and forms of EU funding funding funding

• 141. 

  1. The Fund shall be implemented 1. The Fund shall be 1. The Fund shall be implemented in 1. The Fund shall be implemented in direct management in accordance implemented by the Commission in direct management in accordance with directly or indirectly by entrusting

  with the Financial Regulation. direct management in accordance directly or indirectly by entrusting budget implementation tasks to the

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with the Financial Regulation. budget implementation tasks to the entities listed in point (c) of Article entities listed in point (c) of Article 62(1) of the Financial Regulation.

62(1) of the Financial Regulation.

• 142. 

  2. The Fund may provide funding 2. The Fund may provide funding 2. The Fund may provide funding in 2. The Fund may provide funding in in any of the forms laid down in the in any of the forms laid down in the accordance with any of the forms laid accordance with the Financial

  Financial Regulation, in particular Financial Regulation, in particular down in the Financial Regulation, in Regulation, through grants, prizes and grants, prizes and procurement. It may grants, prizes and procurement. It particular through grants, prizes and procurement, and where appropriate in also provide financing in the form of may also provide financing in the procurement., and where appropriate view of the specificities of the action, financial instruments within blending form of financial instruments within in view of the specificities of the action, financial instruments within blending operations. blending operations. It may also provide financing in the form operations. of financial instruments within blending operations.

• 143. 

  2a. Blending operations shall be 2a. Blending operations shall be implemented in accordance with Title implemented in accordance with Title X of the Financial Regulation [and the X of the Financial Regulation [and the InvestEU Regulation]. InvestEU Regulation].

• 144. 

  2b. Financial instruments shall be 2b. Financial instruments shall be strictly directed to the recipients only. strictly directed to the recipients only.

• 145. 

  Article 9 Article 9 Article 9 Article 9 Cumulative, complementary and Cumulative, complementary and Cumulative, complementary and Cumulative, complementary and combined funding combined funding combined funding combined funding

• 146. 

  1. An action that has received a Commission proposal unchanged Commission proposal unchanged 1. An action that has received a contribution from another Union contribution from another Union

  programme may also receive a programme may also receive a contribution under the Fund, provided contribution under the Fund, provided that the contributions do not cover the that the contributions do not cover the same costs. The rules of each same costs. The rules of each contributing Union programme/Fund contributing Union programme/Fund shall apply to its respective shall apply to its respective contribution contribution to the action. The to the action. The cumulative funding cumulative funding shall not exceed shall not exceed the total eligible costs of the total eligible costs of the action and the action and the support from the

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the support from the different Union different Union programmes may be programmes may be calculated on a calculated on a pro-rata basis in pro-rata basis in accordance with the accordance with the documents setting documents setting out the conditions out the conditions for support. for support.

• 147. 

  2. Actions awarded a Seal of 2. Actions awarded a Seal of Commission proposal unchanged 2. Actions awarded a Seal of Excellence certification, or which Excellence certification, or which Excellence certification, or which comply comply with the following cumulative, comply with the following with the following cumulative,

  comparative, conditions: cumulative, comparative, conditions: comparative, conditions:

• 148. 

  (a) they have been (a) they have been Commission proposal unchanged (a) they have been assessed in a call assessed in a call for proposals under assessed in a call for proposals under for proposals under the Fund;

  the Fund; the Fund;

• 149. 

  (b) they comply with the (b) they comply with Commission proposal unchanged (b) they comply with the minimum minimum quality requirements of that the minimum quality requirements of quality requirements of that call for

  call for proposals; that call for proposals; proposals;

• 150. 

  (c) they may not be (c) they may not be Commission proposal unchanged (c) they may not be financed under financed under that call for proposals financed under that call for proposals that call for proposals due to budgetary due to budgetary constraints, due to budgetary constraints, constraints,

• 151. 

  may receive support from the may receive support from the may receive support from the [Space may receive support from the European European Regional Development European Regional Development Programme], the European Regional Regional Development Fund, the

  Fund, the Cohesion Fund, the Fund, the Cohesion Fund, the Development Fund, the Cohesion Fund, Cohesion Fund, the European Social European Social Fund or the European European Social Fund or the the European Social Fund, or the Fund, or the European Agricultural Fund Agricultural Fund for Rural European Agricultural Fund for Rural European Agricultural Fund for Rural for Rural Development, in accordance Development, in accordance with Development, in accordance with Development, in accordance with with paragraph 5 of Article [65] of paragraph 5 of Article [65] of paragraph 5 of Article [65] of paragraph 5 of Article [65] of Regulation Regulation (EU) XX [Common Regulation (EU) XX [Common Regulation (EU) XX [Common (EU) XX [Common Provisions Provisions Regulation] and Article [8] of Provisions Regulation] and Article [8] Provisions Regulation] and Article [8] Regulation] and Article [8] of Regulation Regulation (EU) XX [Financing, of Regulation (EU) XX [Financing, of Regulation (EU) XX [Financing, (EU) XX [Financing, management and management and monitoring of the management and monitoring of the management and monitoring of the monitoring of the Common Agricultural Common Agricultural Policy], provided Common Agricultural Policy], Common Agricultural Policy], Policy], provided that such actions are that such actions are consistent with the provided that such actions are provided that such actions are consistent with the objectives of the objectives of the programme concerned. consistent with the objectives of the consistent with the objectives of the programme concerned. The rules of the The rules of the Fund providing support

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programme concerned. The rules of the programme concerned. The rules of Fund providing support shall apply. shall apply. Fund providing support shall apply. the Fund providing support shall apply.

• 152. 

  CHAPTER III CHAPTER III CHAPTER III Chapters deleted GRANTS GRANTS ELIGIBILITY GRANTS

  CONDITIONS, AWARD CRITERIA AND FINANCING

• 153. 

  Article 10 Article 10 Article 10 Article 10 Eligible entities Eligible entities Eligible entities Eligible entities

• 154. 

  1. Applicants and their 1. Applicants and their 1. Applicants Recipients and their 1. Recipients and subcontractors subcontractors shall be eligible for subcontractors involved in the action subcontractors involved in an action involved in an action financially

  funding provided that they are shall be eligible for funding provided supported by the Fund shall be eligible supported by the Fund shall be established in the Union or in an that they are established in the Union for funding provided that they are established in the Union or in an associated country, have their or in an associated country as established in the Union or in an associated country. executive management structures in referred to in Article 5, have their associated country, have their executive the Union or in an associated country executive management structures in management structures in the Union or in and are not controlled by a nonthe Union or in an associated country an associated country and are not associated third country or by a nonand are not controlled by a noncontrolled by a non-associated third associated third country entity. associated third country or by a noncountry or by a non-associated third associated third country entity. country entity.

• 155. 

  1a. The infrastructure, facilities, 1a. The infrastructure, facilities, assets and resources of the recipients assets and resources of the recipients and subcontractors involved in an and subcontractors involved in an action which are used for the purposes action which are used for the purposes of the actions supported by the Fund of the actions financially supported by shall be located on the territory of a the Fund shall be located on the

  Member State or of an associated territory of a Member State or of an country for the entire duration of an associated country for the entire action, and their executive duration of an action, and their management structures shall be executive management structures shall established in the Union or in an be established in the Union or in an associated country. associated country.

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• 156. 

  1b. For the purpose of an action 1b. For the purpose of an action supported by the Fund, the recipients financially supported by the Fund, the and subcontractors involved in an recipients and subcontractors involved action shall not be subject to control in an action shall not be subject to by a non-associated third country or control by a non-associated third

  by a non-associated third country country or by a non-associated third entity. country entity.

• 157. 

  2. By derogation from paragraph 2. By derogation from paragraph 2. By derogation from paragraph 1b 2. By derogation from paragraph 1b 1, an applicant established in the Union 1, an applicant or a subcontractor of this Article, an applicant a legal of this Article, a legal entity established or in an associated country and involved in the action established in entity established in the Union or in an in the Union or in an associated country controlled by a non-associated third the Union or in an associated country associated country and controlled by a and controlled by a non-associated third country or a non-associated third and controlled by a non-associated non-associated third country or a noncountry or a non-associated third country country entity may be eligible for third country or a non-associated third associated third country entity may shall entity shall be eligible as a recipient or funding if this is necessary for country entity may shall be capable be eligible as a recipient or subcontractor involved in an action

  achieving the objectives of the action of constituting an eligible entity for subcontractor involved in an action only if guarantees approved by the and provided that its participation will funding if this is necessary for only if guarantees approved by the Member State or the associated not put at risk the security interests of achieving the objectives of the action Member State or the associated country in which it is established, in the Union and its Member States. In and provided that its participation will country in which it is established, in accordance with its national order to ensure protection of the does not put at risk the security and accordance with its national procedures, are made available to the security interests of the Union and its defence interests of the Union and its procedures, are made available to the Commission. Those guarantees may Member States, the call for proposals Member States or the objectives set Commission. Those guarantees may refer to the legal entity's executive shall require the applicant to provide out in Article 3. In order to ensure refer to the legal entity's executive management structure established in information demonstrating notably protection of the security interests of management structure established in the Union or in an associated country. that: the Union and its Member States, the the Union or in an associated country. If deemed to be appropriate by the call for proposals shall require the If deemed to be appropriate by the Member State or associated country in applicant to provide information Member State or associated country in which the legal entity is established, demonstrating notably commit to which the legal entity is established, those guarantees may also refer to implement appropriate measures those guarantees may also refer to specific governmental rights in the before the beginning of the action, specific governmental rights in the control over the legal entity.

  ensuring that: control over the legal entity. The guarantees shall provide

  The guarantees shall provide assurances that the involvement in an assurances that the involvement in an action of such a legal entity would not action of such a legal entity would not contravene the security and defence

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contravene the security and defence interests of the Union and its Member interests of the Union and its Member States as established in the framework States as established in the framework of the Common Foreign and Security of the Common Foreign and Security Policy pursuant to Title V of the TEU, Policy pursuant to Title V of the TEU, or the objectives set out in Article 3. The or the objectives set out in Article 3. guarantees shall also comply with the The guarantees shall also comply with provisions of Articles 22 and 25. The the provisions of Articles 22 and 25. guarantees shall in particular The guarantees shall in particular substantiate that, for the purpose of substantiate that, for the purpose of the action, measures are in place to the action, measures are in place to ensure that: ensure that: for funding if this is necessary for achieving the objectives of the action and provided that its participation will not put at risk the security interests of the Union and its Member States. In order to ensure protection of the security interests of the Union and its Member States, the call for proposals shall require the applicant to provide information demonstrating notably that:

• 158. 

  (a) the control over the (a) the control over the applicant (a) the control over the legal entity is (a) control over the legal entity is not applicant will not be exercised in a will is not be exercised in a manner applicant will not be exercised in a exercised in a manner that restrains or

  manner that restricts in any way its that limits restricts in any way its manner that restrains or restricts in any restricts its ability to carry out the action ability to perform and complete the ability to perform and complete carry way its ability to carry out perform and and to deliver results, that imposes action; out the action and to deliver results, complete the action and to deliver restrictions concerning its that imposes restrictions concerning results, that imposes restrictions infrastructure, facilities, assets, its infrastructure, facilities, assets, concerning its infrastructure, facilities, resources, intellectual property or knowresources, intellectual property or assets, resources, intellectual property how needed for the purpose of the know-how needed for the purpose of or know-how needed for the purpose action, or that undermines its the action, or that undermines its of the action, or that undermines its capabilities and standards necessary to capabilities and standards necessary capabilities and standards necessary to carry out the action; for the execution of the action; carry out the action;

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• 159. 

  (b) the access by non(b) the access by non-associated (b) the access by a non-associated (b) access by a non-associated third associated third countries or by nonthird countries or by non-associated third countryies or by a non-associated country or by a non-associated third

  associated third country entities to third country entities to classified and third country entityies to classified and country entity to sensitive information classified and non-classified sensitive non-classified sensitive information non-classified sensitive information relating to the action is prevented and the information relating to the action will relating to the action will be is relating to the action is will be prevented; employees or other persons involved in be prevented; and the persons involved prevented; and the employees or and the employees or other persons the action have a national security in the action will have national security other persons involved in the action involved in the action will have a clearance issued by a Member State or an clearance issued by a Member State or will have a national security national security clearance issued by a associated country, where appropriate; associated country; clearance issued by a Member State Member State or an associated country, or associated country; where appropriate;

• 160. 

  (c) the results of the (c) ownership of the intellectual (c) ownership of the intellectual (c) ownership of the intellectual action shall remain within the property arising from, and the results property arising from, and the results property arising from, and the results of, beneficiary and shall not be subject to of the action shall remain within the of, the action shall remain within the the action remain within the recipient control or restrictions by nonbeneficiary and shall are not be recipient beneficiary during and after during and after completion of the associated third countries or other nonsubject to control or restrictions by completion of the action, and shall are action, are not subject to control or associated third country entities during non-associated third countries or not be subject to control or restrictions restrictions by a non-associated third the action and for a specified period other non-associated third country by a non-associated third countryies or country or by a non-associated third after its completion; entities and are not exported to or other by a non-associated third country country entity, and are not exported given access to from a third country entityies, and are not exported outside outside the Union or outside associated or a third-country entity without the the Union or outside associated countries, nor is access to them from approval of the Member States in countries, nor is access to them from outside the Union or outside associated which the beneficiary is established, outside the Union or outside associated countries granted, without the approval and consistent with the objectives set countries granted without the of the Member State or the associated out in Article 3, during the action and approval of the Member State or the country in which the legal entity is for a specified period after its associated country in which the legal established and in accordance with the completion;, such a period being entity is established and in accordance objectives set out in Article 3.

  stipulated in the grant agreement. with the objectives set out in Article 3

  An applicant or a subcontractor during the action and for a specified

  If deemed to be appropriate by the

  involved in the action that has its period after its completion;.

  Member State or the associated country in which the legal entity is

  executive management structure in If deemed to be appropriate by the established, additional guarantees may the Union or in an associated Member State or the associated be provided. country and that is controlled by a country in which the legal entity is

  non-associated third country subject established, additional guarantees may The Commission shall inform the

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to any Union restrictive measures or be provided. committee referred to in Article 28 of by a non-associated third-country any legal entity deemed to be eligible in

entity subject to any Union The Commission shall inform the restrictive measures shall not be committee referred to in Article 28 of

accordance with this paragraph.

granted a derogation under this any legal entity deemed to be eligible paragraph. in accordance with this paragraph.

• 161. 

  3. All infrastructure, facilities, 3. All infrastructure, facilities, 3. All infrastructure, facilities, assets Deleted, covered under 1a and 4 Council. assets and resources used in actions assets and resources used in actions and resources used in actions financed

  financed under the Fund shall be financed under the Fund shall be under the Fund shall be located on the located on the territory of the Union or located on the territory of the Union territory of the Union or associated associated countries. Furthermore, or associated countries and shall not countries. Furthermore, when performing when performing an eligible action, be subject to any control or an eligible action, beneficiaries and their beneficiaries and their subcontractors restriction by a non-associated third subcontractors shall cooperate only with shall cooperate only with legal entities country or by a non-associated thirdlegal entities established in the Union or established in the Union or in an country entity. Furthermore, when in an associated country and not associated country and not controlled performing an eligible action, controlled by non-associated third by non-associated third countries or beneficiaries and their subcontractors countries or non-associated third country non-associated third country entities. involved in the action shall cooperate entities. only with legal entities established in the Union or in an associated country and not controlled by non-associated third countries or non-associated third country entities.

• 162. 

  4. By derogation from the 4. By derogation from the 4. By derogation from the paragraph 4. Where no competitive substitutes paragraph 3 beneficiaries and paragraph 3, if there are no 3 beneficiaries and subcontractors are readily available in the Union or in subcontractors involved in the action competitive substitutes readily involved in the action may use their an associated country, recipients and

  may use their assets, infrastructure, available in the Union, beneficiaries assets, infrastructure, facilities and subcontractors involved in an action may facilities and resources located or held and subcontractors involved in the resources located or held on the territory use their assets, infrastructure, facilities on the territory of a non-associated action may use their assets, of a non-associated third country if this is and resources located or held outside the third country if this is necessary for infrastructure, facilities and resources necessary for achieving the objectives of territory of the Union's Member States achieving the objectives of an action located or held on the territory of a an action and provided that this will not or associated countries provided that and provided that this will not put at non-associated third country if this is put at risk Where no competitive that usage does not contravene the risk the security of the Union and its necessary for achieving the objectives substitutes are readily available in the security and defence interests of the

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Member States. Under the same of an action and provided that this Union or in an associated country, Union and its Member States, is conditions, when performing an will not put at risk the security and recipients and subcontractors involved consistent with the objectives set out in eligible action, beneficiaries and their defence interests of the Union and its in the action may use their assets, Article 3 and is fully in line with subcontractors may cooperate with an Member States or the objectives set infrastructure, facilities and resources Articles 22 and 25. The costs related to entity established in a non-associated out in Article 3. Under the same located or held outside the territory of those activities shall not be eligible for third country. The costs related to the conditions, when performing an the Union's Member States or financial support by the Fund. use of such infrastructure, facilities, eligible action, beneficiaries and their associated countries provided that that assets or resources and to such subcontractors involved in the action usage does not contravene the security cooperation shall not be eligible under may cooperate with an entity and defence interests of the Union and the Fund. established in a non-associated third its Member States, is consistent with the country. The costs related to the use objectives set out in Article 3 and is of such infrastructure, facilities, assets fully in line with Articles 22 and 25. or resources and to such cooperation Under the same conditions, when shall not be eligible for funding performing an eligible action, under the Fund. In any event, such beneficiaries and their subcontractors derogation shall not be granted if may cooperate with an entity established those assets, infrastructure, facilities in a non-associated third country. and resources are located or held on

the territory of a non-associated The costs related to the use of such third country subject to any Union infrastructure, facilities, assets or

restrictive measures. resources and to such cooperation those activities shall not be eligible for

support by under the Fund.

• 163. 

  4a. When carrying out an eligible 4a. When carrying out an eligible action, recipients and subcontractors action, recipients and subcontractors involved in the action may also involved in the action may also

  cooperate with legal entities cooperate with legal entities established outside the territory of the established outside the territory of the Member States or of associated Member States or of associated countries, or controlled by a noncountries, or controlled by a nonassociated third country or by a nonassociated third country or by a nonassociated third country entity, associated third country entity, including by using the assets, including by using the assets, infrastructure, facilities and resources infrastructure, facilities and resources

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of such legal entities, provided that of such legal entities, provided that this

this does not contravene the security does not contravene the security and

and defence interests of the Union and defence interests of the Union and its

its Member States. Such cooperation Member States. Such cooperation shall

shall be consistent with the objectives be consistent with the objectives set out

set out in Article 3 and shall be fully in in Article 3 and shall be fully in line

line with Articles 22 and 25. with Articles 22 and 25.

There shall be no unauthorised access There shall be no unauthorised access by a non-associated third country or by a non-associated third country or other non-associated third country other non-associated third country entity to classified information relating entity to classified information relating to the carrying out of the action and to the carrying out of the action and potential negative effects over security potential negative effects over security of supply of inputs critical to the of supply of inputs critical to the action action shall be avoided. shall be avoided.

The costs related to those activities The costs related to those activities shall not be eligible for support by the shall not be eligible for support by the Fund. Fund.

• 164. 

  5. In order to ensure protection of 5. In order to ensure protection of 5. In order to ensure protection of Deleted the security interests of the Union and the security interests of the Union and the security interests of the Union and its

  its Member States, the call for its Member States, the call for Member States, the call for proposals or proposals or grant agreement shall proposals or grant agreement shall grant agreement shall specify further specify further conditions. These specify further all conditions, conditions. These conditions shall relate, conditions shall relate, in particular to including those referred to in point 2 in particular to the provisions on the provisions on ownership of results of this Article. These conditions shall ownership of results of the action and of the action and access to classified relate, in particular to the provisions access to classified and non-classified and non-classified sensitive on ownership of results of the action sensitive information and to guarantees information and to guarantees on and access to classified and nonon security of supply. security of supply. classified sensitive information and to guarantees on security of supply.

• 165. 

  6. Applicants shall provide all 6. Applicants shall provide all 6. Applicants shall provide all 6. Applicants shall provide all relevant information necessary for the relevant information necessary for the relevant information necessary for the relevant information necessary for the

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assessment of the eligibility criteria assessment of the eligibility criteria assessment of the eligibility criteria and assessment of the eligibility criteria. In and the conditions referred to in and the conditions referred to in the conditions referred to in paragraphs 1 the event of a change during the paragraphs 1 to 4. paragraphs 1 to 4. to 4. In the event of a change during carrying out of an action which might the carrying out of an action which put into question the fulfilment of the might put into question the fulfilment eligibility criteria, the relevant legal of the eligibility criteria, the relevant entity shall inform the Commission, legal entity shall inform the which shall assess whether these Commission, which shall assess eligibility criteria and conditions whether these eligibility criteria and continue to be met and shall address conditions continue to be met and shall the potential impact on the funding of address the potential impact on the the action. funding of the action.

• 166. 

  7. Applications which require the Commission proposal unchanged 7. Applications which require the Deleted, covered under 10(2) Council verifications under paragraph 2 or verifications under paragraph 2 or

  paragraph 4 may only be submitted paragraph 4 may only be submitted with with the agreement of the Member the agreement of the Member State or State or associated country in which associated country in which the applicant the applicant is established. is established.

• 167. 

  8. In the event of a change during 8. In the event of a change during 8. In the event of a change during Deleted, covered under 10(6) Council the implementation of an action which the implementation of an action the implementation of an action which

  might question the fulfilment of those which might question the fulfilment might question the fulfilment of those criteria and conditions, the beneficiary of those criteria and conditions, the criteria and conditions, the beneficiary shall inform the Commission, which beneficiary shall inform the shall inform the Commission, which shall assess whether those criteria and Commission, which shall assess shall assess whether those criteria and conditions are still met and address the whether those criteria and conditions conditions are still met and address the potential impact on the funding of the are still met and address the potential potential impact on the funding of the action. impact (suspension, cancellation) on action. the funding of the action.

• 168. 

  9. For the purpose of this Article, Commission proposal unchanged 9. For the purpose of this Article, 9. For the purpose of this Article, subcontractors means subcontractors subcontractors involved in an action subcontractors involved in an action with a direct contractual relationship to supported by the Fund refers to means financially supported by the Fund

  a beneficiary, other subcontractors to subcontractors with a direct contractual refers to subcontractors with a direct which at least 10% of the total eligible relationship to a recipient beneficiary, contractual relationship to a recipient,

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costs of the action is allocated, and other subcontractors to which at least 10 other subcontractors to which at least 10 subcontractors which may require % of the total eligible costs of the action % of the total eligible costs of the action access to classified information is allocated, and subcontractors which is allocated, and subcontractors which according to Commission Decision may require access to EU classified may require access to classified (EU, Euratom) 2015/444 in order to information according to Commission information in order to carry out the carry out the action. Decision (EU, Euratom) 2015/444 in action, and which are not members of order to carry out the action, and which the consortium. are not members of the consortium.

• 169. 

  Article 11 Article 11 Article 11 Article 11 Eligible actions Eligible actions Eligible actions Eligible actions

• 170. 

  1. Only actions implementing the Commission proposal unchanged Commission proposal unchanged 1. Only actions implementing the objectives referred to in Article 3 shall objectives referred to in Article 3 shall be be eligible for funding. eligible for funding.

• 171. 

  2. The Fund shall provide support Commission proposal unchanged 2. The Fund shall provide support 2. The Fund shall provide support for for actions covering both new and for actions covering both new defence actions covering new defence products

  upgrade of existing products and products and technologies and the and technologies and the upgrade of technologies where the use of preupgrade of existing products and existing products and technologies existing information needed to perform technologies where provided that the provided that the use of pre-existing the upgrade is not subject, directly or use of pre-existing information needed to information needed to carry out the indirectly to a restriction by nonperform carry out the action for the action for the upgrade is not subject to a associated third countries or nonupgrade is not subject, directly or restriction by a non-associated third associated third country entities. indirectly to a restriction by a noncountry or a non-associated third country associated third countryies or a nonentity, directly, or indirectly through associated third country entityies, one or more intermediary legal directly, or indirectly through one or entities, in such a way that the action more intermediary legal entities, in cannot be carried out. such a way that the action cannot be carried out.

• 172. 

  3. An eligible action shall relate to Commission proposal unchanged 3. An eligible action shall relate to 3. An eligible action shall relate to one or more of the following items: one or more of the following activities one or more of the following activities: items:

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• 173. 

  (a) activities aiming to (a) activities aiming to create, (a) activities aiming to create, (a) activities aiming to create, create, underpin and improve new underpin and improve new underpin and improve new knowledge underpin and improve knowledge, knowledge and defence technology knowledge and defence technology and defence technologyies which can products and technologies, including which can achieve significant effects in products or technologies, including achieve significant effects in the area of disruptive technologies, which can the area of defence; disruptive defence technologies, defence; achieve significant effects in the area of which can achieve significant effects defence;

  in the area of defence;

• 174. 

  (b) activities aiming to Commission proposal unchanged (b) activities aiming to increase (b) activities aiming to increase increase interoperability and resilience, interoperability and resilience, including interoperability and resilience, including including secured production and secured production and exchange of data, secured production and exchange of data, exchange of data, master critical to master critical defence technologies, to master critical defence technologies, to defence technologies, strengthen the to strengthen the security of supply or to strengthen the security of supply or to security of supply or enable effectively enable the effectively exploitation of enable the effective exploitation of exploitation of results for defence results for defence products and results for defence products and

  products and technologies; technologies; technologies;

• 175. 

  (c) studies, such as (c) studies, such as (c) studies, such as feasibility studies (c) studies, such as feasibility studies feasibility studies to explore the feasibility studies to explore the to explore the feasibility of new or to explore the feasibility of new or

  feasibility of a new or improved feasibility of a new or improved improved technologyies, products, improved technologies, products, technology, product, process, service, technology, product, process, service, processes, services, and solutions or processes, services, and solutions; solution or statistics on the defence solution or statistics on the defence statistics on the defence industry and industry and projects to pilot the industry and projects to pilot the projects to pilot the collection of data; collection of data; collection of data;

• 176. 

  (d) the design of a Commission proposal unchanged Commission proposal unchanged (d) the design of a defence product,

  defence product, tangible or intangible tangible or intangible component or component or technology as well as technology as well as the definition of the the definition of the technical technical specifications on which such specifications on which such design design has been developed which may has been developed which may include include partial tests for risk reduction in partial tests for risk reduction in an an industrial or representative industrial or representative environment; environment;

• 177. 

  (e) the development of a Commission proposal unchanged Commission proposal unchanged (e) the development of a model of a

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model of a defence product, tangible or defence product, tangible or intangible intangible component or technology, component or technology, which can which can demonstrate the element's demonstrate the element's performance in performance in an operational an operational environment (system environment (system prototype); prototype);

• 178. 

  (f) the testing of a Commission proposal unchanged Commission proposal unchanged (f) the testing of a defence product, defence product, tangible or intangible tangible or intangible component or

  component or technology; technology;

• 179. 

  (g) the qualification of a (g) the qualification of (g) the qualification of a defence (g) the qualification of a defence defence product, tangible or intangible a defence product, tangible or product, tangible or intangible product, tangible or intangible component component or technology. intangible component or technology. component or technology. Qualification or technology;

  Qualification is the entire process of Qualification is the entire process of is the entire process of demonstrating demonstrating that the design of a demonstrating that the design of a that the design of a defence product, defence product, tangible or intangible defence product, tangible or tangible or intangible component or component or technology meets the intangible component or technology technology meets the specified specified requirements. This process meets the specified requirements. requirements. This process provides provides objective evidence by which This process provides objective objective evidence by which particular particular requirements of a design are evidence by which particular requirements of a design are demonstrated to have been achieved; requirements of a design are demonstrated to have been achieved; demonstrated to have been achieved;

• 180. 

  (h) the certification of a (h) the certification of a (h) the certification of a defence (h) the certification of a defence defence product, tangible or intangible defence product, tangible or product, tangible or intangible product, tangible or intangible component component or technology. Certification intangible component or technology. component or technology. Certification or technology;

  is the process according to which a Certification is the process according is the process according to which a national authority certifies that the to which a national authority certifies national authority certifies that the defence product, tangible or intangible that the defence product, tangible or defence product, tangible or intangible component or technology complies intangible component or technology component or technology complies with with the applicable regulations; complies with the applicable the applicable regulations; regulations;

• 181. 

  (i) the development of Commission proposal unchanged Commission proposal unchanged (i) the development of technologies technologies or assets increasing or assets increasing efficiency across the efficiency across the life cycle of life cycle of defence products and

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defence products and technologies; technologies;

• 182. 

  (j) dissemination (j) dissemination Commission proposal unchanged (j) dissemination activities, matchactivities, networking events and activities, networking events and making events and awareness-raising awareness-raising activities. awareness-raising activities. activities.

• 183. 

  4. Unless otherwise provided for 4. Unless otherwise provided for 4. Unless otherwise provided for in 4. The action shall be undertaken in in the work programme referred to in in the work programme referred to in the work programme referred to in a cooperation within a consortium of at Article 27, the action shall be Article 27, tThe action shall be Article 27,t The action shall be least three eligible entities which are

  undertaken in a cooperation of at least undertaken in a cooperation within a undertaken in a cooperation of at least established in at least three different three legal entities which are consortium of at least three legal three legal eligible entities which are Member States or associated countries. established in at least three different entities which are established in at established in at least three different At least three of these eligible entities Member States and/or associated least three different Member States Member States and/or associated established in at least two Member States countries. At least three of these and/or associated countries. Any countries. At least three of these eligible or associated countries shall not, during eligible entities established in at least additional legal entity participating entities established in at least two the whole implementation of the action, two Member States and/or associated in the consortium may be established Member States and/or associated be controlled, directly or indirectly, by countries shall not, during the whole in an associated country as referred countries shall not, during the whole the same entity, and shall not control implementation of the action, be to in Article 5. At least three of these implementation of the action, be each other. effectively controlled, directly or eligible entities established in at least effectively controlled, directly or indirectly, by the same entity, and shall two Member States and/or associated indirectly, by the same entity, and shall not control each other. countries shall not, during the whole not control each other. implementation of the action, be effectively controlled, directly or indirectly, by the same entity, and shall not control each other.

• 184. 

  5. Paragraph 4 shall not apply to 5. Paragraph 4 shall not apply to 5. Paragraph 4 shall not apply to for 5. Paragraph 4 shall not apply to for actions referred to in points c) and for actions referred to in points c) and actions relating to disruptive actions relating to disruptive

  • j) 

    of paragraph 3 and to actions j) of paragraph 3 and to actions technologies for defence or to actions technologies for defence or to actions referred to in Article 6. referred to in Article 6. referred to in point (c) and (j) of referred to in point (c) of paragraph 3. paragraph 3 and to actions referred to in Article 6.

• 185. 

  6. Actions for the development of 6. Actions for the development of 6. Actions for the development of 6. Actions for the development of products and technologies the use, products and technologies the use, products and technologies the use, products and technologies the use,

  development or production of which is development or production of which development or production of which is development or production of which is

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prohibited by applicable international is prohibited by applicable prohibited by applicable international prohibited by applicable international law

law shall not be eligible. international law shall not be eligible law shall not be eligible. shall not be eligible.

for funding. In particular, the

Programme shall not fund

incendiary weapons including white

phosphorus, depleted uranium

ammunitions, lethal autonomous

weapons, including unmanned

aerial vehicles, without meaningful

human control over the critical

functions of selecting and attacking

individual targets, small arms and

light weapons mainly developed for

export purposes, i.e. where no

Member State has expressed a

requirement for the action to be

carried out.

• 186. 

  6a. Actions for the development

  of products and technologies which

  are capable of committing or

  facilitating the following shall not be

  eligible for funding under the

  Programme:

  (i) a serious violation of

  international humanitarian law;

  (ii) a serious violation of

  international human rights law;

  (iii) an act constituting an

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offence under international

conventions or protocols relating to

terrorism;

(iv) an act constituting an offence under international conventions or protocols relating to transnational organized crime.

• 187. 

  6 b. Actions which contribute in

  parts or entirely, directly or

  indirectly to the development of

  weapons of mass destruction and

  related warhead and missile

  technology shall not be eligible.

• 188. 

  Article 12 Article 12 Article 12 Article 12 Selection and award procedure Selection and award procedure Selection and award procedure Selection and award procedure

• 189. 

  1. Grants may be awarded without 1. Grants may be awarded 1. Grants may be awarded without a 1. Union funding shall be granted a call for proposals to legal entities without a call for proposals to legal call for proposals to legal entities following competitive calls for

  identified in the work programme in entities identified in the work identified in the work programme Union proposals issued in accordance with accordance with Article [195(e)] of the programme in accordance with funding shall be granted following the Financial Regulation. In certain Financial Regulation. Article [195(e)] of the Financial competitive calls for proposals issued duly justified and exceptional Regulation. in accordance with the Financial circumstances, Union funding may also Regulation. In certain duly justified be granted in accordance with Article and exceptional circumstances, Union 195(e) of the Financial Regulation. funding may also be granted in accordance with Article [195(e)] of the Financial Regulation.

• 190. 

  2. The Commission shall award Commission proposal unchanged 2. The Commission shall award the Deleted, encompassed in 12(1) Council

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the funding for selected actions after funding for selected actions after each each call or after application of Article call or after application of Article [195(e)] of the Financial Regulation. [195(e)] of the Financial Regulation.

• 191. 

  3. For the award of funding for 3. For the award of funding for 2a. For the award of funding for 2a. For the award of funding, the development actions, the Commission development actions, the Commission development actions, the Commission Commission shall act by means of

  shall act by means of implementing shall act by means of implementing shall act by means of implementing acts implementing acts adopted in accordance acts adopted in accordance with the delegated acts adopted in accordance adopted in accordance with the with the procedure referred to in Article procedure referred to in Article 28 with the procedure referred to in procedure referred to in Article 28 28 paragraph 2. paragraph 2. Article 28a paragraph 2. paragraph 2.

• 192. 

  Article 13 Article 13 Article 13 Article 13 Award criteria Award criteria Award criteria Award criteria

• 193. 

  1. Each proposal shall be assessed Commission proposal unchanged 1. Each proposal shall be assessed on the Each proposal shall be assessed on the on the basis of the following criteria: basis of the following criteria: basis of the following criteria:

• 194. 

  (a) contribution to Commission proposal unchanged (a) contribution to excellence or (a) contribution to excellence or excellence or potential of disruption in potential of disruption in the defence potential of disruption in the defence the defence domain in particular by domain in particular by showing that the domain in particular by showing that the showing that the expected results of expected results of the proposed action expected results of the proposed action the proposed action present significant present significant advantages over present significant advantages over advantages over existing products or existing defence products or existing defence products or

  technologies; technologies; technologies;

• 195. 

  (b) contribution to the Commission proposal unchanged (b) contribution to the innovation and (b) contribution to the innovation and innovation and technological technological development of the technological development of the

  development of the European defence European defence industry, in particular European defence industry, in particular industry, in particular by showing that by showing that the proposed action by showing that the proposed action the proposed action includes groundincludes ground-breaking or novel includes ground-breaking or novel breaking or novel concepts and concepts and approaches, new promising concepts and approaches, new promising approaches, new promising future future technological improvements or the future technological improvements or the technological improvements or the application of technologies or concepts application of technologies or concepts application of technologies or concepts previously not applied in defence sector, previously not applied in defence sector, previously not applied in defence while avoiding unnecessary while avoiding unnecessary sector; duplication; duplication;

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• 196. 

  (c) contribution to the Commission proposal unchanged (c) contribution to the (c) contribution to the competitiveness of the European competitiveness of the European defence competitiveness of the European defence defence industry, in particular by industry by showing that the proposed industry by showing that the proposed creating new market opportunities and action is a demonstrably positive action is a demonstrably positive accelerating the growth of companies balance of cost efficiency and balance of cost efficiency and throughout the Union; effectiveness, in particular by thus effectiveness, thus creating new market creating new market opportunities across opportunities across the Union and the Union and globally and accelerating globally and accelerating the growth of the growth of companies throughout the companies throughout the Union; Union;

• 197. 

  (ca) contribution to the industrial and technological

  autonomy of the Union by enhancing defence technologies or products in line with defence capability priorities agreed by Member States within the framework of the CFSP and in particular in the context of the CDP of the CSDP;

• 198. 

  (d) contribution to the Commission proposal unchanged (d) contribution to the autonomy of (d) contribution to the autonomy of security and defence interests of the the European defence technological the European defence technological Union in line with the priorities and industrial base, including by and industrial base, including by

  referred to in Article 3 paragraph 2 increasing the non-dependency on increasing the non-dependency on nonand, where appropriate, regional and non-EU sources and strengthening EU sources and strengthening security international cooperative agreements; security of supply, and to the security of supply, and to the security and and defence interests of the Union in line defence interests of the Union in line with with the priorities referred to in Article 3 the priorities referred to in Article 3; paragraph 2 and, where appropriate, regional and international cooperative agreements;

• 199. 

  (e) contribution to the (e) contribution to the creation of (e) contribution to the creation of (e) contribution to the creation of new creation of new cross-border new cross-border cooperation new cross-border cooperation between cross-border cooperation between legal

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cooperation between legal entities, in between legal entities, in particular legal entities established in Member entities established in Member States particular for SMEs which are for SMEs and mid-caps which are States or associated countries, in or associated countries, in particular for established in Member States and/or established in Member States and/or particular for SMEs with a substantial SMEs with a substantial participation associated countries other than those associated countries other than those participation in the action, as in the action, as recipients, where the entities in the consortium where the entities in the consortium recipients, subcontractors or as other subcontractors or as other entities in which are not SMEs are established; which are not SMEs and mid-caps entities in the supply chain, and which the supply chain, and which are are established; are established in Member States and/or established in Member States or associated countries other than those associated countries other than those where the entities in the consortium where the entities in the consortium which are not SMEs are established; which are not SMEs or mid-caps are established;

• 200. 

  (f) quality and efficiency Commission proposal unchanged Commission proposal unchanged (f) quality and efficiency of the of the implementation of the action. implementation of the action.

• 201. 

  2. Under points (d) of paragraph 1, Commission proposal unchanged 2. Under points (d) of paragraph 1, Deleted regional and international priorities regional and international priorities may

  may be taken into account, in be taken into account, in particular to particular to avoid unnecessary avoid unnecessary duplication, provided duplication, provided they serve the they serve the Union's security and Union's security and defence interests defence interests and do not exclude the and do not exclude the participation of participation of any Member State. any Member State.

• 202. 

  Article 14 Article 14 Article 14 Article 14 Co-financing rate Co-financing rate Co-financing rate Co-financing rate

• 203. 

  1. The Fund may finance up to 1. The Fund shall may finance 1. The Fund may finance up to 100 1. The Fund may finance up to 100 100% of the eligible costs of an action up to 100% of the eligible costs of an % of the eligible costs of an action % of the eligible costs of an activity,

  without prejudice to the co-financing action without prejudice to the coactivity, listed in Article 11(3), without listed in Article 11(3), without prejudice principle. financing principle. prejudice to Article 190 of the Financial to Article 190 of the Financial Regulation the co-financing principle. Regulation.

• 204. 

  2. By derogation from paragraph Commission proposal unchanged Commission proposal unchanged 2. By derogation from paragraph 1: 1:

• 205. 

  (a) for actions defined in Commission proposal unchanged (a) for actions activities defined in (a) for activities defined in Article

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Article 11(3)(e) the financial assistance Article 11(3) (e) the financial assistance 11(3) (e) the financial assistance of the of the Fund shall not exceed 20% of of the Fund shall not exceed 20 % of the Fund shall not exceed 20 % of the the eligible costs of the action, eligible costs of the action thereof,; eligible costs thereof;

• 206. 

  (b) for actions defined in Commission proposal unchanged (b) for actions activities defined in (b) for activities defined in Article Article 11(3) f) to h) the financial Article 11(3) (f) to (h) the financial 11(3) (f) to (h) the financial assistance of assistance of the Fund shall not exceed assistance of the Fund shall not exceed the Fund shall not exceed 80 % of the 80% of the eligible costs of the action. 80 % of the eligible costs of the action eligible costs thereof.

  thereof.

• 207. 

  3. For development actions the 3. For development actions the 3. For development actions t The 3. For development actions, the funding rate shall be increased in the funding rate shall be increased, funding rates shall be increased in the funding rates shall be increased in the following cases: without being allowed to exceed the following cases: following cases:

  total eligible cost, in the following cases:

• 208. 

  (a) an action developed (a) an action developed (a) an action activity developed in (a) an activity developed in the in the context of the Permanent in the context of the Permanent the context of the Permanent Structured context of Permanent Structured

  Structured Cooperation as established Structured Cooperation as established Cooperation as established by Council Cooperation as established by Council by Council Decision (CFSP) by Council Decision (CFSP) Decision (CFSP) 2017/2315 of 11 Decision (CFSP) 2017/2315 of 11 2017/2315 of 11 December 2017, it 2017/2315 of 11 December 2017, it December 2017, it may benefit from a December 2017 may benefit from a may benefit from a funding rate shall may benefit from a funding rate funding rate increased by an additional funding rate increased by an additional increased by an additional 10 increased by an additional 10 10 percentage points; 10 percentage points; percentage points; percentage points;

• 209. 

  (b) a consortium shall (b) an action a consortium shall (b) a consortium shall benefit from a (b) an activity may benefit from an benefit from a funding rate increased benefit from a funding rate increased funding rate increased by the percentage increased funding rate, as referred to in by the percentage points equivalent to by the percentage points equivalent to points equivalent to the percentage of the the second and third subparagraphs of the percentage of the total eligible the percentage of the total eligible total eligible costs allocated to SMEs this paragraph, where at least 10 % of costs allocated to SMEs established in costs allocated to SMEs established in established in a Member State or an the total eligible costs of the activity

  a Member State or an associated a Member State or an associated associated country other than those in are allocated to SMEs established in a country other than those in which the country other than those in which the which the consortium members that are Member State or in an associated country consortium members that are not consortium members that are not not SMEs are established in an activity and which participate in the activity as SMEs are established in; SMEs or mid-caps are established in; may benefit from an increased funding recipients or as entities in the supply rate, as referred to in the second and chain.

  third subparagraphs of this The funding rate may be increased by

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An activity may benefit from a paragraph, where at least 10 % of the percentage points equivalent to the funding rate total eligible costs of the activity are percentage of the total eligible costs of

allocated to SMEs established in a the activity allocated to SMEs Member State or in an associated established in Member States or in country and which participate in the associated countries in which activity as recipients or as entities in recipients that are not SMEs are the supply chain. established and which participate in

The funding rate may be increased by the activity as recipients or as entities percentage points equivalent to the in the supply chain, up to an additional percentage of the total eligible costs of 5 percentage points.

the activity allocated to SMEs The funding rate may be increased by established in Member States or in percentage points equivalent to twice associated countries in which the percentage of the total eligible costs recipients that are not SMEs are of the activity allocated to SMEs established and which participate in established in Member States or in the activity as recipients or as entities associated countries other than those in in the supply chain, up to an which recipients that are not SMEs are additional 5 percentage points. established and which participate in

The funding rate may be increased by the activity as recipients or as entities percentage points equivalent to twice in the supply chain;

the percentage of the total eligible costs of the activity allocated to SMEs established in Member States or in associated countries other than those in which recipients that are not SMEs are established and which participate in the activity as recipients or as entities in the supply chain;

• 210. 

  (c) a consortium shall (c) an action a consortium shall (c) a consortium shall benefit from a (c) an activity may benefit from a benefit from a funding rate increased benefit from a funding rate increased funding rate increased by the percentage funding rate increased by an additional by the percentage points equivalent to by the percentage points equivalent to points equivalent to the quarter of the 10 percentage points where at least 15 the quarter of the percentage of the the quarter of the percentage of the percentage of the total eligible costs % of the total eligible costs of the

  total eligible costs allocated to midtotal eligible costs allocated to midallocated to mid-caps established in a activity are allocated to mid-caps

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caps established in a Member State or caps established in a Member State or Member State or an associated country established in the Union or in an an associated country other than those an associated country other than those other than those in which the other associated country. in which the other consortium in which the other consortium consortium members that are not SMEs members that are not SMEs or midmembers that are not SMEs or midor mid-caps are established in an activity caps are established in; caps are established in; may benefit from a funding rate increased by an additional 10 percentage points where at least 15 % of the total eligible costs of the activity are allocated to mid-caps established in the Union or in an associated country;

• 211. 

  (d) the overall increase Commission proposal unchanged (d) the overall increase in the funding (d) the overall increase in the funding in the funding rate of an action shall rate of an action activity shall not exceed rate of an activity shall not exceed 35

  not exceed 30 percentage points. 350 percentage points. percentage points.

• 212. 

  Article 15 Article 15 Article 15 Article 15 Financial capacity Financial capacity Financial capacity Financial capacity

• 213. 

  By derogation from Article [198] of Commission proposal unchanged Commission proposal unchanged By derogation from Article 198 of the

the Financial Regulation: Financial Regulation:

• 214. 

  (a) the financial capacity shall Commission proposal unchanged Commission proposal unchanged (a) the financial capacity shall be be verified only for the coordinator and verified only for the coordinator and only only if the requested funding from the if the requested funding from the Union Union is equal to or greater than EUR is equal to or greater than EUR 500 000. 500 000. However, if there are grounds However, if there are grounds to doubt to doubt the financial capacity, the the financial capacity, the Commission Commission shall verify also the shall verify also the financial capacity of financial capacity of other applicants other applicants or of coordinators below or of coordinators below the threshold the threshold referred to in the first

  referred to in the first sentence; sentence;

• 215. 

  (b) the financial capacity shall (b) the financial capacity shall not (b) the financial capacity shall not be (b) the financial capacity shall not be not be verified in respect of legal be verified in respect of legal entities verified in respect of legal entities whose verified in respect of legal entities whose entities whose viability is guaranteed whose viability is guaranteed by a viability is guaranteed by a Member viability is guaranteed by Member States' by a Member State and in respect of Member State and in respect of

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universities; universities and public research State and in respect of universities; relevant authorities; centres;

• 216. 

  (c) if the financial capacity is Commission proposal unchanged Commission proposal unchanged (c) if the financial capacity is structurally guaranteed by another structurally guaranteed by another legal legal entity, the financial capacity of entity, the financial capacity of the latter the latter shall be verified. shall be verified.

• 217. 

  Article 16 Article 16 Article 16 Article 16 Indirect costs Indirect costs Indirect costs Indirect costs

• 218. 

  1. Indirect eligible costs shall be Commission proposal unchanged 1. By derogation from Article 1. By derogation from Article determined by applying a flat rate of 181(6) of the Financial Regulation, 181(6) of the Financial Regulation, 25 % of the total direct eligible costs, indirect eligible costs shall be determined indirect eligible costs shall be determined excluding direct eligible costs for by applying a flat rate of 25 % of the by applying a flat rate of 25 % of the total subcontracting, financial support to total direct eligible costs, excluding direct eligible costs, excluding direct third parties and any unit costs or lump direct eligible costs for of subcontracting, eligible costs of subcontracting and sums which include indirect costs. and financial support to third parties and financial support to third parties and any any unit costs or lump sums which unit costs or lump sums which include include indirect costs. indirect costs.

• 219. 

  2. Where appropriate, indirect 2. As an alternative Where 2. Where appropriate As an 2. As an alternative, indirect eligible eligible costs beyond the flat rate of 25 appropriate, indirect eligible costs alternative, indirect eligible costs of up costs of up to 80% of the total direct

  % may be determined in accordance beyond the flat rate of 25 % may be to 80 % of the total direct eligible costs eligible costs may be determined in with the beneficiary's usual cost determined in accordance with the beyond the flat rate of 25 % may be accordance with the recipient’s usual accounting practices on the basis of beneficiary's usual cost accounting determined in accordance with the cost accounting practices on the basis of actual indirect costs provided that these practices on the basis of actual beneficiary's recipient’s usual cost actual indirect costs provided that these cost accounting practices are accepted indirect costs provided that these cost accounting practices on the basis of cost accounting practices are accepted by by national authorities under accounting practices are accepted by actual indirect costs provided that these national authorities for comparable comparable funding schemes in national authorities under comparable cost accounting practices are accepted by activities in the defence domain, in accordance with Article [185] of the funding schemes in accordance with national authorities under for comparable accordance with Article 185 of the Financial Regulation and Article [185] of the Financial funding schemes activities in the Financial Regulation, and communicated communicated to the Commission. Regulation and communicated to the defence domain, in accordance with to the Commission. Commission. Article [185] of the Financial Regulation, and communicated to the Commission.

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• 220. 

  Article 17 Article 17 Article 17 Article 17 Use of single lump sum or contribution Use of single lump sum or Use of single lump sum or contribution Use of single lump sum or contribution not linked to costs contribution not linked to costs not linked to costs not linked to costs

• 221. 

  1. For grants awarded to actions 1. For grants awarded to actions 1. For grants awarded to actions 1. Where the Union grant coreferred to Article 11(3)(e) and other referred to Article 11(3)(e) and other referred to Article 11(3)(e) and other finances less than 50 % of the total actions where Member States and/or actions where Member States and/or actions where Member States and/or costs of the action, the Commission may associated countries finance the major associated countries finance more associated countries finance the major use:

  part of the budget, the Commission than 50 % the major part of the part of the budget, Where the Union may use: budget, the Commission may use: grant co-finances less than 50 % of the total costs of the action, the Commission may use:

• 222. 

  (a) a contribution not Commission proposal unchanged (a) a contribution not linked to costs (a) a contribution not linked to costs linked to costs referred to in Article referred to in Article [180(3)] of the referred to in Article 180(3) of the

  [180(3)] of the Financial Regulation Financial Regulation and based on the Financial Regulation and based on the and based on the achievement of achievement of results measured by achievement of results measured by results measured by reference to reference to previous set milestones or reference to previous set milestones or previous set milestones or through through performance indicators; or through performance indicators; or performance indicators; or

• 223. 

  (b) a single lump sum Commission proposal unchanged (b) a single lump sum referred to in (b) a single lump sum referred to in referred to in Article [182] of the Article [182] of the Financial Regulation Article 182 of the Financial Regulation Financial Regulation and based on the and based on the provisional budget of and based on the provisional budget of provisional budget of the action the action already endorsed by the the action already endorsed by the

  already endorsed by the national national authorities of the co-financing national authorities of the co-financing authorities of the co-financing Member Member States and associated countries. Member States and associated countries. States and associated countries.

• 224. 

  2. Indirect costs shall be included Commission proposal unchanged Commission proposal unchanged 2. Indirect costs shall be included in in the lump sum. the lump sum.

• 225. 

  Article 18 Article 18 Article 18 Article 18 Pre-commercial procurement Pre-commercial procurement Pre-commercial procurement Pre-commercial procurement

• 226. 

  1. The Union may support pre 1. The Union may support pre 1. The Union may support pre 1. The Union may support precommercial procurement through commercial procurement through commercial procurement through commercial procurement through

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awarding a grant to contracting awarding a grant to contracting awarding a grant to contracting awarding a grant to contracting authorities or contracting entities as authorities or contracting entities as authorities or contracting entities as authorities or contracting entities as defined in Directives 2014/24 i/EU 13 , defined in Directives 2014/24 i/EU 14 , defined in Directives 2014/24 i/EU 13 , defined in Directives 2014/24 i/EU 13 , 2014/25 i/EU 14 and 2009/81/EC 15 of the 2014/25/EU 15 and 2009/81/EC 16 of 2014/25/EU 14 and 2009/81/EC 15 of the 2014/25/EU 14 and 2009/81/EC 15 of the European Parliament and of the the European Parliament and of the European Parliament and of the Council, European Parliament and of the Council, Council, which are jointly procuring Council, which are jointly procuring which are jointly procuring defence which are jointly procuring defence research and development of defence defence research and development of research and development of defence research and development services or services or coordinating their defence services or coordinating their services or coordinating their coordinating their procurement procurement procedures. procurement procedures. procurement procedures. procedures.

----- ----- ----- -----

13 Directive 2014/24 i/EU of the 14 Directive 2014/24 i/EU of the 13 Directive 2014/24 i/EU of the European 13 Directive 2014/24 i/EU of the European European Parliament and of the European Parliament and of the Parliament and of the Council of 26 Parliament and of the Council of 26 Council of 26 February 2014 on public Council of 26 February 2014 on February 2014 on public procurement February 2014 on public procurement procurement and repealing Directive public procurement and repealing and repealing Directive 2004/18/EC i. (OJ and repealing Directive 2004/18/EC i. (OJ 2004/18/EC. (OJ L 94, 28.03.2014, p. Directive 2004/18/EC i. (OJ L 94, L 94, 28.03.2014, p. 65). L 94, 28.03.2014, p. 65).

65). 28.03.2014, p. 65). 14 Directive 2014/25 i/EU of the European 14 Directive 2014/25 i/EU of the European

14 Directive 2014/25 i/EU of the 15 Directive 2014/25 i/EU of the Parliament and of the Council of 26 Parliament and of the Council of 26 European Parliament and of the European Parliament and of the February 2014 on procurement by February 2014 on procurement by entities Council of 26 February 2014 on Council of 26 February 2014 on entities operating in the water, energy, operating in the water, energy, transport procurement by entities operating in procurement by entities operating in transport and postal services sectors and and postal services sectors and repealing the water, energy, transport and postal the water, energy, transport and postal repealing Directive 2004/17/EC i (OJ L Directive 2004/17/EC i (OJ L 94, services sectors and repealing services sectors and repealing 94, 28.03.2014, p. 243). 28.03.2014, p. 243).

Directive 2004/17/EC i (OJ L 94, Directive 2004/17/EC i (OJ L 94, 15

28.03.2014, p. 243). 28.03.2014, p. 243). Directive 2009/81/EC i of the European

15 Directive 2009/81/EC i of the European Parliament and of the Council of 13 July Parliament and of the Council of 13 July 15 Directive 2009/81/EC i of the 16 Directive 2009/81/EC i of the 2009 on the coordination of procedures 2009 on the coordination of procedures European Parliament and of the European Parliament and of the for the award of certain works contracts, for the award of certain works contracts, Council of 13 July 2009 on the Council of 13 July 2009 on the supply contracts and service contracts by supply contracts and service contracts by coordination of procedures for the coordination of procedures for the contracting authorities or entities in the contracting authorities or entities in the award of certain works contracts, award of certain works contracts, fields of defence and security, and fields of defence and security, and supply contracts and service contracts supply contracts and service contracts amending Directives 2004/17/EC i and amending Directives 2004/17/EC i and by contracting authorities or entities in by contracting authorities or entities 2004/18/EC (OJ L 216, 20.08.2009, 2004/18/EC (OJ L 216, 20.08.2009, the fields of defence and security, and in the fields of defence and security, p.76). p.76).

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amending Directives 2004/17/EC i and and amending Directives 2004/17/EC i 2004/18/EC (OJ L 216, 20.08.2009, and 2004/18/EC (OJ L 216,

p.76). 20.08.2009, p.76). 1a. Specific provisions regarding

ownership, access rights and licensing of research actions shall be laid down in the grant agreements and contracts regarding pre-commercial procurement to ensure maximum uptake of the results and to avoid any unfair advantage. The contracting authorities shall enjoy at least royalty-free access rights to the results for their own use and the right to grant, or require the recipients to grant, nonexclusive licences to third parties to exploit the results under fair and reasonable conditions without any right to sub-license. All Member States and associated countries shall, where applicable, have royalty-free access to the special report. If a contractor fails to commercially exploit the results within a given period after the pre-commercial procurement as identified in the contract, it shall transfer any ownership of the results to the contracting authorities.

• 227. 

  2. The procurement procedures: Commission proposal unchanged Commission proposal unchanged 2. The procurement procedures:

  • 228. 

    (a) shall be in line with Commission proposal unchanged Commission proposal unchanged (a) shall be in line with the provisions the provisions of this Regulation; of this Regulation;

  • 229. 

    (b) may authorise the Commission proposal unchanged Commission proposal unchanged (b) may authorise the award of award of multiple contracts within the multiple contracts within the same same procedure (multiple sourcing); procedure (multiple sourcing);

• 230. 

  (c) shall provide for the Commission proposal unchanged (c) shall provide for the award of the (c) shall provide for the award of the

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award of the contracts to the tender(s) contracts to the tender(s) offering best contracts to the tender(s) offering best offering best value for money. value for money while ensuring absence value for money while ensuring absence of conflict of interest. of conflict of interest.

• 231. 

  Article 19 Article 19 Article 19 Article 19 Guarantee Fund Guarantee Fund Guarantee Fund Guarantee Fund

• 232. 

  Contributions to a mutual insurance Commission proposal unchanged Contributions to a mutual insurance Contributions to a mutual insurance mechanism may cover the risk mechanism may cover the risk associated mechanism may cover the risk associated associated with the recovery of funds with the recovery of funds due by with the recovery of funds due by

  due by recipients and shall be recipients and shall be considered a recipients and shall be considered a considered a sufficient guarantee under sufficient guarantee under the Financial sufficient guarantee under the Financial the Financial Regulation. The Regulation. The provisions laid down in Regulation. The provisions laid down in provisions laid down in [Article X of] [Article X of] Regulation XXX [Article X of Regulation XXX (successor Regulation XXX [successor of the [(successor of the Regulation on the of the Regulation on the Guarantee Regulation on the Guarantee Fund] Guarantee Fund)] shall apply. Fund)] shall apply. shall apply.

• 233. 

  CHAPTER IV CHAPTER IV CHAPTER IV Chapters deleted OTHER FORMS OF UNION OTHER FORMS OF UNION OTHER FORMS OF UNION

  FUNDING FUNDING FUNDING

• 234. 

  Article 20 Article 20 Article 20 Deleted Eligibility conditions for procurement Eligibility conditions for procurement Eligibility conditions for procurement

  and prizes and prizes and prizes

• 235. 

  Where necessary for the protection of Where necessary for the protection of Where necessary for the protection of the Deleted the essential security interest of the the essential security interest of the essential security interest of the Union

  Union and its Member States, the Union and its Member States, the and its Member States, the Commission Commission shall set the requisite Commission shall set the requisite shall set the requisite eligibility eligibility conditions applicable to the eligibility conditions applicable to the conditions applicable to the procurement procurement or prizes financed by the procurement or prizes financed by the or prizes financed by the Fund. Particular Fund. Particular regard shall be had, Fund. Particular regard shall be had, regard shall be had, for that purpose, to for that purpose, to the need for for that purpose, to the need for the need for recipients to be established recipients to be established in the recipients to be established in the in the Union or in associated countries, to Union or in associated countries, to Union or in associated countries, to commit to carry out any relevant commit to carry out any relevant commit to carry out any relevant activities inside the Union and not to be

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activities inside the Union and not to activities inside the Union and not to effectively controlled by non-associated be effectively controlled by nonbe effectively controlled by nonthird countries or non-associated third associated third countries or nonassociated third countries or noncountry' entities. Those conditions shall associated third country' entities. associated third country' entities. be included in the documents relating to Those conditions shall be included in Those conditions shall be included in the procurement or prize, as applicable, the documents relating to the the documents relating to the and shall apply to the full life cycle of procurement or prize, as applicable, procurement or prize, as applicable, the resulting contract. and shall apply to the full life cycle of and shall apply to the full life cycle of the resulting contract. the resulting contract.

• 236. 

  Article 21 Article 21 Article 21 Deleted and moved to Article 8 Blending operations Blending operations Access to Blending operations

  financial instruments

• 237. 

  Blending operations decided under this Blending operations decided under Blending operations decided under this Deleted and moved to Article 8

Fund shall be implemented in this Fund Beneficiaries of the Fund Fund shall be implemented in accordance

accordance with the [InvestEU shall be implemented eligible to with the [InvestEU regulation] and Title

regulation] and Title X of the Financial access the dedicated financial X of the Financial Regulation.

Regulation. products deployed under InvestEU in

accordance with the [InvestEU regulation] Title X of the Financial Regulation.

• 238. 

  TITLE II TITLE II TITLE II TITLE II SPECIFIC PROVISIONS SPECIFIC PROVISIONS SPECIFIC PROVISIONS SPECIFIC PROVISIONS

  APPLICABLE FOR RESEARCH APPLICABLE FOR RESEARCH APPLICABLE FOR RESEARCH APPLICABLE FOR RESEARCH ACTIONS ACTIONS

• 239. 

  Article 22 Article 22 Article 22 Article 22 Ownership of results Ownership of results Ownership of results of research actions Ownership of results of research actions

• 240. 

  1. The results of the actions shall 1. The results of the actions shall 1. The results of the research 1. The results of research actions be owned by the beneficiaries be owned by the beneficiaries actions supported by the Fund shall be financially supported by the Fund shall generating them. Where legal entities generating them. Where legal entities owned by the beneficiaries recipients be owned by the recipients generating jointly generate results, and where jointly generate results, and where generating them. Where legal entities them. Where legal entities jointly

  their respective contribution cannot be their respective contribution cannot jointly generate results, and where their generate results, and where their ascertained, or where it is not possible be ascertained, or where it is not respective contribution cannot be respective contribution cannot be

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to separate such joint results, the legal possible to separate such joint results, ascertained, or where it is not possible to ascertained, or where it is not possible to entities shall have joint ownership of the legal entities shall have joint separate such joint results, the legal separate such joint results, the legal the results. ownership of the results. The joint entities shall have joint ownership of the entities shall have joint ownership of the owners shall conclude an agreement results. results. The joint owners shall conclude regarding the allocation and terms an agreement regarding the allocation of exercise of that joint ownership in and terms of exercise of that joint accordance with their obligations ownership in accordance with their under the grant agreement. obligations under the grant agreement.

• 241. 

  2. If Union assistance is provided 2. If Union assistance is provided 2. By derogation from paragraph 2. By derogation from paragraph in the form of public procurement, in the form of public procurement, 1, iIf Union assistance support is 1, if Union support is provided in the

  results shall be owned by the Union. results shall be owned by the Union. provided in the form of public form of public procurement, results of Member States and associated Member States and associated procurement, results of research actions research actions financially supported countries shall enjoy access rights to countries shall enjoy access rights to supported by the Fund shall be owned by the Fund shall be owned by the the results, free of charge, upon their the results, free of charge, upon their by the Union. Member States and Union. Member States and associated explicit request. explicit written request. associated countries shall enjoy access countries shall enjoy access rights to the rights to the results, free of charge, upon results, free of charge, upon their written their explicit written request. request.