The Brexit threat to Britain's defence industry

Commentary



Last September, the UK published a remarkable paper on how it sees future foreign policy and defence relations with the EU after Brexit.

Successive British governments have spent years decrying (and actively obstructing) European defence aspirations, seeing them as a threat to NATO. So it came as a surprise to read that Britain is actually a big fan of the EU’s Common Defence and Security Policy. “The UK has been at the forefront of working with the EU and European partners” claims the paper –and goes on to argue for a ‘deep and special’ relationship in these fields, one much closer than anything the EU has so far offered to lesser ‘third parties’ like the Norwegians.

Bemused continentals suspected a plot. Was Britain attempting to ‘play the defence card’ in the Brexit negotiations? It seems not. The British government had flirted with that idea, but by last autumn had come round to an ‘unconditional’ commitment to European security.

It seems, rather, that the prospect of Brexit has concentrated the mind. Despite all the bravura about Global Britain’s enduring power and importance, even Leavers within the cabinet have begun to realise that a Britain strategically isolated from continental Europe would ultimately be less secure. So, in a sort of deathbed conversion, we are now abandoning the myth of EU defence efforts undercutting NATO, and instead aim to support them.

Yet, even assuming goodwill on both sides, this will be easier said than done. The EU is above all a community of law, and the EU’s relationship with third parties as set out in the Treaties is neither special, nor especially deep.

Ingenuity may find ways round this; ECFR has enlisted a panel of four of the most experienced security figures from across Europe to identify ways for post-Brexit Britain to stay close to the EU on defence and security matters. As well as the strategic dimension they will also have to think about defence industry relations; and in this area recent developments in Europe have added a new dimension of complexity.

In today’s world, only the US has the resources to conceive, develop and produce the full gamut of modern defence systems on a national basis.

Britain’s defence and aerospace industry is the jewel in the country’s manufacturing crown. Along with the allied security and space industries it provides 363,000 jobs and generates £37 billion in annual exports. It has long understood and acted on the imperative to cooperate with continental neighbours.

In today’s world, only the US has the resources to conceive, develop and produce the full gamut of modern defence systems on a national basis. For that exact reason, the US is unavailable as a collaborative partner: it grants only selective access to its home market, and refuses to share its technology, even with its closest allies. Europeans may buy, and even invest in, the F35 combat aircraft that will one day fly off Britain’s new carrier – but they will be denied a full understanding of how the planes work.

European defence companies are therefore condemned to work with each other – either on specific new research and systems projects, or through joint ventures and mergers.

The British industry has fully embraced this logic. In some cases our companies have been acquired by continental groups (helicopters and electronics, for example). In others, British firms have taken the lead -- the prime example is MBDA, a pan-European missile house in which Britain and France predominate and which rivals the American Raytheon on the world market.

Brexit now threatens future British involvement in such consolidations, and even in specific new projects such as the successor to the Eurofighter, in two ways.

The first is a problem shared with much of Britain’s manufacturing industry: how can complex supply chains and just-in-time manufacturing be sustained, and pan-European technical teams be recruited and deployed, if Brexit takes the UK out of the single market and the customs union? This question has been repeatedly raised since before the referendum, but no adequate answer has yet been forthcoming.

Until now, defence industrial collaboration in Europe has been sorted out between national capitals; Brussels has had little to do with it.

The second flows from a new EU plan to set up a European Defence Fund with some €1.5 billion a year drawn from the Union’s general budget, to subsidise defence research and development projects proposed by groupings of EU member states. Until now, defence industrial collaboration in Europe has had been sorted out between national capitals; Brussels has had little to do with it. Now, the EU Commission will become a significant payer/player – and one with a clear agenda.

Spending EU money on defence is a new departure for Europe – one justified by EU leaders’ adoption in 2016 of a Global Strategy that aims at ‘strategic autonomy’. That could mean various things, but one thing it definitely means is that the Europe’s ‘defence technological and industrial base’ (EDTIB) should become more self-sufficient and less dependent on the US. So it is no surprise that the rules for the subsidy regime currently being debated in the EU institutions specify that the subsidy should be available only to EU defence industries.

Defining which organisations are considered ‘EU defence industries’ is the game of the moment. The provision is evidently intended to respond to America’s long denial of market access and technology transfer to Europeans by adopting a more reciprocal posture on this side of the Atlantic.

For the UK, the question is how to avoid becoming collateral damage of this new policy. Brits will argue that they have long been intimate partners in the EDTIB; that they have technologies and expertise not to be found elsewhere in Europe; and that they will happily stump up proportionate subsidies of their own to contribute to EU-funded project groups.

But legally speaking, once it leaves the EU Britain will be no less a ‘third country’ than the US. And even if legalistic Europeans were inclined to make an exception, to do so would raise serious objections from other third countries, not least from the White House.

A familiar pattern thus emerges. Britain’s departure from the EU will damage both parties – the UK especially, but the EU27 as well. So why not cut the Brits a special deal? Because the legal and political obstacles look, at first sight, insuperable. Yet unless ways can be found over or round them, the last major piece of the UK’s manufacturing industry may find itself progressively shut out of Europe and facing a bleak future.

Read more on: European Power, New European Security Initiative, Security and Defence, London office

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