French arms companies lose out as Hungary proposes rules for defense contractors to get EU funds

Defense projects will need to source almost two-thirds of their components from the EU to get cash under a program to spur the bloc’s own arms industry, according to a proposal by the Hungarian Council presidency seen by POLITICO.
They’ll also have to meet extra criteria to ensure the design of the weapons is European.
That’s a disappointment to some French arms companies, which had hoped for even more stringent restrictions, but the policy is driven in part by the bloc’s wariness at annoying incoming U.S. President Donald Trump.
The proposal, dated Nov. 24, is part of the Council’s response to the European Commission’s March proposal for the European Defence Industry Programme (EDIP), a €1.5 billion pot of money to encourage European defense production and joint buying in response to Russia’s 2022 invasion of Ukraine.
Member countries like France have long sought “strategic autonomy”; the U.S. currently supplies about 55 percent of European arms purchases, according to the Stockholm International Peace Research Institute.
The Hungarian presidency proposal suggested that to get EU cash, “the cost of components originating in the Union or associated countries shall not be lower than 65 percent of the estimated value of the end product.”
The proposal is in line with what most of Europe’s defense contractors — the likes of MBDA, Saab and Airbus — have advocated. However, as previously reported by POLITICO, French companies including Dassault, Thales and Naval Group wanted the eligibility criteria to include a minimum of 80 percent of EU components.
Despite that, the French government backs Hungary’s proposal, according to a Financial Times report confirmed by POLITICO.
In its proposal, Budapest also suggested adding new criteria, which are key because they define what kind of projects and companies can benefit from EU money.
Goods and services from countries outside the EU can be eligible for EDIP money on two conditions.
The first is related to a push to use EU components as much as possible. If companies “commit to studying the feasibility of replacing the components that cause the restriction” and actively look for alternative EU components, then they qualify.
The second focuses on so-called authority of design — meaning how much control EU entities have over foreign products. Companies must “have the ability to decide, without restrictions … on the definition, adaptation and evolution of the product’s design.”
That concept was pushed for more than a year by European missile-maker MBDA.
The rules make it difficult for European companies making U.S. weapons in the EU, like Patriot air defense systems, or plans by South Korea’s Hanwha Aerospace to produce armored vehicles in Romania, to qualify for the funds.
EU ambassadors are slated to provide “political guidance” on the issue on Wednesday.
The Hungarian presidency is racing to get at least the eligibility criteria approved before Poland takes over the rotating Council presidency in January.
France is worried that Warsaw, which has historically close ties with Washington and buys many weapons from the U.S. and South Korea, would be even more liberal in proposing EDIP criteria, diplomats say.
The European Parliament is expected to agree its position on EDIP in April or May; the cash can only be disbursed once both the Council and the Parliament agree, which is unlikely before late next year.