On December 14, 2023, the U.S. Congress passed the National Defense Authorization Act for FY 2024 (NDAA), authorizing $886 billion in defense spending. Amid its numerous provisions, there is the concept of the “national technology and industrial base,” which now includes the United States, Canada, the United Kingdom, Australia, and New Zealand and could potentially serve as the basis for wider industrial cooperation with European and other global partners. This could provide useful synergies with ongoing efforts in Europe to galvanize defense production and help ensure an enduring competitive edge for the wider West over potential adversaries—within NATO and with global partners.
The Global “National Technology and Industrial Base”
The national technology and industrial base (NTIB) is defined in U.S. law as “the persons and organizations that are engaged in research, development, production, integration, services, or information technology activities” in national security and dual-use areas. First established in 1994, NTIB initially included only Canada in addition to the United States. In 2016, however, United Kingdom and Australia were added, followed by New Zealand in 2022. NTIB entities may receive preference for certain limited procurement actions and may be exempted from certain foreign ownership or control/influence requirements.
The logic behind this initial expansion was to foster industrial defense cooperation among the Five Eyes allies, which already had provisions for intelligence sharing potentially required for sophisticated military projects. And the expected benefits were to leverage economies of scale, promote innovation, and increase interoperability.
Given Russia’s large-scale war of aggression against Ukraine and the longer-term challenge from China, the NTIB could be expanded further to ensure that the wider West is able to produce the military materiel required to deter and confront any security challenges. The United States and its NATO Allies have already faced stockpile constraints in providing weapons supply to Ukraine to continue waging its defense. Now, the 2024 NDAA has added Israel and Taiwan to a program started to expedite delivery and replenishment of munitions to Ukraine, which will put further pressure on existing production. The NTIB could also serve as the fulcrum to leverage European defense initiatives in light of Russia’s war of aggression.
European Defense Initiatives
The European defense landscape has long been characterized by severe under-investment and fragmentation among Member States, with less than one-fifth of investments in defense programs conducted in cooperation. In 2009, the European Union expressed its willingness to facilitate joint procurement with the adoption of procurement rules for munitions, arms, and war material in the Defense Procurement Directive. However, implementation was lacking, and most procurement contracts were still awarded without an EU-wide tender.
In recent years, the EU pooled together more resources for common procurement and joint research and development. Moving certain responsibilities held by the Directorate-General for the Internal Market (DG GROW) to a newly established Directorate-General for Defense Industry and Space (DG DEFIS) in January 2021, indicated the EU’s ambition to focus on defense. The European Peace Facility—an off-budget fund adopted in March 2021 and recently updated to €12 billion—has allowed the procurement of military material and large-scale financing of weapons supplies to Ukraine. The European Defense Fund Regulation, adopted in May 2021, further incentivizes joint research and development of defense equipment, notably through pre-commercial procurement.
The invasion of Ukraine radically altered the political willingness in EU capitals to create an internal market for defense products. In April 2023, the U.S. Department of Defense signed an administrative arrangement with the European Defense Agency to provide for stronger transatlantic cooperation in defense, including in the exchange of information. As a direct response to Ukraine’s request for assistance with the supply of 155 mm-caliber artillery rounds, the EU adopted the Act in Support of Ammunition Production (ASAP), in July 2023. Most recently, in October 2023, the EU adopted the European Defense Industry Reinforcement through Common Procurement Act (EDIRPA), with a dedicated €500 million instrument and rules for Member States to procure defense products jointly.
European defense investment and capabilities are now a recurrent topic in the EU political spheres. The question is whether the EU will be able to strengthen, and even to go beyond, common resources for research and joint procurement. In the months preceding the European elections, while the priorities of the next Commission are being discussed, debates include making a “defense department” from the European Defense Agency, or calls for the appointment of an EU Defense Commissioner. Interestingly, the Commission is expected to present two new communications in February 2024: the European Defense Industrial Strategy and the European Defense Investment Program. Both documents will provide valuable insights on the future direction that EU defense might take. Ongoing cooperation will also continue within NATO, which recently launched the Defence Innovation Accelerator for the North Atlantic (DIANA) fund to promote cutting-edge technology and further interoperability of capabilities across the Alliance.
Implications and Next Steps
As the current NDAA is signed into law, deliberations and negotiations on the next NDAA will begin in the new year, providing opportunity for engagement on whether and how the NTIB could be further expanded, for instance, to include Poland, Germany, South Korea, and other key allies responding to Russia’s aggression. An expanded NTIB could serve as a further building block for deeper defense industrial cooperation, alongside NATO initiatives, U.S.-EU channels, and bilateral U.S. programs with specific partners.
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The team at Covington is well placed to advise you on these policy developments, and how to engage with the relevant decision-makers in these areas.