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(1) The EU Heads of State or Government, meeting in Versailles on 11 March 2022, committed themselves to bolstering European defence capabilities in light of Russia’s war of aggression against Ukraine. They agreed to increase defence expenditures substantially, to develop further incentives to stimulate Member States’ collaborative investments in joint projects and the joint procurement of defence capabilities, to invest further in the capabilities necessary to conduct the full range of missions and operations, to foster synergies and boost innovation, and to strengthen and develop the European defence industry, including small and medium-sized enterprises (SMEs).

(2) Russia’s unjustified invasion of Ukraine on 24 February 2022 and its ongoing war of aggression have made it clear that it is critical to act urgently to address existing shortfalls. The return of high-intensity warfare and territorial conflict to Europe has a negative impact on the security of the Union and the Member States and requires a significant increase in the capacity of Member States to fill the most urgent and critical gaps, especially those exacerbated by the transfer of defence products to Ukraine.

(3) Russia’s war of aggression against Ukraine has dramatically underlined the need to adapt the European Defence Technological and Industrial Base (EDTIB) to structural changes, to enhance the Union’s military research and development, to modernise military equipment, and to strengthen cooperation between Member States in the framework of procurement in the field of defence.

(4) On 18 May 2022, the Commission and the High Representative of the Union for Foreign Affairs and Security Policy (High Representative) presented a joint communication on ‘the Defence Investment Gaps Analysis and Way Forward’. The joint communication highlighted the effects of years of defence underspending and the existence of financial, industrial and capability gaps in the Union’s defence sector. The joint communication specified that the return of warfare to Europe had revealed an accumulation of gaps and shortfalls in military inventories, reduced industrial production capacity, and limited joint procurement and collaboration. The joint communication also highlighted gaps immediately affecting the freedom of action of Member States’ armed forces as well as the urgent need to replenish certain stockpiles, to replace obsolete military equipment, for example equipment designed or produced in the former Soviet Union, and to reinforce strategic capabilities.

(8) The specific structure, eligibility conditions and criteria laid down in this Regulation are particular to the dedicated short-term instrument and are determined by specific circumstances and the current emergency situation.

(9) In the current defence market context, marked by an increased security threat and the realistic perspective of a high-intensity conflict, Member States are rapidly increasing their defence budgets and aiming to carry out similar purchases of defence products. This has resulted in a level of demand which could exceed EDTIB manufacturing capacities, which are currently tailored for peacetime production.

(10) As a result, strong price inflation can be anticipated, as well as longer delays in delivery time, potentially harming the security of the Union and the Member States. Defence industries need to secure the production capacity necessary to process orders, as well as critical raw materials and sub-components. In that context, producers might privilege major orders, potentially leaving the most vulnerable countries, which lack the critical size and financial means to ensure large orders, exposed.

(11) The current geopolitical situation in the Eastern neighbourhood countries has shown that, whereas a duplication of efforts should be avoided, a diversified defence market can contribute to the variety of products immediately available on the market and can therefore be beneficial to an adequate satisfaction of Member States’ urgent needs.

(12) Furthermore, efforts should be made so that the increased spending results in a much stronger EDTIB throughout the Union. Indeed, increased national investments, made without coordination or cooperation, can deepen fragmentation.

(13) In light of the above challenges and related structural changes, it appears necessary to speed up the adjustment of the EDTIB, to enhance its competitiveness and efficiency, in accordance with Article 173 of the Treaty on the Functioning of the European Union (TFEU), and thereby to contribute to strengthening and reforming Member States’ defence industrial capabilities. Addressing industrial shortfalls should include promptly tackling the most urgent gaps.

(14) Common investment and defence procurement should, in particular, be incentivised, as such collaborative actions would ensure that the necessary change in the EDTIB takes place in a collaborative manner, avoiding further fragmentation and increasing interoperability.

(15) To that end, a dedicated short-term instrument for increasing collaboration by Member States in the defence procurement phase (the ‘Instrument’) should be established. The Instrument should incentivise Member States to pursue collaborative actions and, in particular, when they procure in order to fill those gaps, to do so jointly, increasing interoperability and strengthening and reforming their defence industrial capabilities.

(16) Without prejudice to the prerogatives of the budgetary authority, the resources allocated to the Instrument will be financed within the existing multiannual financial framework without impacting funding already committed to specific Union actions.

(17) The Instrument should offset the complexity and risks associated with common procurement while allowing for economies of scale in the actions undertaken by Member States to reinforce and modernise the EDTIB, with a particular focus on SMEs and mid-capitalisation companies (mid-caps), thereby increasing the Union’s capacity, resilience and security of supply. Incentivising common procurement would also result in reduced costs in respect of the administrative burden and lifecycle management of relevant systems. The Instrument should be accompanied by efforts to strengthen the European defence and security markets, services and systems, and to create a level playing-field for suppliers from all Member States. Common procurement on a common market for the EDTIB allows for economies of scale and assures innovation and efficiency in production and technology.

(18) The Instrument builds on and considers the work of the Defence Joint Procurement Task Force established by the Commission and the High Representative and Head of the European Defence Agency, in line with the joint communication of 18 May 2022, to coordinate very short-term defence procurement needs and to engage with Member States and Union defence manufacturers to support joint procurement in order to replenish stocks, in particular in light of the support provided to Ukraine.

(19) The security situation in Europe requires urgent reflection as to how to reduce excessive fragmentation via stand-alone Union initiatives and how to strategically link relevant instruments. The Instrument is intended to ensure coherence with existing collaborative Union defence-related initiatives, such as the Capability Development Plan, the Coordinated Annual Review on Defence, the European Defence Fund as well as the Permanent Structured Cooperation, and to generate synergies with other Union programmes. The Instrument is fully coherent with the ambition of the Strategic Compass for Security and Defence. Where appropriate, regional and international priorities, including those established in the North Atlantic Treaty Organization context, can also be taken into account if they are in line with Union priorities and do not prevent any Member State or associated country from participating, while seeking to avoid unnecessary duplication.

(20) As the Instrument aims to enhance the competitiveness and efficiency of the Union’s defence industry, common procurement contracts will, in order to benefit from it, need to be placed with contractors or subcontractors which are established in the Union or in associated countries and are not subject to control by non-associated third countries or by non-associated third-country entities. In that context, control over a contractor or subcontractor should be understood to mean the ability to exercise a decisive influence on a contractor or subcontractor directly, or indirectly through one or more intermediate legal entities. Additionally, in order to ensure the protection of security and defence interests of the Union and the Member States, the infrastructure, facilities, assets and resources of the contractors and subcontractors involved in the common procurement which are used for the purposes of that procurement should be located on the territory of a Member State or of an associated country.