In the context of escalating geopolitical tensions and a growing emphasis on the EU's strategic autonomy, the EC has unveiled its "Defence Readiness Omnibus"—a package of measures aimed at reducing regulatory friction and mandating a shift to an EU defense-readiness mindset to facilitate up to EUR800 billion in defense investments over the next four years.
The measures cover a broad range of areas, including defense procurement, license permitting, access to financing, and environmental and chemical legislation. There is an acknowledgement that ensuring competitive defense markets is critical to delivery of innovative technology solutions as well as agile supply chains and value for money for defense budgets. However, the EC is seeking to clarify certain areas of antitrust law where it creates "disproportionate or unintended constraints on defence activities."
First, as part of the EC's ongoing review of its merger guidelines, there is a suggestion that consolidation in the industry could be positive and that the authority plans to introduce guidance specific to mergers relating to security or defense.
While security and defense considerations are generally the privilege of EU member states, the authority does retain jurisdiction over cases involving competition related to dual-use goods and is competent to review mergers in the defense sector more generally. It therefore calls for feedback on whether guidance on the interaction between member states' security and defense interests and the EC's competition assessment could be useful. It also asks how a potential balancing of interests between defense and competition objections could be undertaken.
In the omnibus, the EC confirms that it will give "adequate weight" to the changed security and defense environment. In particular, when conducting merger reviews, the EC will assess "the overall benefits from enhanced defence and security" within the EU "leading to efficiencies." The EC's commissioner for defence and space reportedly stated that the EC's rules "will not be an obstacle" for companies wishing to "unite their forces."
Second, the EC "stands ready" to provide antitrust guidance on cooperation projects in the defense sector. It anticipates that this could arise where collaboration is necessary to scale up production, where individual companies would otherwise be unable to develop or manufacture a product on their own or where defense companies wish to jointly procure raw materials.
Notably, the EC will consider any efficiencies generated such as the positive effects of defense readiness and resilience of defense supply chains.
We will keep you updated on the defense-related aspects of the EC's merger guidelines review as well as on any guidance published that clarifies how defense collaborations can stay on the right side of the law.
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