Questions and Answers on the Act in Support of Ammunition Production

Source: EuPC

02 May 2023

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Why there is a need for the Act in Support of Ammunition Production (ASAP)?

As pointed out by the Joint Communication on Defence Investment Gaps, underinvestment in defence resulted into both capability and industrial gaps within the Union.

Capability gaps are various, but in light of the situation in Ukraine, there is a specific pressing need for ground-to-ground ammunition and artillery ammunition, as well as missiles, as recognised by the Council of the European Union.

On 20 March 2023, the Council agreed on a three-track approach to urgently deliver ground-to-ground and artillery ammunition to Ukraine and, if requested, missiles and called on Member States to jointly procure ammunition and if requested, missiles, to refill their stocks while enabling the support to Ukraine.

As joint efforts by Member States can only be effective if the EU supply side can deliver on time the required defence products, the Council tasked the Commission to present concrete proposals to urgently support the ramp-up of manufacturing capacities of the European defence industry, secure supply chains, facilitate efficient procurement procedures, address shortfalls in production capacities and promote investments, including, where appropriate, mobilising the Union budget.

By proposing ASAP, the Commission makes its contribution to the collective effort of Member States to enhance their security and to address the urgent needs of the Ukrainian armed forces.

What is the objective of ASAP?

The ASAP will focus on ammunition and missiles - defence products that have been identified as pressing needs by the Council in the context of its three-track approach, on the basis of Ukraine's requests.

The work carried out by the Defence Joint Procurement Task Force created by the Commission, the European External Action Service and the European Defence Agency, indicates that the EU industry has significant manufacturing activity, and potential further capacity, for these products. However, current production within the Union's defence sector is tailored for peacetime. European defence companies now face a surge in demand in the area of ammunition and missiles, requiring them to produce more and faster.

This discrepancy between an armed force's urgent need and existing limited production capacity results in price inflation and a difficulty to serve customers, with the risk of generating a security of supply issue for Member States' armed forces and therefore potentially harming the security of EU citizens. The consultation with the European ammunition manufacturers has highlighted concrete bottlenecks in the supply chains and shortages to be addressed if the required production levels are to be met.

In this perspective, the Act will aim at ensuring the EU can immediately ramp up production capacity of ammunition and missiles in the EU, to produce more and faster, and also ensure the security of supply of these products in Europe.

This proposal for a new Regulation includes:

An instrument to financially support the reinforcement of the Union's industrial production capacities;
A mechanism to map, monitor and better anticipate the existence of bottlenecks in the supply chains of relevant defence products;
The introduction of a temporary regulatory framework to address the ammunition supply crisis.

How will the Act support the European defence industry in ramping up production?

The proposed Regulation contains concrete measures to support the industrial reinforcement throughout the supply chains related to the production of ammunition and missiles in the EU. Financial support will be provided in the form of grants to various types of actions contributing to the efforts of the European defence industry to increase their production capacities.

The actions eligible for support will contribute to:

Optimising, expanding, modernising, upgrading or repurposing existing production capacities;
Establishing new production capacities;
Enhancing resilience of supply chains through the development and the operationalisation of cross-border cooperation of undertakings involved in related supply chains;
Building up and making available reserved surge manufacturing capacities;
Testing or reconditioning (to address obsolescence) processes in view to make ammunition and missiles useable by end users;
Reskilling and upskilling related workforce.

The proposed Regulation will also enhance access to finance for the Union's companies involved in the production of ammunition and missiles, notably through a possible dedicated ‘Ramp-up Fund'.

How will the Commission identify the challenges affecting the ammunitions and missiles supply chains?

The Act will ensure the necessary data gathering at European Union level and enable the Commission and Member States to anticipate shortages affecting the security of supply of ammunition and missiles. To this end, on the basis of the cooperative work with the EEAS and the EDA in the context of the Defence Joint Procurement Task Force, the Commission will conduct a mapping exercise to identify and continuously monitor the availability of ammunition and missiles as well as their components and their corresponding inputs.

Based on this monitoring, the Commission will issue and regularly update a list of supply-critical defence products which are seriously affected by disruption or potential disruption of the functioning of the Internal Market, potentially resulting in significant shortages.

This list will inform the use of financial support to the European Union's defence industry and enable the Commission to design emergency response measures to supply risks.

Why are regulatory measures necessary?

The current supply crisis in the ammunition sub-sector has not only revealed challenges facing the European defence industry to match the sudden and significant increase in demand. It has also posed challenges for the smooth functioning of the Internal Market for the manufacturing and the supply of these products, their components and raw materials. The brutal increase in demand has already resulted in prices spiralling, which is likely to disrupt the smooth functioning of the Internal Market. If unaddressed, this could provoke the crowding out of certain Member States, especially those which might need ground-to-ground and artillery ammunition the most.

In order to address those market disruptions, the ASAP includes several emergency and temporary regulatory measures designed to restore a smooth functioning of the Internal Market, hence enabling a speedy and longer-term availability of ammunition and missiles.

The ASAP introduces the possibility for the Commission, under exceptional circumstances, to require an undertaking to accept, or to prioritise an order of supply-critical defence products (priority rated order) or explain the grave reasons justifying refusal. The issuance of such a priority rated order will be based on a list of supply-critical defence products, the consequence of a request from at least three Member States commonly procuring or from a Member State procuring for the purpose of transferring the acquired ammunitions and missiles to Ukraine, and will be subject to the agreement of the Member State of establishment of the defence production company concerned.

The ASAP also entails targeted derogations from applicable Union legislative frameworks to ensure a smooth functioning of the Internal Market, notably in the field of defence procurement (Directive 2009/81/EC) and intra-EU transfers of defence products (Directive 2009/43/EC).

What is the timeline for the implementation of ASAP Regulation?

The Commission has released its proposal for a Regulation, less than a month and a half after the call from the Council of the EU on 20 March 2023 and now calls on the co-legislators to adopt this Regulation as soon as possible.

Once adopted, regulatory measures provided for by the ASAP will be immediately implementable. For other measures, and notably for the EU financial support under the Act, the Commission will implement them as swiftly as possible.

In order not to cause potential delays to industrial actions contributing to ensure the effective supply and timely availability of ammunitions and missiles, the ASAP provides for a retroactivity clause so that actions having begun after 20 March 2023 may be eligible for EU support.

Where is the budget under ASAP coming from?

The Commission has proposed an ASAP Regulation with a budget of €500 million in current prices. This budget comes from the redeployment of two instruments, the European Defence Fund and the future EDIRPA.

More precisely, ASAP budget has been allocated:

€260 million from the European Defence Fund, from its 2024 budget;
€240 million from EDIRPA.

ASAP budget will be engineered in a fashion that it does not undermine the implementation of existing defence programmes.

What is the link between ASAP and EDIRPA?

In July 2022 the Commission presented the proposal for the European Defence Industrial Reinforcement through common Procurement Act (EDIRPA), aimed at supporting collaboration between Member States in the procurement phase to fill the most urgent and critical gaps, especially those created by the response to the current Russia's aggression, in a collaborative way. EDIRPA will contribute to reinforce common defence procurement and, through the associated Union financing, to strengthen EU defence industrial capabilities and the adaptation of Union's defence industry to structural market changes resulting increased demand due to the return of high intensity warfare.

The two proposals, ASAP and EDIRPA, are complementary initiatives, on the supply and demand side respectively.

EDIRPA aims at incentivising Member States, in a spirit of solidarity, to commonly procure urgently needed defence products. Therefore, it will support cooperation of least three Member States for the common procurement of most critical and urgent defence products from the EU's Defence and Technological Industrial Base (EDTIB), hence contributing to its competitiveness and its adaptation to the current context.

The objective of ASAP is to support and accelerate the immediate ramp-up of production capacity of ammunition and missiles in the EU. It will therefore directly support producers of these defence products, as well as their supply chains.