Industrial participation boosts Finnish-based development work and security of supply

The main aim of industrial participation is to ensure the maintenance of the defence systems purchased from other countries and to promote the full-scale involvement of the Finnish defence industry in the manufacturing of the parts, assembly and testing of the products to be purchased.

The types of business eligible for industrial participation are listed in the Rules on Industrial Participation, in which the business transactions are classified in order of importance as follows:

  1. Cooperation concerning the products to be purchased as part of which the defence industry will be provided with the know-how essential for maintenance and development work
  2. Foreign orders placed at the Finnish defence industry and the transfer of unrelated defence technology to Finland
  3. Promoting the internationalisation and exports of the Finnish small and medium-sized industry
  4. Transfer of new technology to Finnish companies or other extensive cooperation between Finnish and foreign firms
  5. New exports of high-technology products and other international projects important to Finnish industry (these require the approval of the Finnish Committee on Industrial Participation).

A transaction can be deemed to qualify for industrial participation if

  • it belongs to a priority area referred to in the Rules on Industrial Participation
  • the contractor significantly contributes to the generation of business
  • the transaction significantly boosts Finland’s economic interests
  • the transaction is at least at the same technological level as the defence materiel being purchased, and
  • the contractor significantly contributes to the generation of business.

Traditional exports, continuation of established business relationships or transactions with an offset-value of less than EUR 10,000 are not eligible for offset arrangements.

Industrial participation in a changing operating environment

Industrial participation in Europe is in a state of flux. The Defence and Security Contracts Directive (2009/81/EC) is part of a larger process in which the European defence equipment market is being opened to competition.

As a rule, large purchases of foreign defence materiel by the Finnish Defence Forces have no longer involved the obligation of industrial participation after the entry into force of the above-mentioned directive and the Act on Public Defence and Security Contracts (1531/2011).

As a rule, the Member States must put defence and security equipment purchases out to tender, as laid down in the above-mentioned EU directive. Deviations from this principle are only allowed under the exceptions defined in Article 346 of the Treaty on the Functioning of the European Union (TFEU). Thus, Finland, too, has the right to conclude defence contracts that are essential for national security without complying with the provisions of the directive and to follow national contract award procedures. For this reason, the industrial participation obligation may still be set as a precondition in such exceptional situations.

However, the necessity for and the extent of this obligation must always be assessed in advance and on a case-by-case basis by the procurement authorities and the conditions laid down in Article 346 of the Treaty on the Functioning of the European Union must be met.

Agreements on industrial participation in defence contracts are administered by the Ministry of Economic Affairs and Employment

The Ministry of Economic Affairs and Employment and the Finnish Committee on Industrial Participation operating under the ministry are responsible for administering the practical aspects of industrial participation with foreign defence materiel manufacturers. However, the Ministry of Defence acts as the contracting party in industrial participation agreements associated with a purchasing contract.

The committee is chaired by Markku Ihantola, M.Sc. (Aeronautical Engineering). Practical arrangements for the committee meetings and the preparation of matters relevant to the industrial participation administration are handled by the committee’s secretariat in the Ministry of Economic Affairs and Employment. The members of the committee, which meets about six times each year, represent the Ministry of Defence, the Ministry for Foreign Affairs and the Ministry of Economic Affairs and Employment.

Contact information:
Finnish Committee on Industrial Participation
Ministry of Economic Affairs and Employment
P.O. BOX 32, FI-00023 GOVERNMENT
fcip(at)tem.fi

Further information:

Marjaana Aarnikka, marjaana.aarnikka(at)tem.fi
Henri Backman, henri.backman(at)tem.fi