HC Deb 05 March 1997 vol 291 cc867-74 12.59 pm
Mr. John Wilkinson (Ruislip-Northwood)

I am grateful for the opportunity to raise the subject of British participation in the Franco-German Armaments Agency. Some may judge it an arcane, esoteric matter, yet the fact that so few have heard about it—judging from the attendance this morning, not many more will have heard about it following the debate—does not mean that it lacks military, industrial or even political importance.

Britain's accession to what began as the Franco-German Armaments Agency was accorded so little publicity as to be almost clandestine. There was no statement to the House. It was accorded laconic references from the Dispatch Box in defence debates and in answer to questions. The "Statement on the Defence Estimates 1996" contained a section on defence procurement and the defence industry, with six unexceptionable paragraphs on procurement policies. The five paragraphs that followed, on collaboration, beg the questions that I shall put today, which I hope that my hon. Friend the Minister of State for Defence Procurement can answer.

Paragraph 434 of the statement says: Together with our WEU partners, we have also been pursuing the possible establishment of a single European Armaments Agency. Such a body might initially provide a forum for joint armaments research projects while opening the possibility, under the right conditions, of enhanced European co-operation in procurement. I presume that the body would eventually subsume the work of the West European Armaments Group, the successor under the aegis of the Western European Union of the old Independent European Programme Group.

Paragraph 435 goes on to describe how The United Kingdom has agreed, in principle, to join with France and Germany in their current work on setting up an armaments agency which offers the potential to maximise the benefits of defence equipment collaboration. This follows the decision to collaborate with these two nations on our requirement for an armoured utility vehicle. The decision underlines the Government's commitment to play a full role in European defence collaboration at both the political and industrial level. Quite why the multi-role armoured vehicle needs to be produced in collaboration when companies such as GKN, Vickers and Alvis could produce the vehicle perfectly well alone escapes me.

The assumption can now reasonably be made following Italy's accession with the United Kingdom to the Franco-German Armaments Agency that the quadrilateral agency, as it is now called in English, will grow with the accession of further European members and by the accretion of responsibility for additional equipment programmes into the fully fledged European armaments agency described in the defence White Paper. It must be asked why there is this preoccupation to participate in such bureaucratic European structures. It is more a feature of continental than British governance and there are further questions to be answered.

The Maastricht treaty's declaration on WEU specifically mentions enhanced co-operation in the field of armaments with the aim of creating a European armaments agency as a proposal to be examined further. The provisions in the Maastricht treaty on a common foreign and security policy relating to defence have always been taken seriously within the Franco-German-Italian axis in Europe.

Paragraph 1 of article J4 of the treaty states that the common foreign and security policy shall include all questions related to the security of the Union, including framing of a common defence policy which might in time lead to a common defence. Paragraph 2 of article J4 states: The Union requests the Western European Union (WEU) which is an integral part of the development of the Union, to elaborate and implement decisions and actions of the Union which have defence implications. The European Union has long held ambitions to arrogate to itself jurisdiction in armaments collaboration—indeed, ever since the Klepsch report on the subject to the European Parliament many years ago, perhaps as long ago as the good old days, Mr. Deputy Speaker, when you and I were members of the British delegation to WEU—with the objective of finding an entrée to wider defence competence for the EU.

If anyone harbours any doubts of where Franco-German ambitions lie, he should read the text of the Franco-German common security and defence concept document issued after the bilateral summit in Nuremberg on 9 December 1996. It speaks of The common destiny uniting France and Germany. The preamble is unambiguous. It says: In the European Union our two countries will work together with a view to giving concrete form to a common European defence policy and to WEU's eventual integration into the EU. The guidelines for armaments co-operation in paragraph 4.3 of the defence concept document are even more specific. They are worth quoting verbatim. They say: Greater Franco-German armaments co-operation is not just in our bilateral interest since it also meets the objective of building a European armaments policy. It must in particular be the mainspring of a European solution to the general rationalisation of the European armaments sector. It will thus constitute an essential component of the common foreign and security policy and the common defence policy called for by the Maastricht treaty and a significant step towards the emergence of a European security and defence identity. The most economical solution must be resolutely sought for the requirements expressed by the armed forces and the establishment of a competitive European defence technological and industrial base. This necessitates common rules in the CFSP framework for the procurement and transfer of defence equipment within the European Union and for exports to non-EU states. That implies an extension of EU competence in armaments procurement, transfer and—interestingly enough—exports, which are rightly matters for national Governments alone.

Just to confirm the goals of French armaments collaboration policy, it is worth reading the interview of Mr. Helmer, the French directeur general des armaments, or DGA—the procurement chief—in Defence News this week. What is important to us now is that the Organisme Conjointe de Cooperation en Matiere d'Armement"— OCCAR, the defence agency about which the debate is being held— obtain a legal personality that will give it the ability to award contracts without having to go through the cumbersome administrative procedures of national procurement agencies and to receive multi-year financial commitments from member Governments. How that is compatible with effective parliamentary control of expenditure in national Parliaments is not clear to me. Nor is the idea of multi-year financial perspectives, in the European jargon, appealing to someone like myself, who of course went through all the trauma of the European Communities (Finance) Bill.

One should note that even this morning our own European Standing Committee B has been examining the European Union's Court of Auditors report on expenditure of the Union in which it is quite clear that more than 10 per cent. of expenditure is unaccounted for. One therefore wonders whether those European practices—I will not say Spanish—of fraud, waste and malpractice, now endemic in the EU, may not transpose themselves into the new bureaucracy to be formed as the European armaments agency.

It is again instructive for us to bear it in mind that our own National Audit Office, in a report just published on the latest Court of Auditors report on the European Union, confirmed that effective control of expenditure of taxpayers' money within the Union is almost non-existent. I hope that the same will not be true of the European armaments agency, although I must confess to having my doubts.

Although there is informed comment in the press and specialist circles that, ultimately, OCCAR will aspire to come under the aegis of WEU, it was not spawned by it. Nevertheless the question of to whom it will be responsible is very much a key one, as is how it will not develop protectionist, pro-European and anti-American preferential tendencies in its procurement policies. I have long deprecated the United Kingdom's propensity to be sucked along in the Franco-German slipstream.

Even the location of the OCCAR headquarters in Bonn, presumably to fill office space soon to be made redundant by the impending move of the German Federal Government to Berlin, is significant. I remember how my repeated pleas for the collocation of all the institutions of WEU at County hall, across the river, when its permanent council was already in London, fell on deaf ears in favour of Brussels.

If the founding document for the establishment of OCCAR, signed last year by my noble Friend Lord Howe, is studied, it looks clearly like a blueprint for a burgeoning bureaucracy, just as the Maastricht treaty, when studied, looked exactly like what it turned out to be—the blueprint for a united states of Europe.

European armaments collaboration has not especially benefited from the activities of agencies and their attempts at control. Certainly the NATO Multi-role Combat Aircraft Management Agency for Tornado Development and Construction and the NATO European Fighter Management Agency for the Development and Construction of the European 2000 do not seem to be models to me. Bilateral programmes such as the Jaguar, the family of three Franco-British helicopters, and now the Italian-British programme for the Merlin, have always been more effective than multinational programmes in Europe.

One must remember that American collaboration with the Goshawk—the T45—the AH64 Apache for our own Army and the C130J Hercules for the Royal Air Force have brought considerable benefit to British industry. Such collaborations must always be an option, as should the outright purchase of items of equipment unique within their class, such as the C 17 Galaxy heavy-lift transporter.

My right hon. Friend the Secretary of State for Defence put it well in his speech on the defence estimates on 14 October, when he said: European industry must strengthen itself to face the competitive challenges that lie ahead …the Government want to give political support to changes in Europe that are industrially driven. Industrial logic should dictate the formation of industries in Europe, not political diktat."—[Official Report, 14 October 1996; Vol. 282, c. 486.] Hear, hear, say I.

I only trust that OCCAR does not, over time, frustrate that commercially driven, competitive, anti-protectionist British policy, which, by and large, has secured the interests of the United Kingdom's defence industries and the needs of the United Kingdom's armed forces so well.

1.15 pm
The Minister of State for Defence Procurement (Mr. James Arbuthnot)

I congratulate my hon. Friend the Member for Ruislip-Northwood (Mr. Wilkinson) on securing a debate on a most important subject. The title of today's debate is something of a misnomer because what started as a proposal to create a Franco-German Armaments Agency has now changed. Instead, and because of the Government's decision to participate from an early stage, we are now equal partners in a four-nation armaments structure with France, Germany and Italy.

That initiative, for which a four-nation memorandum of understanding was signed on behalf of the United Kingdom by my noble Friend and ministerial colleague, Lord Howe, in Strasbourg on 12 November last year, represents an important opportunity for its participants. Increasing costs and falling resources have made greater efficiency in how we produce defence equipment essential. The initiative, if correctly managed, will be a means of collaborating more efficiently and effectively. Our membership is evidence of the United Kingdom's continued commitment to furthering European defence collaboration. European collaboration continues to be an important aspect of our procurement policy, and one which does not conflict with maintaining strong co-operative links with the United States.

The agency is now known by its acronym OCCAR. My hon. Friend brilliantly pronounced the French meaning of it, but in English it could well mean the Organisation for Collaboration and Co-operation in Armaments—I tend to cheat. Through our membership, it will pursue value for money and maximum competition in defence procurement. It clearly makes no sense to continue those past practices that have not been entirely successful, nor to create a new multinational structure for each collaborative project launched.

The establishment of the agency is an opportunity to create a centre of excellence—an organisation that will have at its disposal a portfolio of collaborative skills and techniques to provide the optimum procurement solution to the nation's purchasing requirements. We now have the prospect of harmonising the procurement policies of the four major western European arms producers. Success will mean better collaborative ventures.

The United Kingdom actively pursues defence equipment collaboration with our European allies and the United States when collaboration satisfies our military requirements and provides value for money. Membership of the four-nation agency represents no change in the United Kingdom's procurement policy. There is no suggestion of any move toward European preference policies. My responsibility is to deliver cost-effectively to this country's armed services the battle-winning equipment that they need and deserve.

The majority of UK collaborations are with our major European partners, because this recognises that effective collaboration is most easily achieved by partnership of equals or near equals. Nevertheless, given the capabilities and competitiveness of the United States industry, some equipment will and should be procured from the United States. My hon. Friend the Member for Ruislip-Northwood was right to insist that co-operation with the United States should continue to be a significant factor in this country's defence procurement plans.

Not surprisingly, the Government's view is that the best way—probably the only way—to guarantee the worldwide success of the British defence industry is to ensure that it is competitive. To gain the full benefits of competition, it is vital for industry to compete in the world market—allowing itself and its products to measure up against the best—and to win. European preference policies simply do not allow industry to do so. We need to encourage open international markets. It is in our interests to reap the rewards of competition, of technological innovation, and of better products that represent true value for money.

On average, each year my Department spends about £800 million on co-operative projects. Germany, France and Italy are our major European partners. They are also the nations which, with the UK, make up the bulk of the European industrial base. Working together in the OCCAR creates potential for significant cost and efficiency benefits.

The United Kingdom is a committed and reliable collaborative partner, with a long history of defence procurement collaboration. We are the major partner in the Tornado project, the most successful European collaborative venture to date with about 1,000 aircraft ordered. We are playing a leading role in a range of important projects in western Europe which will provide our armed forces with some of the next generation of equipment.

However, if collaborative programmes are to offer our armed services the equipment that they need, equipment which is affordable and able to compete in the world market, we must improve on past performance. The UK's involvement in the new initiative from an early stage has allowed us to participate fully in the organisation's development and subsequent operation. Our aim has been to set up an organisation that follows best procurement practice; one that adds value, not bureaucracy; one that will lead to effective collaborative ventures, producing top-quality equipment in a way that is cost-effective for the taxpayer. I believe that our partners share that vision.

We need to adopt a more commercial approach when establishing future co-operative programmes and their supporting structures. We need to avoid wasteful practices that only distort the market and reduce the economic benefits to be derived. In the past, the obvious benefits of co-operation—increased standardisation, interoperability, shared development costs, longer production runs and reduced unit costs—have been dissipated by working practices antipathetic to efficiency and effectiveness. The juste retour principle, for example, only frustrates a truly competitive environment.

We should not procure from suppliers simply because they are allocated an element of a country's work share; effectiveness and competitiveness must first be proven. We cannot subsidise unnecessary duplication of facilities to satisfy purely national, rather than economic, needs. We should look to taut commercial management, preferably with responsibility for the co-ordination and delivery of the programme to time and cost, vested in a single prime contractor. We do not want—we can no longer afford—the overhead expense of large multinational project offices second-guessing industry and complicating the contractual relationship with the supplier. We want lean organisations with no international duplication of staffing.

The potential for improving efficiency in co-operative endeavours sits well with any responsible Government keen to maximise value for money from their expenditures and to give their service personnel the equipment that they need to do their job effectively. The OCCAR offers a channel for a worthwhile and meaningful coalescence of view and practice.

Procurement decisions can be a powerful tool in shaping the defence industrial base, although industry must be in the forefront if commercially viable companies are to be promoted. Governments must first remove the obstacles, especially in terms of ownership. There is a great deal to be done if the European defence industry is to be placed on a rational footing, and we cannot be complacent. If European defence projects are to be successful, we must have successful European companies to deliver them. That will be difficult, if not impossible, if nations always put their own short-term interests first. We hope and expect that the experience of working together in the agency will offer encouragement to European industry to seek ways to reorganise and restructure itself.

When the four major European defence industrial players come together in this way, there is significant opportunity for improvements to the collaborative process. The agency will be run on two levels: a board of supervisors, formed by the national armaments directors of each nation, where decisions must be unanimous, and an executive level, running day-to-day operations. The organisation's senior management reflects its quadrilateral nature. A Frenchman, Mr. Prevot, is the first to fill the director's post and his current deputy is German. There are two divisional leader posts; the UK will head the procurement and finance division and Italy the future programmes division.

The agency's board of supervisors met for the first time on 4 February 1997 to launch the organisation officially. The agency is now able to deal, formally, with the management of collaborative programmes. The agency is in the process of developing detailed procurement and programme management procedures for the programmes that it will run.

The UK envisages a policy that allows for flexibility of approach across a range of programmes. The promise offered by the harmonisation of the procurement policies of Europe's four largest arms producers is considerable and, although I do not underestimate the difficulties ahead, it is an object well worth pursuing. The participants have already made some progress by agreeing that procurement should be based on competition and that rigid work share related simply to a nation's financial contribution, not its industry's competitiveness, should be a thing of the past.

A range of collaborative programmes with UK involvement is being considered for the new agency. The existing Franco-German-UK COBRA—counter battery radar—programme may be our first programme to be managed within the new structure. We intend the multi-role armoured vehicle programme to be managed by the quadrilateral agency. If chosen to meet our operational requirements for satellite communications, the TRIMILSATCOM programme has also been identified as a candidate for management under the new structure.

On the practical front, a great deal of work continues on establishing and developing the structure of the organisation and its working rules. There is much to be gained from establishing commonly understood and accepted approaches to programme management, contract principles and law, financial management arrangements and all the other practicalities involved in collaborative programmes. A common "stock" of principles, practices and staff to be drawn on as new collaborative ventures are set up offers the prospect of economies in time and money.

The organisation currently has eight staff, with one from the UK, and nations are considering plans to expand the staff to a maximum of 30 by the end of 1997. The UK will contribute five personnel, Italy will also contribute five and France and Germany will contribute 10 personnel each.

At this stage fixed staffing levels cannot be quantified, as they will depend on the number of programmes managed in the agency. Nations will review progress annually. Staff costs, in terms of pay and allowances, will, at least initially, be a national liability. Other administrative costs are to be divided between the four partners, with France and Germany shouldering 33.3 per cent. each of total costs, while the UK and Italy contribute 16.7 per cent. each. The initial UK financial contribution is estimated at about £400,000 for the first year. That will cover the costs of UK manpower as well as a share of the building and administrative costs, including setting-up costs.

Legal status is being pursued for the new structure. The various options to achieve it are currently being investigated, and one possible means of achieving it—

Mr. Deputy Speaker (Mr. Michael)