What would UK-EU defence industrial co-operation look like?

Defence, security and foreign policy co-operation were not part of the 2020 Trade and Co-operation Agreement that underpins the post-Brexit UK-EU relationship. Under Prime Minister Theresa May, the UK sought a bespoke relationship with the EU, but the Union was not willing to give the UK an arrangement that went significantly beyond what other third countries already had. When Boris Johnson replaced May as prime minister, the UK changed its approach and opted not to seek any institutional relationship with the EU in security and defence. Instead, the UK concentrated its efforts on deepening bilateral co-operation with EU member-states.

Russia’s invasion of Ukraine in February 2022 prompted closer UK-EU security co-operation. The UK’s value as a security partner to the EU has become more evident. The UK is the third biggest contributor of military assistance to Ukraine, after the United States and the EU institutions. Contacts have intensified and UK officials have worked closely with the European Commission and the European External Action Service in co-ordinating sanctions against Russia. The UK has increased its engagement with EU defence initiatives, following Canada and the US in joining the EU’s military mobility project within the Permanent Structured Co-operation framework (PESCO). The project, the flagship of EU-NATO co-operation, aims to ease physical and regulatory barriers to moving troops and military kit around Europe. The UK has also helped set up the EU training mission for Ukrainian troops by providing most of the curriculum for it.

However, this increased UK-EU engagement co-exists with a growing gap in the field of defence capability development. The UK is not involved in EU efforts to promote joint research and development efforts under the €7.9 billion European Defence Fund (EDF) established in 2021. The EU’s role in capability development has deepened since Russia’s full-scale invasion of Ukraine. The EU is becoming more involved in trying to foster the joint procurement of military equipment by member-states, and in expanding armaments production in the EU by channeling funding to defence firms to increase their production.

The UK is concerned at how the EU’s defence industrial initiatives are developing to the exclusion of non-EU countries. The EU is keen for its funding to only benefit its own industry, and also wants to avoid any dependencies on non-EU countries and firms in terms of intellectual property or export controls. The UK thinks that the conditions for non-EU countries and firms to participate in PESCO and EDF projects are too strict to make participation worthwhile. In particular, the conditions for third country participation mean that intellectual property cannot be removed from the EU, and that third countries cannot block exports of a product developed within PESCO or the EDF to other countries. The EU’s new initiatives in the defence industrial field (EDIRPA, ASAP) intensified pre-existing British concerns about being excluded from the EU’s deepening efforts in defence capability development. From a UK perspective there is a risk that, over time, the EU’s defence tools might gain momentum and generate a gradual restructuring of the European defence market, to the UK’s detriment. The EU is unlikely to benefit from the UK’s exclusion: cutting off Britain would fragment Europe’s defence industry, deprive the EU of access to the UK’s highly developed defence industrial base, and ultimately hinder efforts to improve capabilities by reducing economies of scale and interoperability.

These concerns, however, have not pushed the British government seek closer relations with the EU in the defence industrial field. And, while the 2023 Refresh to the UK’s 2021 Integrated Review hinted at possible British participation in additional PESCO projects, that has not yet happened. Closer co-operation with the EU in defence remains politically difficult for the current government given that many Conservative MPs remain sceptical of British involvement in EU defence initiatives. Even the UK’s participation in military mobility is proving controversial.

The UK’s position may shift significantly under a Labour government, however, as the party has called for closer foreign policy and defence co-operation with the EU. A closer relationship that benefits both sides is possible but would have to develop gradually. The emphasis could first be on fully exploring the potential and limitations of the current framework, and then on building on it where possible.

The first steps would be a formal UK-EU defence and foreign policy dialogue and a UK administrative arrangement with the EDA. Having a structured security- and defence-focused dialogue would provide an institutional underpinning for the relationship. Similarly, a UK administrative arrangement with the EDA would enable more contact between UK and EU representatives and potentially pave the way for more British participation in EU projects in which the EDA has a role.

In parallel, the UK and the EU could also consider closer UK association with the European Peace Facility for future joint procurement, along the model of the recently agreed ammunition purchase for Ukraine. For British entities to be involved, the UK would need to make a financial contribution to the EPF for the project. These moves could be followed by deeper UK involvement in PESCO. Taking part in a PESCO capability development project could be a way for the UK to test the boundaries of third country involvement in EU capability development tools, to see how the EU interpreted the current rules on intellectual property or export controls are interpreted. If the EU proved willing to be flexible, that would pave the way for closer UK involvement in both PESCO and in the EDF. However, a sizeable UK financial contribution to the EDF would almost certainly be a precondition for the EU for British firms to be able to access EDF funds.

Luigi Scazzieri is a senior research fellow at the Centre for European Reform.