The Netherlands government’s working on a law that will step-up the the role of government in defence mergers, acquisitions and investments, as well as enable the Ministry of Defence (MoD), to give directions to defence companies and provide a legal basis to steer the defence industry on strategic stocks, supplies chains, and production capacity.
The bill also intends to give the government the power to issue eligibility certificates to Dutch companies that seek to pursue assignments abroad, “screening for unwanted interference from other countries in their management structure,” according to a release from the Dutch MoD on 1 July.
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Netherlands new right-wing government was installed on 2 July 2024, formed of a coalition conservative parties, principally the Dutch anti-Islam populist Freedom Party led by Geert Wilders. The coalition was made possible after Wilders agreed to give up his bid to be Prime Minister, and installed to the premiership Dick Schoof, a senior official at the Ministry of Justice that had led the Dutch intelligence Agency AIVD.
The bill, which is part of an action plan for scaling up production and supply of military equipment, will be open to consultation from 1 July until 1 September 2024, and consists of three parts: a declaration of suitability, a sectoral investment test, and the introduction of new powers for market organisation.
Declaration of suitability for Dutch companies
While the language on deterring unwanted interference from other countries in the management structure of dutch defence companies may be dismissed by some as nativist pandering, the declaration of suitability, a requirement to achieve an eligibility certificate for work abroad, has some standing, according to GlobalData Defence analyst Fox Walker.
“I expect this has come up in great part due to the ongoing strategic competition with China and Russia,” said Walker. “This type of legislation ought to help prevent China from gaining access to critical emerging technologies and reduce Russia’s ability to evade the sanctions placed on it for Putin’s illegal invasion of Ukraine.”
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By GlobalData“I’m not too surprised to see this sort of legislation come up, and I would not be surprised to see cross-party support for this bill,” continued Walker.
The MoD release does not detail if there will be carve-outs in the legislation for working with other Nato Allies.
Questions remain to be answered about the impact this will have on ASML, the Dutch company that is the hinge on the world’s supply of semiconducting microprocessors.
Defence market planning in Netherlands follows international template
The sectoral investment test will prevent mergers, acquisitions and investments that would lead to risks for the deployment of armed forces. While the defence industry is unlikely to appreciate additional regulation in this arena, it is unarguable that the consolidation of defence production chains has led to a brittle infrastructure in the past, inflexible to industrial disruption, such as the Suez Canal obstruction of 2021, or the impositions of international sanctions against Russia following the full-scale invasion of Ukraine.
The final element of the bill will give the MoD and the Ministry of Economic Affairs and Climate (EZK) powers to give directions to companies, including the production and maintenance of equipment and cooperation with ‘knowledge institutions’ according to the release from the MoD. The bill will also allow a level of market planning that the MoD claims fits into European Union developments, and includes some language from the EU.
In putting in place market planning legislation, Netherlands is not alone in Europe or among Nato Allies, following in line with Canada, Finland, France and the US. The US Defense Production Act is a leading example of such planning, and has been supported by Executive Orders from President Biden and the Federal Trade Commission (FTC) Chair Lina Khan.
