UK and US companies shut out of €13 billion European Defence Fund

Europe has committed €13 billion to defense research and capability development beginning in 2021

The European Union will on Wednesday present its new €13 billion defense fund, but conditions for taking part will shut out “third countries” including post-Brexit United Kingdom and the United States, officials have told AFP.

The European Defence Fund is a major plank of the bloc’s strategy to boost its ability to guarantee its own security, as it frets about the threat from Russia and the United States’ apparent ambivalence under President Donald Trump.

The money it offers for research and development when it starts in 2021 will only be available to member states – not the U.K., which will have left the E.U. by then, and not the U.S.

To qualify for EDF funding, “companies will have to be based in the European Union, have their infrastructure in the European Union and above all, decision-making cannot be controlled by an entity based outside the European Union,” an E.U. official told AFP, speaking on condition of anonymity.

This means a European subsidiary of a U.S. defense manufacturer for example could not receive financing from the EDF.

These conditions will also apply to the U.K., which is leaving the bloc in March next year, another official confirmed to AFP – unless London negotiates a special defense cooperation deal.

This is despite the U.K. saying it wants security cooperation with the E.U. to be a key part of the two sides’ future relationship.

“Countries that are not members of the E.U. and the EEA [European Economic Area] will not be associated to the Fund unless a specific agreement is concluded to that aim,” the second official said.

“The programme is designed to apply as of 1 January 2021 and therefore for a Union of 27 Member States.”

‘Becoming a problem’

The E.U. formally established the 25-member Permanent Structured Cooperation on security and defense (PESCO) pact in December. PESCO was introduced by the Lisbon Treaty and allows states participating the the joint framework to develop joint defence capabilities, invest in shared projects, and enhance the operational readiness and contribution of their armed forces.

The pact has prompted U.S. concerns that it would become a protectionist vehicle used to shield European defense companies such as France’s Dassault from American competition.

But Brussels insists there is no unfairness, with one official saying: “It is normal that European money goes to European companies.”

“These conditions are not discriminatory. This is about reciprocity. To benefit from U.S. funds, firms have to be based in the United States, exclusively employ American personnel and no information can go back to the parent company if it is not based in the United States,” the official told AFP.

European officials say the EDF will help free the bloc from dependence on the United States and add to its “strategic autonomy.”

The E.U. has given the EDF a budget of €13 billion over the period 2021-2027, including €4.1 billion for research and €8.9 billion for developing military capabilities.

France hopes to get finance for a military drone project it is working on with Germany, Italy and Spain, French Defence Minister Florence Parly told AFP.

Part of the rationale for the EDF and European defense cooperation more broadly is to get E.U. countries to spend more efficiently and effectively.

“Currently 80 percent of research and development in the European Union is done on a national basis. The result is 173 weapons systems that are not inter-operable. We cannot let things go on like this,” one of the E.U. officials said.

Trump helped get the long-delayed concept of a “Europe of defense” off the ground with his repeated verbal attacks on allies and hinting the U.S. may no longer be wiling to guarantee their security as it has since the end of World War II.

But Washington is starting to worry about European ambitions and is pressing them more and more openly to buy American as they try to hit their NATO commitment to spend two percent of GDP on defence by 2024.

“The pressure applied by the United States to buy American equipment is becoming a problem,” a senior NATO diplomatic source said.

With reporting from AFP

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