A Small Country Perspective
Chapter 2: The defence sector and industrial policies: background, stylized facts and the liberalization scenario
The European defence industry is highly concentrated. This is to a large extent the result of an extensive and wide-ranging use of protectionist policies – such as discriminatory procurement practices and offset (counter-trade) requirements. Regardless of country size, specialization pattern and GDP per capita, the defence sector in European countries is almost always dominated by a few oligopolistic defence contractors. But, as several commentators have pointed out, this industry structure comes at a price (Edwards, 2011). This high level of industry concentration and the low level of integration among the domestic markets of the EU have forced the EU member states to accept more costly and less efficient defence equipment, which has hampered the international competitiveness of this industry and weakened the member states’ military capabilities vis-à-vis other regions of the world. This weak competitiveness prompted the EU to introduce a new Directive (The European Union’s Defence and Security Procurement Directive, 2009/81/EC) that is supposed to ensure a greater level of freedom in the trade of defence materiel and make the European defence industries more efficient and competitive. Although the actual impact of this Directive is still uncertain, it has already spawned a wide-ranging debate about how the different member countries will be affected, and whether it will actually succeed in creating a more open and competitive European defence sector (Edwards, 2011; Blom et al., 2013).
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