Foreign policy and economics clash in EU’s new phase of arms production
How the murder of Saudi journalist sparked friction amongst Europe’s arms producing partners.
French-German relations on military matters are generally excellent. Only a year ago, the two governments agreed to develop and later produce a number of future major weapon systems, including a medium-sized drone, a major battle tank and a fighter aircraft, in Franco-German collaboration.
However, early in 2019, a major dispute broke out between the two governments and became news in both countries, a dispute that brings to light a major problem related to multinational collaborative weapon productions in the European Union (EU).
Germany decided to stop all arms exports to Saudi Arabia after the murder of Saudi journalist Jamal Khashoggi in September 2018. This included exports of components and spare parts for weapon systems with Saudi Arabia as ultimate destination.
In stopping sales to Saudi Arabia, Germany was in line with a number of other member states of the EU as well as the European Parliament. However, not all member states followed that line. There is a legal base for a common arms export policy in the EU, enshrined in an EU Common Position from 2008, which however only lists criteria for decision-making on arms exports. Individual member states have retained the right to decide over all individual transactions. In the Saudi case, France and the United Kingdom, among others, decided to continue to sell arms.
Because of the industrial integration of arms production in Europe, the German export ban affected orders from Saudi Arabia for arms producers in both countries. This concerned a number of collaborative projects among governments, such as Eurofighter aircraft exported to Saudi Arabia from the UK, as well as private company projects, such as tank transport vehicles built in France with major components from Germany.
Both the UK and the French governments officially complained about the German decision. The French government was particularly adamant. In this it was joined by arms producers in Germany and France. They claimed that German arms export policy had become unpredictable and violated the spirit of trust necessary for joint arms production.
The complaints expressed by the two governments and the industry went well beyond the Saudi case. At stake, so it was argued, was the possibility of collaborative arms production itself. If Germany was insisting on operating a sovereign arms export policy, the French ambassador to Germany wrote in a policy brief, this would not only endanger the planned large collaborative projects, but end lead arms producers in other countries to opt for “German-free” products. This would endanger not only the idea of a common European defence market but also French-German military cooperation in general.
Shrill statements such as that by the French ambassador seem to primarily aim at getting the attention of the German public and political decision-makers, which traditionally view arms exports to countries outside the EU and NATO as critical. Common arms production is only one, and a comparatively minor, element of French-German cooperation. It would be a worrying sign for French-German relations if they were dependent on issues related to arms production.
However, the controversy also very publicly exposed a friction between economic and political interest, which comes with joint arms production in the EU. Economic goals, in the form of benefitting from the economies of scale of larger production runs and the pooling of know-how resources, can easily conflict with foreign policy goals, particularly the wish to exercise national sovereignty over arms exports. As arms exports are very important to major European arms producers, most of whom sell more than half of their output to customers outside of the EU, a way to reconcile the two goals has to be found.
The friction between economic and foreign policy goals is not a new problem. Co-production of arms has been around for many decades. Generally, in the past, the interest in collaboration has topped concerns that co-operating governments may have had over sales to certain customers, in which they were materially involved through the licencing of the delivery of parts and components. Only a few instances have become publicly known where one or the other government stopped exports of components to a co-operation state, such as a German denial of export licences for components, which stopped the sale of helicopters from France to Turkey in 2000. The collaberman government justified its denial with the Turkish military’s conduct in its conflict with Kurdish rebels.
The friction between economics and politics has, however, recently gained importance among EU-member states as they have decided on various initiatives to increase cooperation in arms production, including a European Defence Action Plan and a European Defence Fund. While the Franco-German plans are particularly advanced, in the view of major players, such as the EU commission, much more co-operation should come about, either through agreements among member states or more integration among major arms producing companies in Europe. They expect a new phase of arms production in Europe.
The strong reaction to the German decision on Saudi Arabia needs to be seen in the context of past practice, which in the German-French and German-British cases, has even been codified in political agreements between the countries. In these agreements, the German government promised not to stop such deliveries unless they were illegal under German law or violated “major German security interests”. In effect, with these agreements the German government handed over the decision-making power over export licencing of the completed products to the French and British governments respectively, even if they included German components for which a German export licence was legally required.
Similar arrangements are in place among other governments. As a side effect, this practice opened the door for “export licence shopping” for companies by shifting the final production of systems to the country where they expected the least trouble for export licence applications for problematic countries. One of the cases that triggered the French protests in early 2019 was a German denial of parts for tank transporters, finally assembled in France with destination Saudi Arabia. The French company producing these tank transporters is affiliated with a German company that had earlier been producing them in Germany. Apparently, the company had shifted production in anticipation of difficulties of getting a German export licence for the complete system.
The choice between economies of scale through joint production and national sovereignty over arms export policies need not be solved the way it was in the past. In fact, there are various alternatives.
One is to organise joint production of armaments differently. Instead of agreeing on production shares representative of the financial stakes of partner countries separately for each project, governments could negotiate an overall agreement to procure a whole set of weapon systems or on procurement spending in general. “Juste retour” of financial and economic gains could be applied to the whole set, rather than individual projects, as currently is the practice. The arms producers winning contracts within this scheme could be allowed to freely decide where to source components, rather than having to meet quota for the various participating countries as currently is the case. They could decide knowing that governments are sovereign in their decisions over arms exports. The likely result would be the specialisation of arms producers in specific countries, for instance ships and tanks in Germany, aircraft and electronics in France. The German government would be free decide over ships and tanks, but have no say over the export of aircraft and electronics.
Another alternative is for all partners in co-production to give up sovereignty and hand it over to a supranational body. In Europe, a possible candidate would be the EU, either in the form of the EU Council, the Commission, the Parliament or some special institution. For most other fields of trade, such transfer of authority has already occurred. But it is also possible to think of other arrangements of joint decision-making, for instance limited to the partners in specific co-production projects. There is strong resistance against the multi-nationalisation of decision-making over arms production in the countries that have primarily benefitted from the status-quo, that is the UK and France, while in other countries, including in Germany, there has been more support for it. French governments have been particularly vocal in this respect – while at the same time demanding other governments to accept its decisions on arms exports from co-produced products.
A less radical alternative is to agree on acceptable destinations of arms exports prior to the start of joint production. Only those third countries that are acceptable to all partners would be put on a “white list”. If a producer wanted to export to an unlisted customer, it would have to get the support of all partner governments. On the other hand, no government could deny export licences to a listed customer by itself. This kind of arrangement has actually already been agreed upon by the six largest arms producing governments in Europe – France, Germany, Italy, Spain, Sweden and the UK. It is contained in the “Framework” Agreement of 2001, which came about after what had been called the “Letter-of-Intent Process.” The export provisions of the Framework Agreement have, however, never been put into practice. Particularly France and the UK had second thought and refused to accept a shift from the earlier arrangement to the “white list” procedure foreseen of the Framework Agreement.
Other compromises between governments are possible. What has become apparent in the recent dispute is the need to come to some type of agreement different from the past practice. As the recent dispute over sales to Saudi Arabia has shown, governments and publics in a number of European countries are unlikely to accept the general loss of influence over the sale of co-produced products assembled for final export in another country, in practice, because of the sizes of their industries, mostly France and the UK. As the latter governments are in danger of losing the most from disputes over the export of jointly produced goods – let alone an unwillingness of other countries to enter into such agreements – they also should have an interest in coming to arrangements that are acceptable to actual and prospective cooperation partners, and avoid disputes such as the current one over the German decision on arms sales to Saudi Arabia.