BRUSSELS – The €150 billion proposed EU defence loan programme is currently stalled, as negotiations continue regarding how much business arms manufacturers from outside the EU could secure under its terms.

This contentious issue has sparked a politically charged debate among EU finance ministers during their recent meeting in Brussels.

While the proposed programme, known as Security Action for Europe (SAFE), ostensibly allows outside countries to participate if they enter into a defence pact with the EU, ambiguity remains regarding the specific conditions that would allow non-EU defence companies to qualify for contracts.

The European Commission's initial proposal stated that at least 65% of military products funded by the loan must originate from the EU, Norway, or Ukraine.

However, there are ongoing discussions about how to interpret spending on sub-contractors and the criteria for granting access to defence industries in non-EU countries that establish bilateral trade agreements with the EU.

Poland's Finance Minister, Andrzej Domański, noted the discussions involve extending the proposed deadlines for utilizing SAFE funds, aiming to create more flexibility for including foreign arms manufacturers in the arrangement.

At the latest finance minister meeting, support for the overarching proposal was reiterated, although considerable challenges were encountered regarding the finer details.

A pivotal discussion point is determining how countries with defence industry agreements—which currently includes nations like the United States, but not the UK—can attain further access to procurement contracts for their defence firms.

The Commission's proposal would allow for this access, yet clarity on how it would affect the stipulated 65% to 35% ratio of European to third-country production remains unanswered.

The draft presented by Poland’s presidency indicated that bilateral arrangements between the Commission and foreign nations must outline the specific share and production locations from each side, allowing the Commission wide discretion in determining participation parameters while also inviting lobbying from EU member states.

Another significant topic is the treatment of sub-contractors involved in defence projects, particularly whether contributions made by European defence firms to external entities should count as third-country or European expenditures.

Current regulations classify a company as a sub-contractor if it contributes 15% of the product's value or less, thus generally exempting such spending from being classified as foreign under the existing framework.

However, several EU member states advocate raising this threshold to permit more non-EU industries to participate.

The ultimate phrasing of the regulations will influence how extensively defence sectors from the UK, the United States, and Turkey can engage in the procurement dialogues fostered by the SAFE programme.

Despite the underlying regulation set forth by the Commission, the Council has asserted its authority to make final decisions regarding the programme's implementation.