The future scope of application of Article 346 TFEU (ex-Article 296 EC)

Nicolas Pourbaix, Senior Associate

8 June 2011

Procurement Lawyers' Association, London

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Background

• New regulatory environment composed of 2 elements:

1. Clarification of scope of Article 346 TFEU

2. New Defence Directive

• 2 reasons why defence procurement is not competitive in the EU:

1. Wide reliance on Article 346 TFEU

2. Existing procurement Directives not suited to defence procurement

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Background

• Article 346 TFEU

1) The provisions of this Treaty shall not preclude the application of the following rules:a) no Member State shall be obliged to supply information the disclosure of

which it considers contrary to the essential interests of its security;

b) any Member State may take such measures as it considers necessary for the protection of the essential interests of its security which are connected with the production of or trade in arms, munitions and war material; such measures shall not adversely affect the conditions of competition in the common market regarding products which are not intended for specifically military purposes.

2) The Council may, acting unanimously on a proposal from the Commission, make changes to the list, which it drew up on April 1958, of the products to which the provisions of paragraph 1(b) apply.

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Article 346 TFEU and the Defence Directive

• Scope of Defence Directive

• Article 2– Subject to Article 346, Directive applies to

• supply of military equipment

• supply of sensitive equipment

• and related works and services

• "military equipment": specifically designed or adapted for military purposes, intended for use as an arm, munition or war material

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Article 346 TFEU and the Treaty

• Legally and politically serious matter– excludes application of the Treaty as a whole

• Inherent tension in the article – protection of Member States' sovereignty

• Member States define their own priorities for security

• no place for EU interference with the protection of essential interests of national defence

– fundamental principles and objectives of the Treaty• primacy of the Treaty and EU law

• "effet utile"

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Protection of Member States' sovereignty

• Case C-252/01 Belgian aerial photography– low standard of scrutiny over security measures required– CJEU simply accepted Belgium's argument that contract required special

security measures

• Case T-26/01 Fiocchi Munizioni– Member States have broad degree of discretion in deciding how to protect

their security interests– Member States have the choice of measures to protect those interests

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Principles of the Treaty - limiting exempted products

• Case 367/89 Richardt– derogation must be interpreted strictly– only the products on the 1958 list can be exempt

• Case 337/05 Agusta Helicopters– only equipment intended "specifically" for military purposes can be exempt– dual use equipment: not exempt– equipment supplied to the military but for civilian use: not exempt

• See also Commission State aid decisions (KSG, Hellenic Shipyards)

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Principles of the Treaty - limiting automaticity of use

• Case C-273/97 Sirdar– not an automatic exemption– exemption applies if and only if conditions of Article 346 TFEU are met

• Case C-414/97 Spanish Weapons– may only be invoked for security reasons – not economic reasons– test of necessity: Member State must show that exemption is necessary for

the protection of the essential interests of its security

• See also Own resources cases C-284/05 and others

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Limits to CJEU's scrutiny

• No scrutiny over test of necessity– CJEU will simply look for security measures invoked by Member State

• No test of proportionality– CJEU will not assess whether less restrictive measures could achieve the

same result

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Summary of Article 346 TFEU

• Case-by-case assessment – subject to own regime

• 4 key questions:

1. Are there security interests which the Member State seeks to protect?

2. Are these "essential"?

3. Is there a link between the protection of these security interests and the procurement?

4. Is the non-application of the Directive necessary for the protection of those interests?

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