NATO’s role in defence industry production

 

 

• Boosting investment in defence production
• NATO Industrial Capacity Expansion Pledge
• Defence Production Action Plan
• Maintaining NATO’s technological edge
• Main coordination mechanisms 
   

Boosting investment in defence production

Throughout NATO’s history, Allies have invested in defence production to ensure that they have the capabilities they need for deterrence and defence, with spending and production levels rising or falling according to changes in the broader security environment. For example, when the Cold War ended, most military budgets fell. After the 9/11 attacks, Allies invested in capabilities focused on domestic counter-terrorism measures and out-of-area operations in the Middle East. And following Russia’s illegal annexation of Crimea in 2014, Allies raised their investment in territorial deterrence and defence capabilities, to address the increased threat from the east.

Since Russia’s full-scale invasion of Ukraine in February 2022, NATO Allies have further stepped up investments in defence production – both to increase their own capabilities for deterrence and defence, and to replenish the stockpiles that have been depleted by their support to Ukraine. Over the past year in particular, Allies have made significant progress in boosting industrial capacity and ramping up production, including by:

• adopting or updating their national defence strategies and passing the necessary legislation to improve defence industrial cooperation and government-to-industry relationships;
• reviewing national defence procurement processes to identify how and where to compress timelines for acquisition and support more collaboration with Allies;
• making targeted investments in industrial defence production, focusing on reactivating or opening new production lines for ammunition and explosives;
• placing major, long-term contracts to bolster their defence capabilities, with significant investments in capabilities such as multi-role fighter aircraft, helicopters, uncrewed aerial systems, main battle tanks, infantry fighting vehicles, battle-decisive munitions, and air and missile defence systems; and
• participating in joint procurement and capability development initiatives, including bilateral defence cooperation agreements.

In the same timeframe – from the 2023 Vilnius Summit to the 2024 Washington Summit – the NATO Support and Procurement Agency has assisted Allies in the delivery of over EUR 1 billion of battle-decisive munitions, including 155mm munitions, 120mm mortar munitions and surface-based air and missile defence missiles.

 

NATO Industrial Capacity Expansion Pledge

To build on this momentum, Allied Leaders agreed a new NATO Industrial Capacity Expansion Pledge at the 2024 Washington Summit. This Pledge will strengthen transatlantic defence industrial cooperation and help Allies restock their arsenals while continuing to send military aid to Ukraine. Under the Pledge, Allies have committed to:

• strengthening the defence industry across the Alliance, including by reducing trade and investment barriers among Allies, and by providing clear demand signals to industry through firm orders and contracts;
• taking a more systemic approach to defence industrial development, where each Ally develops and shares national plans and strategies to enhance its industrial capabilities, so that all Allies can incorporate collective lessons learned and best practices;
• delivering critical capabilities urgently, so that the Alliance has what it needs to execute its defence plans and continue supporting Ukraine;
• increasing large-scale multinational procurement of defence capabilities, which simplifies orders for industry by guaranteeing high levels of demand from multiple Allies and clarifying common requirements across different armed forces; 
• accelerating the adoption of new technologies that strengthen Allied deterrence and defence;
• enhancing cooperation with Ukraine and other partners, including the European Union and partners in the Indo-Pacific region;
• reinforcing NATO standards in the production of defence materiel, ensuring that NATO systems and equipment are interoperable, and NATO munitions are interchangeable; and
• protecting critical supply chains – for example, microchips that are vital to the development of modern military equipment – and making them more resilient in the face of external threats.

In support of this last point, NATO Defence Ministers have already endorsed a Defence-Critical Supply Chain Security Roadmap. The roadmap outlines specific opportunities for cooperation to protect Allies’ supply chains from any possible disruption that could impact NATO’s deterrence and defence.

Allies will meet regularly to review progress on these objectives and agree necessary measures to strengthen implementation in all of these areas.

 

Defence Production Action Plan

Agreed at the 2023 Vilnius Summit, the Defence Production Action Plan sets out a number of specific actions and projects that enable the Alliance to bolster engagement with the defence industry. The Plan consists of three major themes: aggregating demand, addressing defence industrial challenges and increasing interoperability. The Plan’s output takes into account developments and ongoing efforts in other international organisations, particularly the European Union.

Aggregating demand

Aggregating demand means combining large numbers of equipment orders from NATO Allies and harmonising specific requirements. This can provide industry with clear and predictable requirements, which helps the market understand exactly what Allies need and encourages industry to invest in long-term production capacity. The Plan is facilitating aggregation of demand, including multi-year procurement contracts; helping to identify more agile procurement and funding mechanisms; and providing increased insight and clarity for industry on stockpile and production requirements.

The Plan is stimulating greater usage of both existing NATO frameworks for aggregating demand, as well as the creation of new flexible mechanisms to address critical needs. Aggregating demand through multinational cooperation, including by making use of NATO’s High Visibility Projects, can help drive greater interoperability of key systems and interchangeability of munitions.

Outside of these NATO frameworks, Allies are pursuing a wide range of joint procurement, production and capability development initiatives in the following areas:

• air defence systems
• ammunition, mortar munitions and explosives
• artillery systems, propellants, rockets and missiles
• armoured vehicles and tanks
• anti-tank weapons and drones
• ground and air combat systems
• maritime and under water capabilities
• cyber defence
• research and development
• industrial and military cooperation

Addressing defence industrial challenges

The Plan highlights the need for sufficient and sustainable defence industrial capacity. As more orders have been placed by Allies, delivery times for certain munition types have lengthened. NATO is working to establish a set of metrics that build a better understanding of defence industry supply chain issues and overall capacity.

To that end, Allies have established the Defence Industrial Production Board to better coordinate their efforts. The Board’s three working groups focus on: understanding overall industrial capacity, supply chains, and interoperability and industrial planning-related issues.

The Action Plan also underlines the need to strengthen mechanisms for engaging with industry and ensuring their perspective is fully taken into account.

Since the Action Plan’s implementation, a large number of Allies have adopted or updated their national defence industrial strategies, including by passing legal amendments aiming to improve defence industrial cooperation and government-to-industry relationships. In addition, many Allies have undertaken efforts to secure national supply chains, including by investing in logistical and warehouse facilities.

Increasing interoperability

The third element of the Plan is interoperability and standardization, with an initial focus on land battle decisive munitions. Interoperability ensures that all Allies can operate together to achieve common goals, including by using equipment that meets NATO standards. The Plan outlines a set of activities to improve the materiel standards review process, increase visibility on the status and level of implementation of standards across the Alliance, and support NATO materiel standards in Allies’ national capability requirements for industry.

The CNAD will start work on developing an updated version of this Action Plan before the end of 2024.

 

Maintaining NATO’s technological edge

At the 2014 Wales Summit, NATO Allies adopted the Defence Investment Pledge, under which they agreed to commit a minimum of 2% of their Gross Domestic Product (GDP) to defence spending by 2024, in order to continue to ensure the Alliance's military readiness.

As part of this Pledge, NATO Allies also agreed that at least 20% of defence expenditures should be devoted to spending on major new equipment, including the associated research and development. This metric is perceived as a crucial indicator for the scale and pace of modernisation; where expenditures fail to meet the 20% guideline, there is an increasing risk of equipment becoming obsolete, growing capability and interoperability gaps among Allies, and a weakening of the defence industrial and technological base.

In addition to taking steps to ensure a sustained level of defence industrial production, NATO also cooperates with the defence industry on innovation in order to maintain the Alliance’s technological edge.

Emerging and disruptive technologies like artificial intelligence, autonomous systems, biotech and quantum technologies are changing the character of conflict. NATO is working with Allies, partners and the private sector to develop and adopt new technologies, shape global standards and embed principles of responsible use that reflect the Alliance’s democratic values.

 

Main coordination mechanisms

NATO coordinates capability development and engagement with the defence industry through the Conference of National Armaments Directors (CNAD), the principal committee that brings together the top national officials responsible for defence procurement in NATO member and partner countries.

The CNAD implements decisions taken by Allies as part of the NATO Defence Planning Process (NDPP). Through the NDPP, NATO identifies the capabilities that it requires, and promotes their development and acquisition by Allies.

The Defence Industrial Production Board, created as a result of the Defence Production Action Plan in December 2023, brings together Allied experts on defence industrial planning and procurement, to share best practices on defence planning and other relevant issues such as procurement and supply chains. The Board meets regularly and reports to the CNAD.

The NATO Industrial Advisory Group (NIAG) is a high-level consultative body of senior industrialists from NATO Allies and partner countries. It advises the CNAD on how to foster government-to-industry and industry-to-industry armaments co-operation within the Alliance.

The NATO Support and Procurement Agency (NSPA) also plays a role in the Alliance’s logistics and procurement activities. It acquires, operates and maintains a wide range of capabilities that support NATO, its Allies, partners and other international organisations.