Brussels, 07/12/2006 (Agence Europe) - The Commission is hoping to provide a boost to competition in the public procurement markets. On 7 December it adopted an interpretative communication on application of Article 296 of the European treaty, invoked by Member States far too often, in its opinion, to provide exemptions for their defence markets from European treaty rules. In parallel to this legal clarification exercise, the Commission is currently carrying out a cost/benefits exercise on opportunities for a legislative initiative, planned for November 2007, which will define rules and procedures for defence public procurement markets not covered by Article 296. This work completes implementation of the code of conduct on defence markets within the European Defence Agency (EUROPE 9223).
Ugo Bassi, Head of the Commission's Public Procurement Unit informed the press that, “Article 296 of the treaty allows Member States derogations to the rule of the treaty” and therefore on public markets “when their national security interests are at stake”. He explained that the “problem” is that this rule is “interpreted in an overgenerous way” by Member States, which leads to “fragmentation” of the European defence market. He indicated that the aim of this Commission communication is to analyse “how this derogation ought to be applied” as part of Article 296 of the treaty, in light of the jurisprudence of the European Union Court of Justice (EUCJ).
The Commission does not challenge the existence of Article 296 according to which “any Member State may take such measures as it considers necessary for the protection of the essential interests of its security which are connected with the production of or trade in arms, munitions and war material” these measures should not “adversely affect the conditions of competition in the common market regarding products which are not intended for specifically military purposes”. It adds that it is the responsibility of Member States to define and protect their interests in security matters. Nevertheless, in its ruling, “Commission versus Spain” (decision-C414/97), the EUCJ considers that application of Article 296 “deal with exceptional and clearly defined cases”, explains Mr Bassi. According to the Commission, any exemption to the rules of the treaty should be justified by the question, “What is the connection between this security interest and the specific procurement decision? And “which essential security interest is concerned”, with the word “essential” limiting the possibilities for exemptions. Other interests such as economic, industrial or in relation to the “production of or trade in arms, munitions and war material” cannot in themselves justify a derogation under Article 296.
In order to better identify the dividing line between contracts that have or do not have derogations to competition rules under Directive 2004/18/EC in the award of public procurement contracts, the Commission suggests a “case by case analysis” of the markets that pose three questions: 1) what essential security interest is targeted?; 2) what is the link between this essential interest and the specific decision to launch this market?; 3) why is it necessary in this specific case to not apply the directive? Bassi stressed that adjudicating powers should examine “the nature” of purchases operated as well as their final destination”. Questioned about equipment for which purchases could be subject to competition rules, he cited “clothes, shoes, food, lorries, radar, light weapons”. He added that some national legislations, although a minority, apply an exemption to any military purchases under Article 296. On the other hand, if a Member State decides to make a military purchase for a “special mission in Iraq” for which its vital interests are at stake, Article 296 can apply.
The Commission also tackled the question of “offsets”. These provisions oblige non-national enterprises to invest in a Member State which allocated it with a contract in fields that are sometimes distant from the object of the contract. In a reference to Article 296, the Commission is calling on Member States that have “indirect or non-military compensations” in their defence public procurement markets to ensure that these provisions do not distort competition insofar as introducing competition would have occurred if these contracts had not constituted compensatory measures.
Mr Bassi pointed out that the Commission, following the results of the consultations on the 2004 Green Paper on defence public procurement markets (EUROPE 8791 and 9083) had launched a parallel study on possibilities for having a directive on markets not covered by the derogation to Article 296. The objective is to provide rules more adapted to the specificities of the defence markets than rules contained in the current directives. In the hope of respecting the principle of confidentiality, the Commission is looking a specific European level tools for publishing appeals for tender which duly selected tendering companies will have access. Security supply criteria could also complete current financial, economic and technical criteria when selecting tenders. In tender allocations the urgency sometimes characterising defence contract delivery contracts could become subject to specific conditions. The draft directive, Mr Bassi explained would complete the “defence” packet the Commission is expected to present in November 2007. (mb)