1. Nicolas Pourbaix, Senior Associate
The future scope of application of Article 346 TFEU (ex-Article 296 EC)
Nicolas Pourbaix, Senior Associate
8 June 2011
Procurement Lawyers' Association, London

2. Background
2 reasons why defence procurement is not competitive in the EU:
Wide reliance on Article 346 TFEU
Existing procurement Directives not suited to defence procurement
New regulatory environment composed of 2 elements:
Clarification of scope of Article 346 TFEU
New Defence Directive

3. Background Article 346 TFEU
The provisions of this Treaty shall not preclude the application of the following rules:
no Member State shall be obliged to supply information the disclosure of which it considers contrary to the essential interests of its security;
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.
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.

4. 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

5. 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"

6. 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

7. 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)

8. 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

9. 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

10. Summary of Article 346 TFEU
Case-by-case assessment – subject to own regime
4 key questions:
Are there security interests which the Member State seeks to protect?
Are these "essential"?
Is there a link between the protection of these security interests and the procurement?
Is the non-application of the Directive necessary for the protection of those interests?

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