BRUSSELS and LONDON ― The summer of 2018 could prove decisive for those who want to see the U.K. remain close to Europe’s defense activities once Brexit goes into effect next spring.

Advocates are placing their hopes in upcoming, high-level European Union meetings and emerging policy documents, aiming to inject a measure of certainty into an otherwise confusing policy landscape. Simply put, the goal is to soften the blow of losing important touch points with one of Europe’s most capable militaries.

The EU’s chief negotiator, Michel Barnier, has laid out the general terms of Britain’s impending exit from the EU, saying that the U.K. “will no longer be involved in decision-making, nor in planning our defense and security instruments.”

Beyond that, however, there could be wiggle room in the details of common efforts when it comes to including so-called third states, which the U.K. is poised to become.

One such project is the recently launched European Defence Industrial Development Programme, or EDIDP, meant to advance increased investments in military research and equipment.

With a budget of €500 million (U.S. $583 million) for 2019-2020, it is expected that the program will hand out an initial round of project funding next year. The program is a key part of the European Defence Fund, or EDF, which eventually will grow to €5.5 billion annually.

A post-Brexit U.K., however, will not be liable for EDF funds and will be similarly excluded from the Permanent Structured Cooperation defense and security imitative as well as other EU-financed projects.

But as negotiations continue on exact financing terms, one possible option under consideration for future U.K. participation is a pay-to-play scheme for non-EU states, multiple officials and analysts said.

“We have been clear that we would like to explore a range of models and options for future UK engagement in the European Defence Fund, including building on precedents for third-party participation in the EU’s civilian research programmes,” the British Defence Ministry recently said in written testimony before the parliamentary Defence Committee.

Paul Taylor, a Paris-based defense analyst, has discussed cooperation options with senior officials on the EU negotiating team. The sentiment there, he said, is that it would be possible for the EU to invite companies from nonmember nations to participate in individual research and development projects for highly sought-after capabilities unavailable elsewhere.

Taylor, who has compiled a report on the issue to be published June 26 by the Brussels-based think tank Friends of Europe, said such a mechanism would not amount to an automatic right for the U.K. to solicit contracts.

But it would give London an avenue to lobby the EU for an invitation into certain projects, with Brussels making the final call. If granted access, the U.K. would pay its own share, whereas other members would get funding from a common pot.

“Obviously the U.K. would prefer something better that gives its companies the right to tender for all EDF projects in exchange for a U.K. contribution to the EDF budget,” Taylor said.

“But it was made clear to me that this won’t fly in Brussels and is exactly the kind of ‘cherry-picking’ ― seeking selective benefits of membership where it suits British interests ― which the [European] Commission and the EU27 won’t countenance,” he said, referring to the remaining 27 EU members post Brexit.

The proposed regulation governing the EDF is currently stalled between the European Parliament and the European Council. The Commission’s latest draft offers only a tiny loophole for possible third-state involvement as a subcontractor. But Taylor said there is “massive” lobbying going on, not only by U.K. companies but especially by U.S. firms ― notably Lockheed Martin and Raytheon ― to get the loophole widened.

Charles Tannock, a senior U.K. Conservative member of the European Parliament, said accessing the emerging defense-funding streams is something London is “clearly interested in and is prepared to contribute to proportionately.”

He warned, however, that the EU could fear setting an unwanted precedent.

“The problem is other countries might say: ‘We’re ready to pay to play,‘ ” Tannock said. “But the EU then may feel it loses coherence. If the U.K. can pay to play, why not the U.S., Japan, India ― whoever?”

A European Council spokesman said no final decisions on U.K. participation in EU-funded programs will be taken until the end of this year. But the issue is likely to come up for discussion at the Foreign Affairs Council in Luxembourg and the EU leaders’ summit in Brussels, both at the end of June.

The bigger picture

Meanwhile, any arrangement for future EU-U.K. defense cooperation will depend on the broader Brexit terms, analysts cautioned.

“I believe the prime minister and the government has to give ground on issues like the customs union and the Irish border in order for the European Union to be able to reciprocate in other areas like defense, security and the Galileo space program,” said Paul Everitt, chief of the British defense industry group ADS.

With Europe’s largest military budget, and an industrial base to match, Britain has attracted significant defense investment in the past two decades or so, much of it from U.S. companies like Lockheed Martin and Raytheon.

That investment may fade if companies are unable gain access to Europe through the U.K., Everitt warned.

“The challenge the U.K. faces if we can’t participate in the key European programs, the research and technology projects, and potential joint procurement, then companies will choose to invest where they can do so. The U.K. will always have a strong domestic customer, and they will want a strong industrial base, but it will become harder and harder to sustain some of the higher-end capabilities if we can’t see Europe as being part of the market,” he said.

On the other hand, what major European joint defense projects are there anyway in which the U.K. should be interested?

That’s the question Jon Louth, director for defence, industries and society at the Royal United Services Institute think tank in London, asked. He noted that Britain appears to be excluded from one such effort: a nascent Franco-German plan to build a next-generation combat aircraft.

“We should be open to ongoing cooperation, but I think that’s more significant for the border and security partnership than large defense programs,” Louth said. “It’s hard to point to one or two defense programs that we would all hang our hats on in the traditional domains.”

A new roadblock

Finding a deal that suits both sides may have become even more difficult in recent weeks, as relations between Brussels and London have soured over the EU refusal to give the British access to military-grade data from the Galileo navigational satellite system once Brexit kicks in.

The British have invested more than £1 billion (U.S. $1.3 billion) in the new European satellite network Galileo and supplied much of the ultra-sensitive encryption technology, but have been excluded from further contracts on the system and have been threatened with being blocked from data required to target missiles and other applications.

That has gone down poorly in London, where the government has threatened to build its own satellite system and sue the EU for a reimbursement on the Galileo project.

Ivan Rogers, a former U.K. ambassador to the EU who was closely involved in the creation of Galileo, predicts that the same types of issues that have recently cropped up over the space program will “reappear in multiple other areas.”

“The toxicity of the exchanges in recent weeks and the mutual accusations of bad faith conceal an obvious truth: The U.K. genuinely wants to remain a major player in the project, with privileged ongoing access from outside the EU, and views its capabilities and contribution to date as giving it the right to that ticket. For the EU, the decision to leave inevitably entails relegation to a different role and status in the project, and, let’s be candid, offers scope for EU located firms to take contractual business away from U.K. ones,” Rogers said.

Martin Banks covered the European Union, NATO and affairs in Belgium for Defense News.

Sebastian Sprenger is associate editor for Europe at Defense News, reporting on the state of the defense market in the region, and on U.S.-Europe cooperation and multi-national investments in defense and global security. Previously he served as managing editor for Defense News.

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