The EU’s Defense Readiness Roadmap and Omnibus: What Are the Competition Law Implications?

As part of a comprehensive plan to ensure that EU Member States achieve “defense readiness” by 2030, the European Commission has proposed a package of measures to facilitate public and private investments in defense by simplifying legal frameworks relevant to defense. In a previous alert, we provided an overview of the Defense Readiness Omnibus and examined its implications for defense procurement. In this alert, we focus on its implications for the enforcement of competition law.

1. Background

In the face of a changed geopolitical environment, Europe is urgently looking to ramp up investments in defense to make up for decades of chronic underinvestment. The Defense Readiness Omnibus aims to facilitate at least 800 billion euros in defense investments over the next four years by eliminating legal hurdles, reducing administrative burdens, and improving regulatory predictability. The Omnibus is a key component of the Defense Readiness Roadmap 2030, which aims to ensure that the EU Member States have sufficiently strong defense capabilities by 2030 to credibly deter foreign aggression and address defense-related crises.

In addition to legislative proposals to simplify rules in areas such as defense procurement, permitting, and intra-EU transfers of defense products, the Omnibus also outlines new policy orientations for the application of competition law in the defense sector. In an accompanying communication, the Commission has stated that it will duly consider the specificities of this sector and its contribution to defense readiness in its competition enforcement.

2. Antitrust 

Regarding antitrust, the Commission states that it “stands ready” to provide guidance on collaboration between companies in the defense industry, particularly in cases where such collaboration is necessary to increase production or where individual companies would otherwise be unable to develop or manufacture a product independently. Another example mentioned is joint procurement of raw materials. The Commission will consider defense readiness and the resilience of defense supply chains as relevant efficiencies in the assessment of such cooperation projects.

In 2022, the Commission updated its Notice on informal guidance relating to novel or unresolved questions concerning the application of the EU’s antitrust rules, lowering the threshold for obtaining such guidance. The Commission indicated its intention to make more frequent use of this tool, particularly with regard to agreements that contribute to the EU’s sustainability objectives. Earlier this year, the Commission issued its first guidance under the new notice regarding sustainability agreements in the transportation sector. Now, agreements contributing to defense readiness will also be treated as a priority for informal competition guidance.

3. Merger control

On the subject of merger control, the Commission states that it will give “adequate weight” to the changed security and defense environment in its ongoing review of the Merger Guidelines. The Commission indicates that it will consider whether transactions contribute to enhanced defense and security when assessing them. Recently, the Commission held a first stakeholder consultation on the reform of the Horizontal and Non-Horizontal Merger Guidelines. However, the review process is not expected to be completed until 2027.

In both antitrust and merger control, it remains to be seen whether the Commission’s intentions will translate into clearly defined safe harbors that will provide the necessary legal certainty to companies.

4. State aid

It is in State aid that the Commission’s communication seems to herald the most significant changes.

First, the communication asserts that measures to support infrastructure investments—such as the widening of railway tunnels and the reinforcing of roads and bridges to create military mobility corridors—are deemed public remit activities, which do not constitute aid and therefore do not require notification. In other words, such activities are not considered economic activities and therefore fall outside the scope of State aid control.

Secondly, according to the communication, State aid measures to support investment in production capacity in the defense sector are “normally” deemed to fall within the primary law exception of Article 346(1)(b) TFEU, and therefore also do not need to be notified. This treaty provision allows Member States to take such measures as they consider necessary to protect their essential security interests in connection with the production of, or trade in, arms, munitions, and war materials.

According to the case law of the Court of Justice of the European Union (CJEU), the notion of “essential security interests” should be interpreted restrictively and notably excludes purely economic and labor interests. The exception is only available for military equipment, i.e., products specifically intended for military purposes, and should not lead to spillover effects distorting competition in markets for civilian products. Moreover, the measures must be necessary and proportionate to protect clearly defined security interests. Article 348 TFEU entrusts the Commission with the task of ensuring that measures taken under Article 346 TFEU do not distort competition in the internal market and empowers it to bring infringement proceedings before the CJEU against Member States which it considers have made improper use of the exception. In practice, however, Member States to have made extensive use of the exception, and the Commission has been reluctant to bring infringement proceedings against Member States that may have wrongly invoked it.

It was already generally accepted that measures to maintain a minimum manufacturing capacity in critical military equipment can be considered as an “essential security interest” within the meaning of Article 346 TFEU. The Commission’s communication appears to mark a subtle but significant shift to a broader understanding that investments in defense production capacity are generally deemed to satisfy this condition.

The Commission nevertheless stresses that a finding that State aid measures fall within the exception of Article 346 TFEU is without prejudice to the assessment of the applicability of that provision to national measures affecting other EU rules, such as in the field of defense procurement. In those other fields, claims for an Article 346 TFEU derogation will continue to be closely scrutinized.

Thirdly, the Commission indicates that aid measures not covered by Article 346 TFEU will be assessed with more flexibility. Such measures may be exempted from notification under the General Block Exemption Regulation (e.g., aid for research and development projects in the defense sector) or approved either under existing guidelines and frameworks or directly under Article 107(3)(c) TFEU. When balancing the positive against the negative effects of an aid measure, the Commission promises to take due account of the measure’s contribution to the defense readiness 2030 objective. In addition, the Commission commits to prioritizing cases pursuing this objective, and to provide timely guidance on the assessment of public support for the defense sector.

5. Conclusion

The Commission’s communication marks a significant step toward aligning EU competition policies and priorities with the EU's defense objectives. Relaxed State aid rules could play an important role in advancing the overall objective of the Defense Readiness Omnibus to boost investments in defense, while an adjustment of the merger control and antitrust standards could facilitate consolidation and collaboration in the still highly fragmented landscape of the European defense industry. However, the success of the initiative will depend on the extent to which the Commission succeeds in providing the necessary legal clarity and predictability to the public and private actors involved in defense investment decisions.

Crowell would like to thank Kemal Tepe for his assistance in preparing this alert.