8 Aug, 2012

European Plan to Get Bigger Piece of €100 Billion Global Security Industry Cake

Imtiaz Muqbil

Brussels  – The European Commission has adopted an Action Plan to boost the “competitiveness” of the EU Security Industry against that of the U.S. and help it expand market share, especially in emerging economies.

According to an European Commission press release on July 30, over the last ten years the global security market has grown nearly tenfold from some €10 billion to a market size of some €100 billion in 2011, with an annual turnover of around €30 billion in the EU. The EU security market has an estimated market value of between €26 billion and €36.5 billion with around 180,000 employees.

In the light of recent natural disasters, terrorist attacks and the need to be better prepared for crisis situations, the proposed action programme is designed to “empower this industry – one of the sectors with the highest potential for growth and employment in the EU – to stay in Europe and to continue producing high quality security products.”

According to the European Commission media release, “As recent market evolutions indicate, the global market shares of European companies could drop significantly over the next years if no action is taken to enhance their competitiveness. In the US, thanks to the benefits of a harmonised legal framework and a robust internal market, security companies remain the market leaders and technological front runners.”

EC Vice President Antonio Tajani, responsible for enterprise and entrepreneurship, was quoted as saying: “The current fragmented market weakens the competitiveness of Europe’s security industry. This lack of an “EU brand” is especially critical as the future key markets for security technologies will not be in Europe but in emerging countries. Today we have agreed a blueprint for the creation of a true internal market for security technologies. This is essential to strengthen the position of our security industry, so that it can contribute to growth and jobs.”

According to the EC, “European companies are still among the world leaders in the majority of the security sector’s market segments. Favourable internal market conditions are essential to keep and expand their technological advantage, as is strengthening the EU security industry’s position in emerging international markets. A special emphasis should be given to support SMEs in their efforts to access international markets in third countries.”

The security industry can broadly be divided into aviation, maritime, border security, critical infrastructure protection, counter-terror intelligence (including cyber security and communication), physical security protection; crisis management and protective clothing. However, the release noted that security market has three distinctive features:

(+) It is highly fragmented and divided along national or even regional boundaries. Security, as one of the most sensitive policy fields, is one of the areas where Member States are hesitant to give up their national prerogatives.

(+) For the most part buyers in the security market are public authorities.

(+) It has a strong societal dimension. Security measures and technologies can have an impact on fundamental rights and often provoke fears e.g. of a possible undermining of privacy.

It said the action plan will yield the following expected benefit:

(+) The creation of harmonised standards and certification procedures for certain security technologies should significantly reduce development and marketing costs, thus enhancing the competitiveness of the EU security industry. It is conservatively estimated that for alarm systems and airport security equipment, harmonised standards would allow savings of up to €29 million per year in terms of testing and certification costs. These measures should also improve the value for money ratio of public and private security spending.

(+) The introduction of Pre-Commercial Procurement (PCP) should radically reduce the gap between research and market, raising the competitiveness of the EU security industry and increasing the end user involvement in the production of novel technologies. A tentative assumption of a 1% increase in the annual growth rate due to R&D support through a PCP scheme would lead to extra sales of €2 billion by 2020.

(+) The better exploitation of civilian-military synergies should reduce the risk of funding duplication and increase the overall efficiency of research efforts. For software defined radio alone it is estimated that hybrid standards could lead to an overall sales increase of €1 billion until 2020.

Details of the strategy were outlined as follows:

1. Overcoming market fragmentation

Standardisation: Divergent national standards pose an obstacle for the creation of a true internal market for security. For this reason, the Commission will ask the European Standardisation Organisations (CEN, CENELEC and ETSI) to establish concrete and detailed standardisation roadmaps. These roadmaps should focus on the next generation of tools and technologies.

Conformity Assessment Procedures: There are currently no EU-wide certification systems for security technologies. Following an impact assessment analysis and consultation of stakeholders, the Commission propose two pieces of legislation: one to establish an EU-wide harmonised certification system for airport screening equipment; and another to establish an EU harmonised certification system for alarm systems. The objective is to achieve mutual recognition of certification systems.

Exploiting Synergies Between Security And Defence Technologies: Emphasis should be given to a better exploitation of synergies between the two technology areas. The Commission intends to issue, in close cooperation with the European Defence Agency, ‘hybrid standards’ standardisation mandates to the European standardisation organisations. A first mandate will soon be issued for software defined radio.

2. Reducing the gap from research to market

Aligning funding programmes, exploiting Intellectual Property Rights (IPR) routes: To reduce the existing gap between research and market, the Commission proposes to use the new IPR rules provided in Horizon 2020. Border security and aviation security are the most promising areas.

Pre-commercial procurement (PCP): PCP should enable public users to play a more central role in the innovation cycle, through the purchase of novel technologies. The Commission intends to devote a significant part of the security research budget to this instrument and encourages Member States to launch similar initiatives at national level, in compliance with relevant EU public procurement law.

Third Party Liability Limitation (TPLL): To ensure that the threat of liability does not deter development of the security industry, the Commission has launched a tender for a major study analysing the legal and economic implications of third party liability limitation. The study will also look into possible alternatives to TPLL, such as those introduced through the US Safety Act; for example a voluntary industry fund, a Commission recommendation, etc.

3. Better integration of the societal dimension

Societal impact “checking” during the R&D phase: The Commission considers that any impact on societal and fundamental rights should already be taken into account through engagement with civil society before and during the R&D phase. The Commission will involve citizens and make societal impact testing obligatory.

Privacy by design and privacy by default during the design phase: Due to the difficulty in translating societal considerations into technological requirements, and the different issues related to security among Member States, the Commission will introduce the concept of “privacy by design” and “privacy by default”. The Commission will issue a mandate to the European Standardisation Organisations to develop a standard modelled on existing quality management schemes, and also incorporating the management of privacy issues in the design phase.

A major study will analyse the legal and economic implications of third party liability limitation. A dedicated expert group set up by the Commission will meet at least once per year to monitor the announced policy measures and bring together all relevant actors in the security field.