Update on SAFE & Canada

As expected, the European Council officially adopted a decision to open negotiations with Canada (and the UK) regarding their participation in SAFE. The Council released this statement:

“The Council adopted today a decision authorising the opening of negotiations with the UK and with Canada, respectively, on their participation in the €150 billion SAFE defence loan instrument. Negotiations will be conducted by the Commission and will centre in particular on the conditions under which British and Canadian companies and products may be involved in procurements under the Security Action for Europe (SAFE) funding instrument.

In response to the current geopolitical situation and urgent need for massive investments in defence equipment, the EU will provide through SAFE up to €150 billion that will be disbursed to interested member states upon demand, and on the basis of national plans. The disbursements will take the form of competitively priced long-maturity loans, to be repaid by the beneficiary member states.

SAFE also allows participation of third countries. Acceding countries, candidate countries, potential candidates and countries that have signed a Security and Defence Partnerships with the EU, such as the United Kingdom and Canada, can join common procurements.

Ukraine and EEA-EFTA countries will be treated on the same terms as member states. Not only will they be able to join common procurements, but their industries will also be treated on the same terms as that of the member states. The negotiations with the UK and Canada will aim at defining the terms under which that access can also be extended to UK and Canadian companies and products.

The European Commission may now start negotiations on behalf of the EU, based on the mandate set by the Council. The Commission will conduct those negotiations in continuous coordination and permanent dialogue with the Council.

Once the agreements are signed, they will be subject to consent by the European ParliamenThe European Commission may now start negotiations on behalf of the EU, based on the mandate set by the Council. The Commission will conduct those negotiations in continuous coordination and permanent dialogue with the Council.

Once the agreements are signed, they will be subject to consent by the European Parliament.”

While this good news, it should be noted that Comission did provide some insight into their strategy for the negotiations and, despite opposition to the number, have decided to stick to the French demand for a 50% cap on Canadian and UK involvement.

To recap a bit, France raised the topic to the European Council last week, aiming to put a 50% cap on foreign components. This would be in place despite any agreement, and set an official ceiling for Canadian involvement in joint procurements.

Once again I should note that this isnt a deal breaker, nor does it negate the benefit that being involved in SAFE offers. However this will, in effect, push out pure Canadian solutions from a lot of these projects, and will act as a natural barrier to Canadian industries involvement.

It likely will be fine for most projects we look to be involved in. However certain companies, especially those involved in Aerospace, Space, and technology will be affected by this lower rate.

It was always highly unlikely we would get to the 65% mark, however there is hope and support. I want to remind that this isnt the final numbers, and negotiations will begin shortly between Canada and the EU on this topic.

I also want to make note that I understand why this is being proposed as it is.

If your goal is to build a European Defence Ecosystem than 50% might seem reasonable for a third-party country. This is an EU fund at the end of the day, meant to support EU member states.

So I get it, and I get why they are adamant here. Even if I don't agree and certainly want to see us have the same status as EU member states.

We can now move on to the negotiations phase though, which was set to start this month. We should hopefully here more in the next couple of weeks. There is a firm deadline of November 30th to submit proposals for funding.

Not knowing the potential exemptions in place makes it difficult for member states to submit their proposals, especially those dealing with British companies. So there is very much a sense of rushing involved here to understand where Canadian and British companies, as well as potentially others like South Korea or Turkey stand.

Again, I wanted to give this quick update for those curious. I know its was widely expected, however I thought those of you curious would like to hear the official word.