Regulation (EU) 2025/2643 of the European Parliament and of the Council establishing the European Defence Industry Programme and a framework of measures to ensure the timely availability and supply of defence products (“EDIP Regulation”) entered into force on 30 December 2025. A cornerstone of the EU’s industrial strategy in the defence sector, its effects will be felt well beyond the traditional defence industry.
The EDIP is crucial to the European Defence Industrial Strategy (EDIS) presented by the European Commission and the EU High Representative for Foreign Affairs and Security Policy on 5 March 2024, which aims to bolster European defence capabilities, stabilise supply chains, and enhance the resilience of critical manufacturing structures.
The regulation’s scope is broad: New instruments to strengthen security of supply affect not only established defence companies but also many suppliers as well as technology, logistics and IT service providers. Start-ups and SMEs that have had little contact with the defence sector to date are also affected. In extreme cases, such companies may in future be obliged to prioritise and execute defence contracts.
The EDIP is underpinned by funds of at least EUR 1.2 billion, targeted at investments, scaling projects, common procurement, retrofits and upgrades in the European defence industry. Along with EU funding instruments such as SAFE, EDF and from 2027 the European Competitiveness Fund, the EDIP aims to make long-term defence investments significantly more attractive.
The Council adopted the EDIP Regulation on 8 December 2025, with one abstention (Hungary). The adoption concludes a roughly two-year legislative procedure that started with a Commission proposal in March 2024. Intensive trilogue negotiations between the Commission, Parliament and Council then followed. Preliminary agreement was reached in October, and formal approval given by the Parliament at the end of November.
Business should now prepare for the new framework: The opportunities the EDIP offers – access to funding, participation in key projects, greater integration into European value chains – go hand in hand with obligations and increased compliance requirements. Structuring processes, lines of responsibility and monitoring to ensure eligibility, compliance and the ability to deliver will be crucial, and should be tackled soon.
The EDIP: background and objectives
The European Defence Industry Programme (“EDIP”) has three main objectives: To make the European Defence Technological and Industrial Base (“EDTIB”) more competitive, to secure defence supply chains in times of crisis, and to support the Ukrainian defence sector in reconstruction and modernisation.
Bolstering the European defence industry
The EDIP will finance a variety of European projects to improve the defence industry’s competitiveness and reaction time, making EUR 1.2 billion in funds available from the EU’s general budget from now until 2027. Member States may also contribute further funds on a voluntary basis (Article 3(1) in conjunction with Article 5 EDIP Regulation; hereinafter, all Article and recital references are to this Regulation unless otherwise stated).
In contrast to previous funding programmes in the defence sector (SAFE, EDIRPA), the EDIP explicitly focuses on specific measures to support industry (“industrial reinforcement actions”) as well as common procurement by Member States (cf. Article 12(1)). These may include:
- Measures to optimise, expand, modernise, automate, improve or repurpose existing production capacity and create new capacity
- The establishment of cross-border industrial partnerships including public-private partnerships (PPP)
- The creation and deployment of additional manufacturing capacity in reserve
- The industrialisation and commercialisation of specific defence products
Supporting actions eligible for funding (cf. Article 13(1)) include:
- Activities to increase interoperability and interchangeability of defence products
- Activities to facilitate access to the defence market for smaller companies
- Capacity-building and training of personnel
- The procurement of physical and cyber protection systems
Also eligible are activities to improve cooperation between public authorities in “common procurement actions” for defence products (Article 11) or to support the implementation of European Defence Projects of Common Interest (“EDPCIs”) (Article 10(1), letter (d) in conjunction with Article 35).
Together with other financing and funding instruments like SAFE, EDF and potentially the European Competitiveness Fund, the EDIP establishes a much more cohesive architecture of financing and incorporates scalable elements (for more details, see our article Europe’s Defence Readiness Roadmap 2030: Navigating (de)regulation, competition, and industrial expansion – what matters for M&A and private equity | Gleiss Lutz).
- Such measures will be eligible for funding if at least 65% of their costs are for final product components that originate within the EU or an associated country (i.e. EFTA members that are also EEA members, which rules out Switzerland (Article 2, No. 3) (the “Buy European” criterion). No components may be sourced from third countries in breach of the EU’s security or defence interests, or those of its Member States (Article 10(3) and (4)).
- The EDIP Regulation also defines what legal entities are eligible. Funding recipients must be established in the EU or an associated country and have their executive management structures there as well (Article 9(1)). As a general rule, eligibility also requires that the entity seeking funding is not subject to control by a non-associated third country or a non-associated third-country entity (Article 9(5)). Entities controlled by a third country can be exempted from this requirement if they provide the Commission with guarantees, previously approved by a Member State or associated country, to the effect that any influence by the third country will not conflict with the objectives of the EDIP Regulation or impair the security and defence interests of the EU or its Member States (Article 9(6)). This exemption only applies to the requirement in Article 9(5) that an entity be independent of third country control. There is no exemption from Article 9(1), which requires that the entity seeking funding must be established and its executive management structures located within the EU or an associated country (Article 9(6), subparagraph 1, sentence 1, subparagraph 3).
- In a departure from the principle of co-financing which otherwise applies, 100% of eligible costs may be reimbursed in certain cases (cf. Article 5(2) and (5), Article 20(1)). Grants for supporting actions (Article 13) or EDPCIs (Article 35(1)) can be reimbursed in this way (Article 20(1)).
- As part of the EDIP, a special Fund Accelerating Defence Supply Chains Transformation (“FAST”) is to be set up, providing targeted support for the integration of SMEs and small midcap companies into the defence industry’s supply chains (Article 14(1)). The express objective is to leverage investments in such companies’ manufacturing capacity, using blended finance to reduce investment risks for private investors.
Ukraine Support Instrument
The EDIP also comprises a second instrument in support of Ukraine that is allocated EUR 300 million from the EU’s general budget and further voluntary funding (Article 3(2)).
This support instrument’s objective is to promote “cooperation between the Union and Ukraine” for the “recovery, reconstruction and modernisation of the Ukrainian DTIB” (Article 22(1)). To meet this objective, Article 27 largely refers to the rules on eligible actions applicable under the EDIP. Entities established in the EU or Ukraine whose executive management structures are located there are eligible for funding. Entities established in areas of Ukraine not controlled by the government are not eligible (Article 26(1)).
Common procurement of defence products
The EDIP Regulation includes rules on the common procurement of defence products.
- The new regulation provides for joint procurement by Member States and the Commission using advance purchasing agreements with prepayment mechanisms (Article 15(1), letter (a), Article 16(1)) or procurement by the Commission as a central purchasing body (Article 15(1), letter (b)).
- It also creates the legal basis for Structures for European Armament Programmes (“SEAPs”). Each SEAP is an entity with its own legal personality (Article 43(1)) and can be established by at least three states, of which at least two must be EU Member States (Article 41(1), letter (d)); the others can be associated countries or Ukraine (Article 44(1), letters (b) and (c)). The task of such bodies will be to support the life cycle of a defence product or defence technology until it is decommissioned and serve the development and common procurement of defence products and technologies, spare parts and logistic services. On this point, the Regulation defines a SEAP as an international organisation released from the obligations of EU defence procurement law within the meaning of Article 12, letter (c) Directive 2009/81/EC and provides that it may set its own procurement rules (Article 47(2)). Its procurement processes are exempt from VAT if the SEAP becomes the owner of the equipment procured (recital 56).
Protecting security of supply
The EDIP Regulation also includes wide-ranging provisions aimed at ensuring security of supply in the defence sector and facilitating rapid, reliable and autonomous access to defence products and components in times of crisis. This is intended to bolster the resilience of supply chains for critical defence products and strengthen collaboration between Member States.
- Besides the planned changes to defence procurement law as part of the European Defence Readiness Omnibus (see our article: Defence Readiness Omnibus – the next step towards European defense capability | Gleiss Lutz), further rules will be relaxed in seeking to achieve these objectives. For the common procurement of defence products in times of “crisis” within the meaning of Directive 2009/81/EC, contracting authorities will be able to join an existing framework agreement, i.e. an agreement between contracting authorities and economic operators that sets the key terms and conditions for future public contracts (Article 52(1) and (2)). This will allow contracting authorities to bypass their own, lengthy award procedures, but will bind them to the terms and conditions of any framework agreement they join. In the event of a “crisis” within the meaning of Directive 2009/81/EC, they will also be able to make substantial changes to the quantities stipulated in the framework agreement (Article 52(3)). The EDIP Regulation also gives contracting authorities the option of conducting a negotiated procedure without competitive tender if the contract is based on a “defence cooperation initiative” (Article 53).
- Like the European Defence Readiness Omnibus (see our article: Defence Readiness Omnibus – the next step towards European defense capability | Gleiss Lutz), Article 54 provides for the acceleration of key permit procedures “related to the planning, construction and operation of production facilities, transfer of inputs within the Union and qualification and certification of end products”. In contrast to the Omnibus package, however, the EDIP Regulation stipulates merely that applications should receive “the most rapid treatment legally possible” (Article 54(1)), raising the question of what practical use the provision has.
- Prioritisation in planning and permit-granting processes: The EDIP Regulation stipulates that “the construction and operation of plants and installations for the production of crisis-relevant products” should be “given priority when balancing legal interests in the individual case concerned” (Article 54(2)). While environmental and climate protection aspects have often been pivotal when balancing interests in planning and permit-granting processes in the past (cf. section 1a Building Code (Baugesetzbuch)); this change will allow for different priorities to be set in future. “Crisis-relevant products” in this context include not only defence products themselves but also components of defence products, the requisite raw materials, and products and services critical to their manufacture (Article 2, No. 9). So not only traditional defence companies but also suppliers and civilian manufacturers can benefit from this change.
- The EDIP Regulation further includes measures for systematically mapping, tracking, analysing and monitoring supply chains, production capacity and key market actors in the defence sector (Article 56 f et seq.). The Commission will play a key role here, backed up by a new Defence Security of Supply Board (cf. Article 56(3), Article 76). Companies defined by a Member State as a main supplier of crisis-relevant products will be subject to reporting obligations if they detect disruptions in the supply of these products (Article 57(1), letter (c), Article 56(12)). In addition, Article 58 allows the Commission to conduct stress tests to identify risks in connection with a supply crisis and develop strategies for emergency preparedness, in consultation with the Defence Security of Supply Board.
- Companies should take special note of the measures and powers the Commission has at its disposal in the event of a “supply-crisis state” under Article 60. The Commission is then empowered to request information from companies (Article 62(1)) as well as to oblige companies to accept or prioritise orders if shortages of crisis-relevant products which are not defence products arise, after prior consultation and with the agreement of the Member States affected (Article 63(9)). This gives the Commission far-ranging powers to encroach on contractual autonomy that have potential implications for liability and go beyond the priority-rated requests provided for in the Internal Market Emergency and Resilience Act (“IMERA”) that will take effect in May 2026 (see our article: EU RESourceEU Action Plan – What It Means for Investors and Industry | Gleiss Lutz). In particular, this would apply to contracts for components of defence products, the requisite raw materials, and products or services essential to their manufacture, where such components, materials, products or services are not themselves defence products. If a company obliged to execute a priority-rated contract then fails to meet other contractual obligations as a result, it is not liable to its contracting partner (Article 63(12)). It remains an open question, however, whether third parties consequently incurring loss due to non-delivery or delayed delivery must then bear these costs themselves or whether they would have state liability claims against the EU (cf. Article 340(2) TFEU) or the Member States involved.
- In the event of a “security-related supply crisis” concerning defence products, moreover, the Commission can collect information (Article 65) and, under certain additional conditions, request companies to prioritise orders (Article 66(1) and (2)). As in the IMERA (see above), however, the right to oblige a company to execute such priority-rated requests is expressly waived (cf. Article 66(2), sentence 2). But companies should remember that under German law they can already be obliged to prioritise the delivery of certain goods and services in crises (and also in peacetime, though less frequently). Under a set of security acts (the Federal Emergency Co-Option Act (Bundesleistungsgesetz), Energy Security Act (Energiesicherungsgesetz) and Economic Security Act (Wirtschaftssicherstellungsgesetz), the German state can exert control over key infrastructure sectors to ensure that supplies reach the population, the German armed forces and allies.
- Further changes are intended to accelerate national permit-granting procedures in the event that a security-related supply crisis arises (Article 70). It will be possible to treat the “planning, construction and operation” of “production facilities” for crisis-relevant products as an “imperative reason of overriding public interest” in the meaning of the Habitats Directive (Council Directive 92/43/EEC) or “reason of overriding public interest” in the meaning of the Water Framework Directive (Directive 2000/60/EC). This is likely to significantly privilege zoning plans and permit procedures required for such projects, potentially exempting them from the restrictions around protected areas and bodies of water (cf. section 34(3), no. 1 Federal Nature Conservation Act (Bundesnaturschutzgesetz) and section 31(2), no. 2 Federal Water Act (Wasserhaushaltsgesetz).
- To ensure that crisis-relevant defence products continue to be manufactured during a security-related supply crisis, Member States may also then decide on derogations from the rules on working hours set by Directive 2003/88/EC, reducing rest and breaks and extending night shifts, for example.
- Last but not least, Article 72(1) EDIP Regulation includes fines and penalties: Giving false information can result in a fine of up to EUR 300,000. Violations of officially imposed obligations to prioritise the manufacture of crisis-relevant products may incur coercive penalty payments of up to 1.5% of the previous financial year’s average daily turnover.
Conclusion and outlook
The EDIP alters the business environment for the European defence industry and beyond. Companies should align their business models, supply chains and compliance structures to the new regulatory context. But while attractive financial support and new market opportunities beckon for those who implement the new rules rapidly, the legal risks and obligations will need to be borne in mind. Companies should check whether, as part of defence-related value chains, they could be affected by priority-rated contracts or reporting obligations, regardless of whether they manufacture defence products themselves. Businesses that could be subject to – or would be impacted by – obligatory supply contracts should now structure their product and customer strategies, supply chains and commercial contracts robustly. This could include corporate measures to isolate risks, for example the legal separation of high-risk business units or modification of corporate governance structures.
Forward
