SUPPORT FOR EXPORTS
OF MILITARY
EQUIPMENT
Public thematic report
January 2023
2
Executive Summary
France regularly expresses its desire for strategic independence in documents relating
to arms industrial policy. It is in this context that an ambitious military equipment export policy
has been developed to promote the balance of power, to strengthen alliances and bilateral or
European cooperation, but also and above all to ensure France's strategic autonomy. A
dynamic military equipment export policy is indeed essential to maintain an autonomous
defence technological and industrial base. However, the small size of the French market does
not allow it to bear the costs of research, development and production of high-tech equipment
for the armed forces on its own. This strategic vision has led to the establishment of a
comprehensive system of support for military equipment exports (Soutex).
The organisation of support for military equipment exports
The public authorities are strongly involved in Soutex through a coherent and effective
set of structures and mechanisms. France’s Defence Procurement Agency (DGA) of the
Ministry of the Armed Forces plays a pivotal role in this set of structures and mechanisms,
which mobilises nearly 900 agents from the State Services (Ministry of the Armed Forces,
Ministry of the Economy, Finance and Industrial and Digital Sovereignty, Ministry of Europe
and Foreign Affairs), from technical levels to the highest political authorities.
These mechanisms have helped France to become the third largest exporter of military
equipment and to achieve a trade surplus in this sector of more than €7 billion in 2021.
However, the number of staff in certain structures contributing to Soutex should be increased,
in particular at the DGA (export operations supervisory mission and technical directorate), and
at the General Directorate of the Treasury (DG Treasury, aeronautical, military and naval
affairs office).
In order to reduce dependence on large contracts, this support could be made more
available to small and medium-sized enterprises (SMEs) by sharing guidelines for analysing
export markets, developing training programmes co-steered by the DGA, the DG Treasury and
the dedicated structures in place. It would also benefit from greater involvement of the
neighbouring sectors of dual-use goods (civil and military) and security, often provided by the
same companies, with similar industrial and regulatory challenges.
3
French defence industry orders 2011-
2021 in €M
Source: Court of Accounts, data from the 2022 report to Parliament on French arms exports
Breakdown of 2017 military turnover by types of companies*
Sources: EID 2017, DGDDI, OED
* Export of military and non-military equipment.
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Export controls of military equipment can be made more effective
Regulated and political in nature, the arms trade is subject to a derogation system of
prior authorisation, involving rigorous checks, governed by international and European rules
for issuing and verifying export licences. Implemented under the authority of the Secretariat
General for Defence and National Security (SGDSN), this control system appears to be robust
upstream, despite the failures of the information system connected with it and the current
improvements of which could reduce the time required to process licence applications. The
three interministerial committees in place for export controls of military hardware and similar
items, dual-use goods and civilian arms and explosives operate satisfactorily. However, better
coordination between the interministerial committee for the inspection of military hardware
exports (CIEEMG) and the interministerial committee on dual-use goods (CIBDU) would be
desirable to facilitate the classification of equipment and avoid divergent opinions or opinions
given within different timeframes on similar equipment.
The introduction of contract licences, initiated by the DGA, should also help to simplify
this system, as should the advisable transfer to the SGDSN of the notification of licences,
which is currently carried out by Customs. In addition, the information, training and guidance
actions for SMEs set up by the DGA could be strengthened, in conjunction with the DG
Treasury and the Directorate General for Enterprise (DGE). This increased effort would help
SMEs to implement compliance mechanisms and to better understand the markets,
procedures and contacts to be mobilised, in order to increase the volume of contracts under
€200m. It would thus
help to smooth out, over time, export performance that is currently very
dependent on major arms contracts.
These mechanisms would also need to be shared with the related sectors of security
and dual-use goods, including in respect of their export support role. Finally, the system of a
posteriori control of licences could be improved by increasing the number of documentary and
on-the-spot checks
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. The implementation, where necessary, of dissuasive sanctions against
exporters that do not comply with the regulations is also essential to strengthen the credibility
of the control system.
Arms export controls take into account human rights concerns and European criteria on
this subject, in the context of increasing ethical demands from parliaments, non-governmental
organisations (NGOs) and public opinion. The State must anticipate these ethical and societal
demands in order to better reconcile them with the exercise of France's sovereignty and the
export and competitiveness requirements of companies in the arms and security sectors.
New risks for both government and
armament sector’s companies
Essentially interstate, trade in military equipment is subject to changing political contexts
that can lead to the acceleration or delay in the signing of contracts, or even to their cancellation
and the choice of other partners. The conclusion of strategic partnership agreements aimed at
creating a favourable framework does not protect against these reversals, if these agreements
are not sustained over time and driven by a collective will. In order to respond to the demand
of partner countries to place military contracts within a state framework and with a view to
offering facilities as structured as the United States ‘’
foreign military sales
’
', France has
attempted to develop a comprehensive tool to structure sales to foreign countries. It has not
succeeded in doing so because of the lack of depth in its stocks and its inability to impose its
rules on the game. It has therefore adopted, on a case-by-case basis, various formulas to meet
the demands of its partners, some of which leave the State to bear the risks in the event of a
conflict between the supplier and the purchasing country.
1
Only 21 on-the-spot checks were carried out in 2021, compared to around 40 before 2018.
5
In addition to an interstate framework, purchasing countries are increasingly demanding
offsets that are potentially risky for subcontracting SMEs. The development of the offsets
practice is leading the large prime contractors to seek out local suppliers likely to benefit from
technology transfers, at the risk of competing with their traditional subcontractors. It also leads
them to ask these same subcontractors to support them and invest in countries where majority
local partnerships are often required and where the rules of law are sometimes unstable. Work
by the US Department of Commerce has shown that while offsets allow large corporations to
win large contracts, they have a negative effect on the fabric of domestic SMEs. This
observation leads us to recommend that the DGA and the DG Treasury keep a very close
watch on this issue, not only by ensuring better monitoring of offsets within the framework of
existing tools, but also by setting up a mandatory declaration system giving rise to an annual
report to Parliament.
Constraints on the export capacity of the arms and security industries
Global industrial interdependence leads to a partial dependence of the arms industry on
supplier countries. However, the incorporation of foreign components into manufactured
equipment or interstate cooperation in their design and production makes exports subject to
the regulations of these countries, which can lead to the blocking of certain French exports.
This was the case following the refusal to issue export licences by the German and American
authorities. A bilateral agreement to resolve these difficulties has been concluded with
Germany; it will be necessary to ensure that it works properly in the long term. In the case of
the United States, it would seem wise to free ourselves as much as possible from dependence
on American components by developing "ITAR-free" (International Traffic in Arms Regulations)
industrial solutions, right from the design stage of equipment. These risks must also be
prevented in the framework of programmes carried out in cooperation with European partners.
Furthermore, the development of European regulations on taxonomy and eco-labelling
should also give rise to vigilance, as these standards could lead to the arms and security
industries being squeezed out of “green” funding and restrict their development possibilities.
Finally, the policy of support for arms exports must take into account the acceptability to
public opinion of exports of military and security equipment to countries in a crisis situation or
likely to divert this equipment from its initial legitimate objectives, or even use it for internal
repression or external aggression. These problems, which may give rise to legal disputes, must
be anticipated and prevented, otherwise France's ability to pursue its export policy could be
hampered.
The costs of the support policy need to be better accounted for
Support for exports has become a full-fledged mission of the Ministry of the Armed
Forces with a very strong involvement of the DGA, the Armed Forces General Staff (EMA) and
the forces. This ministry has implemented a policy to support export companies from the
prospecting stage to training user armies. Although efforts have been made to better support
SMEs, this policy mainly benefits large corporations. Efforts in favour of SMEs should therefore
be strengthened, both from the point of view of training and the monitoring of the outsourcing
plans that the large corporations are supposed to implement to support them in their
international development.
Upstream, the Ministry of the Armed Forces works intensely to support the prospecting
and promotion of exports. It implements with other ministerial departments (the Ministry of
Economy, Finance and Industrial and Digital Sovereignty, in particular DG Treasury, and the
Ministry of Europe and Foreign Affairs) and within its own departments (DGA, EMA and the
armed forces) coordinated actions to support major contracts. Within the ministry, cooperation
between the DGA and EMA has been strengthened. This allows the requests of client countries
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or manufacturers to be met, in order to support these contracts with services in terms of
equipment or personnel qualification, or even to accelerate in certain cases the delivery of
equipment, which constitutes an asset for the French offer.
Nevertheless, these actions increasingly weigh on the resources of the armed forces,
which are involved both in prospecting campaigns and in exports or the training campaigns
that accompany them. While the French armed forces are deployed in theatres of operations,
they are sometimes forced to temporarily deprive themselves of capacity to meet the demands
of client countries, because manufacturers are unable to rapidly increase their production or
do not have sufficient stocks. The consequences (drawdown of stocks and equipment, delivery
delays, mobilisation of training resources, etc.) are not assessed from either a financial or an
operational point of view. The presumed benefits (lower unit price of equipment, improved
potential for replacement equipment, etc.) that may result are not assessed either, but are
presented as predicates. This finding leads the Court to recommend that a cost/benefits
assessment be conducted for the various support operations and that the Ministry of the Armed
Forces seek to obtain better value for money.
This concerns the invoicing of technical services and training in operational situations,
from which manufacturers have sometimes been exempted. The same is true for the royalties
that manufacturers have to pay since the State has participated in the costs of studies,
research and development of the equipment. These royalties remain all the more modest as
the main industrial contributors dispute the calculation methods and are reluctant to pay them
without the Ministry of the Armed Forces doing everything possible to establish and collect
them quickly.
Moreover, the various stakeholders in the Ministry of the Armed Forces (DGA, EMA, the
armed forces) and the Ministry of the Economy, Finance and Industrial and Digital Sovereignty
(DG Treasury) do not have a consolidated view of the actions undertaken for the benefit of
manufacturers, even though they are often the subject of requests aimed at improving the
support they give to these companies. They should share this information in the framework of
the Export Credit and Guarantee Commission, which decides on guarantees issued on behalf
of the State under the export financing policy.
Amounts invoiced annually for Soutex by the DGA (in €M)
Amounts
2018
2019
2020
2021
Total
15.55
26.88
21.05
20.40
Of which over
€1M
11.45
16.34
18.06
15.16
Source: DGA
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Invoicing of Soutex by the EMA (in M€)
2014
2015
2016
2017
2018
2019
2020
2021
AAE
7.05
23.2
164.5
94.1
89.3
43.2
18.2
8.6
AdeT
1.08
1.9
0.6
3.9
2.6
1.7
0.6
0.2
Marc
h
0.18
1.6
1.9
0.4
0.3
0.2
0.2
0.4
Total
8.31
26.7
167
93.4
92.3
45.1
19
9.2
Source: EMA
Royalties received by the DGA (in M€)
2015
2016
2017
2018
2019
2020
2021
8.7
17.3
34.2
15.7
19.9
15.3
26.4
Source: DGA
Significant financial support from the State which needs
to be consolidated in the long term
The Ministry of the Economy, Finance and Industrial and Digital Sovereignty is one of
the key players in export policy, due to all the support procedures it implements. While some
of them are not used or used very little (prospecting insurance, investments guarantee),
guarantees for contracts in progress are, on the contrary, very much used, with an outstanding
amount of more than €17 billion, representing nearly 29% of the credit insurance portfolio
managed by Bpifrance Export Insurance on behalf of the State. Although France voluntarily
applies all the provisions of the Organisation for Economic Co-operation and Development
(OECD) Arrangement on Export Credits to the military sector, it may, in the event of proven
competition for major business, make adjustments to it.
The geographical distribution of French exports leads to a credit insurance portfolio that
is highly concentrated on a few countries, some of which are considered to be at risk. However,
the claims or threats of claims in military matters over the last ten years have not been the
result of default by borrowing states but of embargoes or licence refusals by exporting
countries. The embargo on arms exports to Russia, which applied to command and projection
ships, resulted in a cost to the State
of more than €400M.
Beyond these risks, the financing of arms and security equipment exports by banks could
be made more difficult due to the possible exclusion of these sectors from the European green
taxonomy. Two factors are contributing to this: on the one hand, the rise of social and
environmental responsibility and compliance rules, and on the other, the application of
extraterritorial measures, particularly in the United States. Therefore, in addition to diplomatic
actions, and those aiming to become free from foreign components, specific action is
necessary to counter this risk. Greater use of the tools available to the State to finance these
exports (Bpifrance, Société de financement local - Sfil, Caisse des dépôts et consignations,
Treasury loans, lines of credit) should be envisaged. In addition, multilateral financing could
be mobilised more for exports to countries with low creditworthiness.
Ultimately, the consistent and effective strategy of the government to support the large
arms companies with the largest export contracts could be of greater benefit to smaller
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companies and the security equipment sector. It must be continued to ensure the development
of these sectors which are essential to national independence.
Financial assistance available for military and security exports
Development /
industrialisation
Prospecting
Negotiation of contracts /
offers Contract enforcement
Ad hoc repayable
advance (Airbus)
Prospecting insurance
Guarantee of pre-
financing and sureties
Commercial contract
guarantee
Article 90 (specific to
military hardware)
DGA support for trade
fairs
Guarantee against
unjustified recourse to
sureties
Credit guarantee
Investment aid
Actions of Business
France
Foreign exchange
guarantee
Investment guarantee
Rate stabilisation
Source: CGA/IGF, Court of Accounts
Volume and share of the military sector in Bpifrance's total outstanding stock
Source: DG Treasury
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Audit recommendations
1.
Based on the model of the 2014 strategic export plan, extended to dual-use goods and security
equipment, draw up guidelines for analysing export markets and share them with companies
(SGDSN, Ministry of the Armed Forces, Ministry of the Economy, Finance and Industrial and
Digital Sovereignty, Ministry of the Interior, Ministry of Europe and Foreign Affairs)
.
2.
Strengthen a posteriori control in terms of programming and sanctions in the event of failure to
comply with the regulations, and send the activity report of the ministerial committee for a
posteriori control to all members of the interministerial committee for the inspection of military
hardware exports as well as to the presidents of the parliamentary committees concerned
(Ministry of the Armed Forces)
.
3.
Reduce the average processing time for licence applications submitted to the CIEEMG
(SGDSN, Ministry of the Armed Forces)
.
4.
Launch a joint export training programme for very small enterprises and SMEs in the defence
and security sectors (procedures, equipment classification, country strategy and risk, financial
support, internal control, legal issues, contacts)
(Ministry of the Armed Forces, Ministry of the
Economy, Finance and Industrial and Digital Sovereignty)
.
5.
Create a legal or regulatory obligation for companies in the defence and security sector to
declare offsets and report annually to Parliament on the monitoring of offsets
(Ministry of the
Armed Forces, Ministry of the Economy, Finance and Industrial and Digital Sovereignty)
.
6.
In the outsourcing plans that accompany credit insurance files relating to major contracts and
in the framework of agreements between the Ministry of the Armed Forces and major industrial
groups, specify the share of offsets and detail the terms and content; carry out local
documentary and on-the-spot checks
(Ministry of the Armed Forces, Ministry of the Economy,
Finance and Industrial and Digital Sovereignty)
.
7.
Draw up, for contracts concluded from 2022 onwards, a financial and capability assessment of
each of the Soutex operations carried out: costs, compensations obtained and objectives of
compensations to be obtained
(Ministry of the Armed Forces)
.
8.
Be more diligent in establishing and collecting royalties from industrial exporters
(Ministry of
the Armed Forces)
.
9.
Raise the ceilings for Bpifrance's intervention in terms of buyer credits for the benefit of SMEs.
In the medium term, examine the ways in which Bpifrance (with Sfil) or the Caisse des dépôts
et consignations could offset the risk of French banks withdrawing from the financing of major
arms contracts
(Ministry of the Economy, Finance and Industrial and Digital Sovereignty)
.
10.
Set up credit lines for the benefit of SMEs and intermediate-sized enterprises for the target
countries identified in the export guidelines
(Ministry of the Economy, Finance and Industrial
and Digital Sovereignty)
.
11.
Better share information on international financing that French companies could use to develop
their exports to Africa
(Ministry of the Armed Forces, Ministry of the Economy, Finance and
Industrial and Digital Sovereignty, Ministry of Europe and Foreign Affairs)
.