What does UK’s accession to the Agreement on Defence Export Controls mean for defence companies

1. Background and Objectives

The Defence Agreement was initially signed by France, Germany and Spain on 17 September 2021. This agreement builds on a previous bilateral agreement between France and Germany signed in 2019², which itself was a successor to the “Debré-Schmidt”³  agreement dated from 1971.

Pursuant to the Debré-Schmidt agreement, neither France nor Germany were allowed to veto the export of an in-scope defence product by the other country. In practice, these agreements did not provide a strong enough framework, leaving both countries with concerns and resulting in decisions to veto exports of military items that incorporated components or involved participation from the other country. This prompted the need for a revised version of the framework in 2019. The 2019 bilateral agreement required amending when Spain expressed its interest in joining the framework, which was done in 2021 to allow for the accession by third countries.

The key objective of the 2021 Defence Agreement is to provide clarity, predictable rules and a “reliable agenda” in a field where exports to third countries are considered economically necessary by industry operators (particularly when scale is required and public purchases in the home country are low), yet also viewed as potential threats to the national security of the involved countries. The agreement lays down a framework that tries to balance both needs: those of the exporters of the final products and those of the countries involved in the earlier stages of manufacturing or developing the final products.

In all the scenarios covered, the Defence Agreement creates a “presumption in favour of approving the export provided it is compatible with international law”⁴.

2. Intergovernmental programmes (Article 1)

Article 1 of the Defence Agreement deals with exports resulting from an intergovernmental collaboration.

• The Contracting Parties have an obligation to inform the other concerned parties of the possibility of sales to third parties.
• A Contracting Party concerned shall not oppose a transfer or export to a third party that is desired by another Contracting Party apart from exceptional situations compromising its direct interests or its national security.
• If a Contracting Party intends to oppose a transfer or export, it shall inform the other Contracting Parties concerned as soon as possible and within a period of a maximum of two months from the date on which it is informed of the proposed transfer or export.
• The Contracting Party which opposes a transfer or export shall make every effort to propose alternative solutions.

3. Industrial cooperations (Article 2)

A simplified process applies where defence products have been incorporated into the “armament system” of a manufacturer in another Contracting Party. Exports of armament systems integrating components from Contracting Parties cannot be opposed except where such exports may compromise a Contracting Party’s direct interests or national security. Objections must be raised within two months, and high-level consultations shall be organised immediately to share analyses and find appropriate solutions.

For an export to qualify, it must occur in the context of an “industrial cooperation”. The Contracting Parties are responsible for determining project eligibility. Annex 1 sets out a two‑stage process: recognition of a project as qualifying under the Defence Agreement, followed by simplified export authorisation.

In the context of Article 2, an “armament system” means “any item on the Common Military List of the European Union”.

4. Other defence related products and the ‘de minimis’ principle (Article 3)

This article deals with all the other exports of defence related products that are not covered by Articles 1 or 2.

Practically, where a Contracting Party’s component integrated into a final product represent less than 20% of the final system’s value, they must grant export authorisations for the component without delay.

Mechanism

• The total value shall not include maintenance activities, spare parts, training or repairs.
• Where the national proportion of a Contracting Party’s products intended for integration does not exceed the 20% threshold fixed, that Contracting Party shall issue the corresponding export, transfer or re-export authorisations without delay, apart from in exceptional situations in which this compromises its direct interests or its national security.
• No end-user certificate or non-re-exportation certificate shall be requested to support the transfer licence between the Contracting Parties concerned. A certificate of integration of the product into the final system may be requested by the relevant Contracting Party.
• Maintenance activities, spare parts, training and repairs of products intended for integration which are exported or transferred under the ‘de minimis’ principle shall be treated as applications for export or transfer authorisation benefiting from the ‘de minimis’ principle.
• The final integrator shall establish the respective proportion of products originating from each Contracting Party concerned in the final system. To that end, it shall take into consideration all parts received through other Contracting Parties. The final integrator shall take into consideration for each of its direct suppliers representing over 2 % of the total final value the products which that supplier procured directly from a Contracting Party concerned.

Scope

• The simplified authorisation procedures subject to the ‘de minimis’ principle shall apply exclusively to products listed on the Common Military List of the European Union.
• It does not apply to products specified in Annex 3 of the Defence Agreement.

5. Practicalities for UK companies

The Export Control Joint Unit (ECJU) is set to publish guidance for exporters on the Defence Agreement and on how to submit licence applications for consideration against the relevant articles. This will include a template for an integration certificate to support exports under Article 3.

The ECJU has indicated, without providing a timeline, that an open general export licence (OGEL) will be issued to further simplify exports under Article 3.

Information sharing is subject to existing bilateral security agreements. Without such agreements, classified data cannot be exchanged.

6. Moving forward and accession by other countries

The Defence Agreement allows for the accession by other EU, EFTA and ‘Farnborough’ countries⁵.

Authored by Aline Doussin, Pierre Estrabaud, Kate Mosley, and Orpheas Nikopoulos.