COLOGNE, Germany — Time is ticking for Germany to find a compromise on letting American, British and other non-European Union countries tap into the bloc’s emerging defense cooperation scheme.

The government of Chancellor Angela Merkel has taken on the task of sorting out the issue by the end of the year, when Germany’s six-month term at the helm of the European Council concludes.

“It is an important issue to solve, particularly for close NATO partners,” Karl-Heinz Kamp, special envoy of the political director at the German Ministry of Defence, said during a panel discussion at the annual Defense News Conference this month.

The challenge is to find common ground between two camps within the EU: member states seeking ties with outsiders, and those countries who prefer treating the nascent defense agenda as a members-only affair.

Poland, Sweden and the Netherlands are leading a group of nations advocating for openness. But France, for example, is pursuing a more restrictive stance, especially toward Turkey and the United States.

From the beginning, the Trump administration has eyed the EU’s creation of a defense cooperation mechanism, dubbed PESCO, and the proposed multibillion-dollar European Defence Fund with a degree of mistrust. The efforts run the risk of undermining NATO if America and its powerful defense companies are kept out, Washington claims.

The tone has softened more recently, however, as officials on both sides of the Atlantic try to broker a compromise.

“One of the things that COVID-19 has really brought into sharp focus is the significance of our integrated defense industrial base,” said Gregory Kausner, executive director for international cooperation, who works in the Pentagon for acquisition chief Ellen Lord.

“What we want vis-a-vis PESCO and EDF — and what we believe, more importantly — is in the interest of the alliance, is free and fair access and the ability to compete and to offer our respective war fighters the best capability, the best technology,” Kausner said.

At NATO headquarters in Brussels, leaders are striking a similar chord.

“We welcome the EU’s effort to invest in defense, and I think altogether this is a good-news story. In a way, the more money put into defense, including by EU institutions, the better,” said Camille Grand, the alliance’s assistant secretary general for defense investment.

“Then there is a second point: that it is important those projects are allowed as full as possible [the] involvement of non-EU allies. Because the reality is indeed that those non-EU allies have strong connections with the European defense market, with the European defense industry,” Grand added.

German officials have been optimistic about reaching a compromise since they took on the third-country challenge this summer. That is because their proposal piggybacks on a paper by the previous, Finnish-run presidency that was only narrowly rejected last year. A few modifications would be enough to clinch a deal.

According to a German MoD spokesman, officials aim to present a workable solution to defense ministers at an EU foreign affairs council meeting slated for Nov. 20.

Poisoned politics

The current political context hasn’t exactly been helpful for forging a deal.

For one, there is the frosty climate between Germany and United States that stems from President Donald Trump’s testy relationship with the country, and his assertion that the EU is taking advantage of American taxpayers on trade and defense. That rift makes the proposition of importing the powerful American defense industrial base into the bloc’s defense cooperation calculus an uphill battle, especially in the European Parliament, a Brussels-based analyst argued.

And Turkey, which is part of NATO but not the EU, is creating the perfect case study against allowing nonmembers into the inner workings of European defense cooperation because of its dispute with Greece and Cyprus over gas reserves in the eastern Mediterranean Sea.

U.S. President Donald Trump, right, meets with German Chancellor Angela Merkel on Dec. 4, 2019, during the NATO summit at The Grove in Watford, England. (Evan Vucci/AP)
U.S. President Donald Trump, right, meets with German Chancellor Angela Merkel on Dec. 4, 2019, during the NATO summit at The Grove in Watford, England. (Evan Vucci/AP)

“The German government is fairly optimistic that we will be able to find a compromise. The problem is that currently neither the Turkish policy nor the U.S. policy terribly helps to find such a consensus,” Kamp said.

“We have a severe problem in NATO with its internal cohesion because some allies have issues with other allies,” he added. “We have a Turkish-French dispute in the Mediterranean and we have a Greek-Turkish dispute. Turkey is not always behaving in — let me say — in the way of an ideal NATO ally, and that just makes things a little bit more difficult.”

At the same time, the flareup has yet to touch the ongoing third-party access negotiations, according to officials and analysts.

“Concerns over dependencies, intellectual property and security predate the standoff between Greece and Turkey," said Yvonni-Stefania Efstathiou, a Greece-based defense analyst.

Meanwhile, Pentagon officials have begun diving into a set of case studies designed to help them think through the nitty-gritty involved in setting up future cooperative programs under an EU umbrella, according to Kausner. “Those case studies illuminate the potential challenges on things such as intellectual property and re-transfer that we feel are still problematic,” the Defense Department official said.

Seven studies

U.S. Defense Department officials are trying to understand the potential impact on the government and defense contractors should American businesses get to participate in European Union defense cooperation programs involving the European Defence Fund, or EDF. The results from seven case studies will eventually culminate in a formal U.S. response to the European Commission, as officials there finalize language on access requirements for non-EU countries, according to a Pentagon spokeswoman.

    These are their premises: How can ...

    ... a U.S. subsidiary in the EU participate in an EDF project?

    ... a U.S. entity outside the EU participate in an EDF project?

    ... non-EU end items (finished components) be integrated into an EDF project?

    ... information and technology from a non-EDF project be used in an EDF project?

    ... an EDF project be integrated as a subset of a larger multinational effort?

    ... items from completed EDF projects be used with non-EU entities?

    ... EDF consortia members use U.S. commercial items and license exemption?

Another avenue to glean lessons for a wider EU application lies in the so-called European Defence Industrial Development Programme, or EDIDP, which aims to boost the bloc’s defense industry cooperation through all manners of military technology. In June, the European Commission announced 16 projects eligible for funding from a two-year, €500 million (U.S. $593 million) pot.

The selection includes “four participants controlled by entities from Canada, Japan and the United States,” the commission statement read. In theory, those projects “demonstrate the possibility to involve EU-based subsidiaries controlled by third countries or third country entities provided they fulfill appropriate security-based guarantees approved by Member States,” the statement noted.

The commission has yet to say which participants hail from North America and Japan, and what roles they play, which suggests their integration into the project structure remains unfinished.

As officials continue to sort out the details on intellectual property rights, liabilities and consortium structures, for example, a few principles are beginning to take shape. For one, the four non-EU countries in the European Free Trade Association — Iceland, Liechtenstein, Norway and Switzerland — stand to get rights to partake in EU defense projects similar to member states.

In addition, officials consider it easier to include British or American companies in projects when they are removed from immediate funding through the European Defence Fund. While European companies have their eyes on possible subsidies from the fund whenever they enter into PESCO agreements, there may not be an automatic funding eligibility for outside participants.