Defence Implementation Road Map

Lord Beamish Excerpts

Tuesday 10th November 2015 General Committees

[Mr Rees-Mogg]

But if we are to have an internal market, does that not begin to bring in the single market rules? It may well be in the interests of this nation to support an uneconomic defence manufacturing industry because of the need for certainty of supply at a time of war which may be unpredictable. I seem to remember that during the first Gulf war, Belgium would not supply bullets—

[Mr Kevan Jones (North Durham) (Lab)]

Hand grenades.

[Mr Rees-Mogg]

The hon. Gentleman is as helpful as ever. Belgium would not provide hand grenades to British forces. Can we really risk being in a situation where these decisions are in any way constrained?

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[Mr Jones]

It is a pleasure to serve under your chairmanship, Mr Hanson. I stand before the Committee as a pro-European and I will be arguing for this country to remain a member of the EU, but the document before us today demonstrates how the EU is extending itself into areas that mean that it tests the patience even of Europhiles such as myself.

The debate around European defence is a long one. It goes back to the end of the second world war, the foundation of the Western European Union and the treaty of Brussels. We had arguments then about standardisation of equipment and pooling of defence capabilities across Europe. I agree that a cornerstone of our defence should be NATO, but even though this document reflects that, there is a way—I suspect that some Conservative Members will see this as another wicked plot from across the sea—of influencing the sovereign capability and decision making of this country. It is clear that defence matters should be for individual nation states in Europe to decide, and I understand that that is what the Government are arguing in their response to the document, but I have a problem with some of the things that are coming forward.

The first item in the document is that the Commission’s aim is to have an internal market for the defence industry. Thanks to the actions of the previous Labour Government, of which you were a member, Mr Hanson, we have one of the most open and competitive defence markets anywhere in the world. We have only to look at the companies that have now based themselves here or worked with existing capacity here to see why we have that open and competitive market. Finmeccanica, Thalys, Boeing and General Dynamics are just a few of them, and that is because the Labour Government’s approach was that our market should be open not just to Europe, but to the world. I argue strongly that this country, in terms of defence capability, has benefited from that process. The danger with the approach taken in this document is that we look at defence or defence manufacturing as though a fence can be put around it in terms of just Europe. That is not the case. It is a global, international market these days.

[Mr Spellar]

My hon. Friend rightly identifies some of the benefits from engaging with the wider defence industry. However, there has to be some payback for that—some degree of equity. Does he therefore share my frustration at the failure of the United States in this regard? Despite the fact that Brimstone is far and away the most effective weapon—it is favoured, actually, by the United States air force—it is being blocked within the system because of narrow industrial interests. Does that not cast a slight shadow over the wider co-operation that my hon. Friend rightly identified and welcomed?

[Mr Jones]

It does. My right hon. Friend and I spent a week in Washington trying to persuade US Congressmen and Senators to make sure that there was nothing wrong in ensuring that technology transfers should be a two-way street. The problem is that although a lot of claims are made about the US defence market being open and transparent, anyone with experience of it knows that protection is clear.

Such protection, however, comes up in Europe. The document talks about overcapacity in the European defence industries, but there is a reason for that: the protectionist policies of certain members, including France, Germany and others. They have not opened up their markets, not only not to US and international competitors, but also not to UK companies. There have been some good examples, as the Minister rightly pointed out, of good defence co-operation and manufacture between European nations and our own, which have been of benefit to not only those nations, but ours.

The objective, according to the document, of

“an Internal Market for Defence where European companies can operate freely and without discrimination in all Member States”,

is frankly pie in the sky. The idea that the French defence market or shipbuilding industry, for example, will be open to competition throughout Europe is unrealistic. A few years ago in Paris, when I was a member of the Defence Committee, I asked the Member for Brest whether she envisaged a French aircraft carrier being built anywhere other than Brest. She looked at me quizzically and said, “I don’t understand the question.”

The Commission is pressing forward in that area, and that has real dangers for our defence industries. It is not, frankly, an area in which the Commission should be getting involved. I fully support, as the Minister does, existing co-operation in the EU for operations that lie outside NATO or involving other countries, but that is where it should stay. If the market comes into our defence industries, that will block off a lot of the opportunities that this country has for co-operation not only with the United States, which is an important market, but with other growing markets around the world. For example, in the south-east Asian market, the easy transfer between civilian technologies and defence ones brings capabilities that could benefit our defence industries. If they are somehow locked out, because our procurement is restricted to Europe, not only will our defence industries suffer, but so could what is on offer to the men and women of our armed forces.

[Martin John Docherty]

Does the hon. Gentleman not agree that in counterbalancing our defence relationship with the United States, we should continue to build relationships with European partners such as the Netherlands? I am sure he agrees that building those relationships can only benefit our security.

[Mr Jones]

I do, but it is naive to think that we are talking only about Europe. Increasingly as the lines between the development of civilian technologies and defence get blurred, defence industries and technologies are a global market. The idea that we can somehow restrict that to within Europe, or give Europe some preference, would be a great disadvantage to our defence industries. As I said, because of the open approach that we took in government, we have benefited from open markets, which have certainly added to investment from overseas into this country, but also to transfers of technologies and expertise, not only ensuring that the kit and capabilities of our armed forces are leading edge, but adding to jobs and prosperity in this country.

My other issue comes under the second point about security of supply. We have already talked about hand grenade shells in connection with security of supply within Europe. I am not quite sure how this would fit in with technology such as the joint strike fighter, which we are involved in developing and building, and which contains both UK and US technology. Perhaps that is a bad example, but there are other technologies. If we have to ensure that technologies are supplied within Europe, that would limit the ability of some of our partners to co-operate with us. I do not think—how can I put it gently?—that the trust we have in the US defence community, for example, is the same as the trust we have when we export technology to France or any of our other European allies. Does security of supply mean that the onus is on us to supply certain technologies if a European country demanded it? That would put real constraints on us.

[Mr Brazier]

I agree with quite a lot of what the hon. Gentleman is saying. It will not surprise him that we share concerns, and I hope I made it clear that we are heading off many of them. However, on the issue he just raised, I am puzzled about his reasoning. I cannot see anything that would enable that. Can he explain what he means?

[Mr Jones]

It is not clear from the document. However, if we are saying that there has got to be security of supply for a certain piece of technology, we would have to ensure that widget A is available to all European nations. If widget A contains technology that is procured from a third country with which we have a partnership, will we, because we are part of this process, have to export it or send it to a third country in Europe that needs it? That is the danger. At the moment, we have a choice about whether we do that, based on the relationship we entered into in the first place. As the Minister knows, we have certain technologies that we would not export, even to some of our allies in Europe. That is my concern.

[Mr Brazier]

I am grateful to the hon. Gentleman for raising this matter. The short answer is no, we would not agree to that. Nothing that we are agreeing to could ever put us in that position.

[Mr Jones]

The other point I would like to touch on is the reference to third markets and the idea that the European Commission has a role in promoting defence exports. It is very strange that the document again misses the entire point when it says:

“With defence budgets shrinking in Europe in recent years, exports to third markets have become increasingly important for European industry to compensate for reduced demand on home markets.”

It completely ignores the fact that it is not that the defence industry cannot produce. It does not question the fact that many countries do not meet the NATO 2% and that budgets have continued to be cut across Europe. I am concerned about the idea that the Commission has a role in exporting to third markets. The Commission is living in a fantasy world if it is trying to suggest that this will put a brake on the bargaining between, for example, French and UK defence exporters, and that one would export something and the other would not.

Look at the current competition for fast jets in the middle east and elsewhere. It is not the case that the French are not acting in their national self-interest, as they always do. What is being said here, and why does the Commission want to get involved in something it does not need to? Is it trying to create a level playing field, and will the inducements and other things that are put forward not be allowable to ensure that two European nations competing for a defence contract in the middle east, for example, do so on the same basis? I do not think that is the Commission’s role, and, frankly, if that is what is being suggested, it would be very difficult to implement.

The other side to that, which is also completely missed, is that purchaser nations increasingly require and want some development of technologies within their country as part of defence and export contracts, which is only right. That takes me to my final point, which is that I do not accept that offsets are a bad thing. If a sovereign nation is to procure equipment from overseas or another competitor, it is quite right that it should be able to demand some offset for taxpayers’ money either being spent in their country or benefiting the home nation.

In conclusion, I worry about the document, because it has clearly taken the time of many a Brussels bureaucrat to draw it up, but to what end? It would be strange if we ever saw the French open up their defence markets to true competition. There is no evidence for that, and it just will not happen. The Opposition support such operations in terms of co-operation across Europe, but we need to be wary about the Commission getting into areas in which it should not be, and about our defence industry, which has been good at adapting and changing over the past few years, being put at a disadvantage. There would be nothing to gain in both jobs and technology. The important thing that we must always bear in mind is that the equipment and kit that we provide to our armed forces is not only fit for purpose, but the best available.

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[Mr Jones]

May I suggest that there is another way that the EU nation states combine very effectively, which is on a commercial basis—an example being Thales and Finmeccanica?

[Mr Rees-Mogg]

I agree with that, although I think that the Government should have the right to be protectionist in relation to defence procurement. I am not sure it is always wise to be protectionist. I am a supporter of having bought ships from South Korea. That was a sensible thing to have done in the broader context. I am in favour of maintaining freedom of activity rather than saying that it is always wrong to buy from overseas.

The final point I am making is that intergovernmental co-operation is admirable. When we are dealing with issues that NATO does not want to deal with, it makes complete sense to co-operate with our nearest neighbours and to use that projection of force where it can be used. I absolutely agree with the Minister that on the issue of Ukraine, a variety of agencies needed to be involved, but what never needed to happen was for defence to come under the auspices of the EU, formally or informally. It is a great protection from the general ratchet effect of what happens in the EU if the Minister is robust. I am reassured that we have one of the most robust Ministers before the Committee today.