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Finland and Sweden secure key arms procurement under EU security exemption

The Finnish Defence Forces Logistics Command has finalized a framework agreement with the Swedish Defence Materiel Agency and Finnish arms manufacturer Sako Oy. This agreement – critical for the enhancement of both nations’ military capabilities – bypasses conventional public procurement procedures, invoking Article 346(1)(b) of the Treaty on the Functioning of the European Union (TFEU).

German gun maker Heckler & Koch filed a complaint with the Finnish Market Court over Finland’s direct arms purchase made jointly with Sweden. On 17^th of May 2024 the ruling of the Market Court of Finland was published. The Market Court upheld the legality of the procurement under Article 346(1)(b) TFEU, which allows member states to derogate from standard EU procurement rules to protect their essential security interests, particularly in defense-related contracts. The agreement has a ten-year duration with potential extensions up to 2053, underlining the strategic importance.

The ruling of the Finnish Market Court confirms that the Finnish Defence Forces Logistics Command acted within the legal framework, prioritizing national security over competitive tendering processes. Highlights are summarized below:

• The Market Court emphasized that the products in question are intended for military use, falling under the types of equipment listed in the Council’s 1958 list, referred to in Article 346(2) TFEU.
• The Market Court recognized that the procurement decision was influenced by the pressing need to ensure uninterrupted supply and maintenance of vital military equipment, particularly in light of the heightened security concerns following Russia’s invasion of Ukraine.
• The Market Court’s ruling underlines the broad discretion member states possess in defining their security interests and the measures necessary to safeguard them.
• The Market Court further noted that the Finnish Defence Forces demonstrated that Sako Oy is the only domestic manufacturer with the necessary capacity and capabilities.
• This procurement decision aligns with government reports on the security environment, which stress the importance of sufficient defence industrial capacity, i.e. domestic production capability.

Norway, as a member of the EEA, operates under a similar yet distinct set of rules. Article 123 of the EEA Agreement allows for exemptions from public procurement rules on the grounds of essential national security interests. This provision mirrors the EU’s Article 346 TFEU, enabling Norway to prioritize its security needs over competitive tendering in specific scenarios. The question is whether Norway should adopt a more flexible approach under article 123 of the EEA agreement? The Finnish case could serve as a catalyst for Norway to adopt a more proactive stance in securing its defense needs through fully utilize the exemptions provided for under article 123. While competitive tendering ensures transparency and cost-effectiveness, national security considerations could take precedence when needed.

Simonsen Vogt Wiig has extensive experience with the complexities of the Norwegian defense procurement market and offer comprehensive legal support to both national and international suppliers.

Sources: MAO:284/2024 – Market Court (markkinaoikeus.fi), translations by g/Google and ChatGPT.

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