Defence and armed forces – guidance

Letter of Intent: restructuring the European defence industry

Overview of the work of the Letter of Intent (LoI) group (France, Germany, Italy, Spain, Sweden & UK) on the defence industry.

The Letter of Intent (LoI) Framework Agreement (FA) Treaty was signed on 27 July 2000 by the defence ministers of France, Germany, Italy, Spain, Sweden and the UK. It aimed to create the political and legal framework necessary to facilitate industrial restructuring in order to promote a more competitive and robust European Defence Technological and Industrial Base (EDTIB) in the global defence market.

It intended to address this aim through tackling 6 broad areas: security of supply, transfer/export procedures, security of information, research, treatment of technical information and harmonisation of military requirements. Each of these areas was assigned a sub-committee tasked with establishing common policies and overseen by the strategic level Executive Committee (ExCo).

The political, industrial and military landscape, however, has changed significantly since the LoI FA was signed in 2000. The European Defence Agency (EDA) was established in 2004, the European Commission has taken an ever closer interest in defence industrial and market issues and the defence industrial base has become increasingly globalised. Against this backdrop, the LoI nations agreed to adapt the work of the LoI in order for it to meet these new challenges, seeking to become an effective group able to:

  • monitor and influence the European Commission
  • provide advice and guidance to the EDA
  • establish a more effective dialogue with industry
  • work with third parties (other EU member states, US) to promote greater transparency and understanding of mutual defence industrial and market issues

The LoI ExCo has subsequently endeavoured to fulfil this ‘think tank’ role and re-orientate its work to these objectives. It is chaired in turn by each nation on an annual basis and meets 2 or 3 times a year to review progress on current activities and agree new priorities and activities. The most significant recent positive has been our work on agreeing joint LoI positions in relation to European Commission work on defence and subsequently act as a robust lobbying force to support or oppose Commission action as appropriate.

Six specialist sub-committees were established under the Framework Agreement to facilitate the restructuring of the defence industrial base.

Sub-committee 1: security of supply

Sub-committee 1 (SC1) was established to introduce arrangements to provide LoI nations with greater security of supply (SoS), particularly in times of an emergency or crisis. The aim was also to ensure that the nations were more involved in the maintenance of strategically important assets, activities and skills in the framework of European defence industrial restructuring and the creation of transnational defence companies.

A SoS Implementing Arrangement (IA), signed in 2003, provided further practical detail on how the key LoI Treaty terms would be implemented. This was supported by a code of practice on defence industry restructuring, which established the procedures for industry to inform governments in advance of any significant restructuring process located in their territories that implied the abandonment, transfer or relocation of part or whole of the key strategic activities. LoI experts were subsequently involved in ensuring that both the IA and the code were fully compatible with the 2009 EU Defence Procurement Directive; in particular, the provisions of Article 23, which established new arrangements on SoS.

Whilst SC1 is now ‘dormant’, LoI experts continue to play an active role. The 2003 IA has been re-drafted to better take account of national procurement law and, as at July 2015, is in the process of being signed by the six nations. Furthermore, our experts continue to play a key and proactive role in supporting EDA and European Commission efforts to improve confidence in SoS across the EU.

Sub-committee 2: export procedures (now Export Control Working Group)

In 2011, the Export Control Informal Working Group (ECIWG) replaced the former Sub-committee 2 (export procedures) whose remit had been either achieved or overtaken.

The work of the ECIWG has remained focused on facilitating the strengthening of the European defence industry at which the LoI countries remain the central core. The ECIWG now has a wider remit to focus on any export control issue that could potentially help facilitate the transfer or export of defence equipment from the LoI perspective, with improved harmonisation between national export control systems a central theme. Much of this work has in practice been related to discussion about the implementation of Directive 2009/43/EC (the “ICT (Intra-Community Transfers) Directive”) on the transfer of defence related products.

In 2014/15, the group played an important role in supporting the European Commission review on the implementation of Directive 2009/43/EC. This has culminated in the development of a position paper (presented to the Commission in January 2015), which takes account of LoI priorities, to help guide the Commission with their review by highlighting those areas where the LoI countries feel further work could help effective implementation of the Directive. This paper was welcomed by the European Commission representatives leading on the review. The ECIWG will continue to support the Commission in this work until its conclusion in 2016.

One of the specific recommendations from this LoI position paper was to try to achieve harmonisation of the general transfer licences created under the ICT Directive, with a view to establishing a harmonised minimum content across all member states. The ECIWG has provided the Commission with a harmonised LoI position on these licences to provide the groundwork for these discussions with all member states. This work will continue throughout 2015.

Finally, another important ECIWG initiative has been to establish a common definition of the term “Specially designed” (an industry priority) in relation to the control text used in the EU common military list that continues to progress in the right direction.

The ECIWG continues to meet under its French chairmanship, reporting to the ExCo on its work and future direction.

Sub-committee 3: security of information

The objective of Sub-committee 3 (SC3) was to adapt procedures relating to the protection of classified information including, but not limited to: personnel security clearances, transmission and international visits, to facilitate industrial cooperation without undermining the security of classified information and material.

SC 3 focuses on:

  • reviewing the effectiveness of the provisions regarding personnel and facility security clearances and access to classified information, and reduction of the time requested to grant those clearances and access approvals
  • facilitating the transfer of classified information; and
  • harmonising security regulations between member states

SC3 developed procedural guidelines covering:

  • the security provisions for inclusion in MoUs for international programmes
  • streamlined the consultation procedure for member states to seek approval to allow nationals of non LoI nations access to classified information belonging to another member state
  • standardised forms for facility security clearance and request for visit procedures
  • procedures and standardised forms for hand carriages of classified information by company employees acting as couriers; and
  • procedures for and a list of mutually accepted commercial encryption devices for the electronic transmission of classified information at the level of RESTRICTED.

SC3 successfully persuaded the NATO Security Committee to include in the NATO security regulations the LoI procedures on international visits for adoption in NATO programmes where the programme participants agree.

SC3 agreed a number of procedural documents that can be found on the GOV.UK website at: https://www.gov.uk/government/publications/letter-of-intent-sub-committee-3

As the important work of SC3 has been successfully completed it is currently in a dormant mode. However, the participants agree that it shall re-convene should there be any new security of information topics that need to be considered or if any of the existing documents or procedures require review.

Sub-committee 4: now Group of Research Directors

After the signature of an Implementing Arrangement in 2003, Sub-committee 4 was disbanded and the Group of Research Directors (GRD) was established with the aim of fostering co-ordination of joint research activities, increasing the advanced knowledge base and encouraging technological development and innovation.

National experts have exchanged information on defence related research and technology (R&T) programmes, strategies and policies; developed a common understanding of which technologies are needed with the objective of establishing a co-ordinated approach to fulfil those needs; and analysed the information exchanged with the objectives of making best use of resources.

In addition, national representatives strongly influenced and initiated the EUROPA MoU (memorandum of understanding), which enshrines the key principle of information exchange and provides the only European level mechanism for R&T co-operation amongst nations. The GRD continues to be an important body to improve European co-operation under the EUROPA framework. Unfortunately, it was not possible for nations to agree a Code of Conduct with trans-national defence companies on closer R&T co-operation due to different national laws and approaches towards commercial and industrial practices. However, nations successfully influenced the General Conditions of the EDA in relation to R&T co-operation and contracts.

The GRD works closely with EDA R&T experts. This close co-operation includes, for example, a dialogue on the improvement of EDA’s R&T processes, new approaches to R&T co-operation, the analysis of the effects of the Lisbon Treaty and the identification of future R&T priorities. GRD also sponsors sub-groups on disruptive technologies and environmental R&T co-operation.

More recently, the GRD has been playing an active role in guiding/supporting the European Commission (and EDA) in its work to develop a preparatory action (a type of EU pilot) on CSDP (Common Security and Defence Policy) related research.

Sub-committee 5: treatment of technical information (TTI)

Sub-committee 5 (SC5) is concerned with implementing LoI Treaty elements relating to the treatment of technical information. The objectives of SC5 are therefore to simplify the transfer of technical information, to establish harmonised principles for the treatment of Intellectual Property Rights (IPR) amongst the LoI nations and to reduce restrictions put upon the disclosure and use of technical information.

In particular, SC5 has worked to harmonise the treatment of technical information and intellectual property rights in national defence contracts placed by the LoI nations, in order to remove national barriers and facilitate the restructuring of the European defence industry. This work has resulted in the successful conclusion of two Implementing Arrangements (IAs) directed at harmonising national practices.

The first of these IAs (referred to as TTI 100), relates to the harmonisation of standard contract provisions in defence contracts for the development, production and in-service support of defence capability. The second of these IAs (TTI 135) relates to a similar harmonisation of standard contract provisions in defence contracts for research. The text of these can be found here Treatment of technical information (TTI).

SC5 has also worked on the issue of securing patent protection for inventions which incorporate technical information that is subject to national security classification. This work resulted in the successful conclusion of an IA (TTI 118) which addressed “patent applications and the like relevant to defence”. This IA streamlined the process for making classified patent applications and also resolved areas of conflict between the national laws of the LoI states in relation to where such an application may be made. The text can be found here Treatment of technical information (TTI). The relevant national authorities in each LoI state should however be contracted for information on how its provisions have been implemented in each territory.

SC5 has also worked to produce guidelines encouraging the waiver of commercial exploitation levy with respect to sales of defence equipment between LoI nations, and has complied a guidance document explaining the different “Freedom of Information” regulations applicable in each of the LoI nations for the benefit of contractors working on multi-national defence contracts.

Now that each of its major IAs has been signed, SC5 is no longer meeting regularly. It does however continue to exist as a network of national Intellectual Property specialists who can consult with each other on any issues relating to the treatment of technical information arising within the LoI nations, or from the restructuring of their defence industry. At present the major concern for SC5 is the implementation and monitoring of the agreed Implementing Arrangements.

Sub-committee 6: harmonisation of military requirements (HMR)

The objective of Sub-committee 6 (SC6) was to develop a methodology aimed at identifying potential projects for co-operation and harmonisation of associated military requirements.

SC6 focused on developing a process to help nations identify:

  • areas in which better harmonisation of military requirements is considered possible
  • potential candidates for cooperative equipment programmes at the earliest possible stage

The Harmonisation of Military Requirements Board (HMRB) was established to carry out these objectives and had the following missions:

  • create and maintain a common master database related to military capabilities
  • address all actions that are deemed necessary to achieve the harmonisation of military requirements
  • highlight new co-operation opportunities
  • fulfil a common evaluation process on potential candidates for cooperation
  • launch a process of drafting common staff targets

A 2013 review by the HMR Support Team concluded there was scope for the EDA to fulfil elements of the previous LoI HMR functions and that there would be no further need for meetings in the format of the HMRB (or the supporting bodies specified in the FA HMR IA) until one or more nations see the need for it again. However, in order to keep the contact/interaction between LoI nations on HMR work, informal meetings would continue to take place on a case by case basis, with a lead nation rotating annually, in order to identify common projects to be taken to EDA and to exchange capability related information of interest to LoI nations.