Manufacturing Defence: Europe, the Republic of Korea and Defence Industrial Cooperation

CSDS POLICY BRIEF • 35/2024

By Yang Uk and Daniel Fiott

26.11.2024

Key issues

• South Korea has emerged as a major supplier to European militaries, and this has helped with Europe’s imminent need for military rejuvenation.
• Given the quality of South Korean defence equipment and supplies, Seoul is viewed with credibility in the defence sector and this bodes well for future cooperation.
• There remain challenges to closer and long-term cooperation between Europe and South Korea, including the adjustment of European manufacturers and technology controls.

Introduction

Defence industrial cooperation between Europe and the Republic of Korea (ROK) has become more visible and relevantsince the start of Russia’s war on Ukraine. In particular, the ROK’s defence manufacturing excellence has become invaluable to Europe’s short-term needs, especially as European armies seek to rebuild their military power after decades of neglect. The example of Poland is perhaps the best known in recent years. This partnership has included planned and actual acquisitions of K2 Black Panther tanks, K9 Thunder howitzers, light combat aircraft (the FA-50) and rocket launch systems (Chunmoo or HOMAR-K). The relationship between Poland and the ROK has blossomed, with Poland making it clear that future collaboration is more than likely. Cooperation has also been strengthened between the ROK and Romania, with Bucharest interested in the supply of K9 howitzers from Hanwha Aerospace. Indeed, the ROK has a history of cooperation with countries such as Estonia, Finland, Germany, Norway, Türkiye, Ukraine and the United Kingdom (UK).

Given the ROK’s privileged position in supplying defence systems and equipment to European militaries, it is worth reflecting on the current state of cooperation and the avenues for potential future cooperation. To this end, this CSDS Policy Brief looks at the reasons behind the success of the ROK’s defence exports to Europe. It then ponders the present nature of the European defence market and its specific needs. The Policy Brief then moves on to consider some of the avenues of future cooperation and possible hurdles that may limit collaboration. We end with some brief reflections on how best to stimulate defence industrial relations between Europe and the ROK.

The Korean DTIB: excellence born of necessity

The defence technological and industrial base (DTIB) of the ROK is globally viewed as one of excellence and high performance, and the country is likely to become one of the world’s leading arms exporters. There are several reasons why European nations have looked to the ROK for defence acquisition. The first reason is that ROK manufacturers maintain “ever warm” factories in order to meet the needs of clients and partners in a short span of time. The ROK has every reason to maintain “ever warm” productive capacities because of its own strategic position vis-à-vis the Democratic People’s Republic of Korea (DPRK). Having in place ready and productive defence capacities is a must in terms of the ROK’s overall strategic stance and defence. amounts of defence equipment in a short span of time. Second, the ROK is a leading nation in terms of defence innovation and research and development (R&D). With 500,000-strong armed forces, the ROK has the economies of scale to develop and produce new weapons systems. This situation has meant that the ROK have been able to honour orders for considerable demands.

We should here acknowledge that the ROK dedicates approximately 30% of its overall defence spending on new weapons systems and R&D. The ROK also has the added-value of ensuring cross-fertilisation between their defence industries and their world-beating technology firms. Combined with a close partnership between central government and local authorities and firms, this gives the ROK a distinct advantage in developing dual-use technologies. Additionally, the ROK has gained a lot of know-how from its constant military confrontation with the DPRK. Faced with the threat of thousands of long-range artillery pieces and multiple-launch rockets, the ROK has developed the Kill Chain Strategy for rapid detection and destruction. In response to ballistic missile threats such as Hwasong-11A, the North Korean version of Russian Iskander, the KAMD strategy is a multi-layered Korean missile interceptor system. This is the same as Europe’s response to the threat from Russia.

When the ROK’s defence production prowess and dual-use technology advantages are combined, it becomes clear that major defence producers are able to manufacture high-end defence systems. The ROK is a technology powerhouse, ranking fifth in the world’s high-tech industry markets, including semiconductors, bio and future vehicles. These commercially advanced product producers provide key components for advanced weapon systems. Indeed, companies such as Hanwha Aerospace, Hanwha Ocean, KAI, Hyundai Rotem, Hyundai Heavy Industries and LIG Nex 1 are on the front foot for the production of aircraft, artillery, drones, helicopters, missiles, submarines, tanks and vessels. These are capabilities that are extremely well-suited to Europe’s defence needs and it explains why the ROK is one of the largest exporters of defence equipment globally; even surpassing countries such as China, Germany, Israel and Russia. In particular, the ROK has been particularly successful in exporting armoured vehicles and artillery to European nations and customers such as Australia (infantry fighting vehicles) and Saudi Arabia (missiles). These are precisely the types of defence equipment that can help Europe defend its territory and also assist in the military refocus to strategic rivalry and geopolitical competition.

Europe’s defence industrial needs

The ROKs own experiences in developing the DTIB provide important lessons for European manufacturers and governments. We should bear in mind that successive ROK governments have nurtured the DTIB in response to strategic and economic needs and objectives. Importantly, successive ROK governments have maintained a core objective of ensuring that Seoul emerges as one of the world’s most technologically advanced nations. Crucially, the ROK have understood that investment in the defence sector and boosting arms exports plays a vital role in moving the ROK up the global value chain. What is more, the ROK have put in place strategies to avoid simply being an exporter. Following a long-held strategy by the United States (US), arms exports produce further gains when short-term contracts are accompanied by Maintenance, Repair and Overhaul (MRO) agreements that lock-in cooperation over the medium to longer-terms. What is more, the ROK are working constantly to improve the “triple helix” approach to defence by ensuring close collaboration between government, industry and the military in the ROK.

All of these ingredients for the ROK’s longer-term success in defence production have not been lost on European observers. Ever since Russia’s illegal invasion of Ukraine, European nations have steadily increased their domestic defence spending. This has been combined with a growing realisation that the European DTIB is crucial for the defence of Europe. As Russia began to invade Ukraine in early 2022, it suddenly became clear that Europeans were not prepared to meet the surge in demand for basic military equipment such as 155mm shells. Since 2022, Europeans have also quickly sought to replenish their own dwindling military stocks, especially after almost three decades of neglect of the defence industry and military expenditure. In fact, before Russia’s invasion many European militaries had been stripped back to the bone, with major defence equipment either sold, mothballed or scrapped altogether. It is for this reason that Europeans have invested an approximate amount of US$ 65 billion just from 2023 to 2024 (taking spending from $365 billion in 2023 to €430 billion in 2024.

This increased spending is going hand-in-hand with a greater appetite to Europeanise defence industrial efforts. While individual European states have sought to bolster their national DTIBS, there is an obvious European dimension in ensure that duplication is kept to a minimum and that interoperability (particularly important in a NATO context) is maintained. In particular, the European Union (EU) has emerged as an important actor in organising Europe’s defence market – it has the regulatory power to do so, and increasingly it has financial resources to incentivise cooperation. In 2021, the EU unveiled its European Defence Fund (EDF) worth €8 billion until 2027 and there are now steps to create a European Defence Industrial Programme (EDIP) to promote joint defence procurement among EU members. Based on its first-ever European Defence Industrial Strategy in 2024, there is an ambition to create a genuine defence market in Europe based on common equipment projects and lower bureaucracy across European borders. With the war on Ukraine, the EU has also sought to complement NATO’s defence efforts by directly supporting the acquisition of ammunition and defence equipment.

Today, the EU as an institution invests approximately €30 billion in defence-industrial related initiatives related to ammunition production, defence innovation, security assistance, military mobility and more. However, there are still major constraints facing the European defence market. While several European nations have sought to plan for next-generation systems (i.e. Italy, Japan and the UK on the GCAP and France, Germany and Spain on FCAS), the reality is that defence markets are only partially integrated and European governments still view each other as competitors in the defence sector rather than partners. Furthermore, while there is a consensus in Europe that the defence sector matters and is an essential element of Europe’s economic growth, defence markets are treated in a nationalistic manner where European governments and firms are still reluctant to share technology or engage in joint projects. From the perspective of a partner such as the ROK, there is also the question of how a growing “Buy European” ethos will affect arms imports and partnerships, even if the ROK responds with customisation and localisation, there are doubts about its success.

Are there limits to cooperation?

In addition to structural shifts underway in Europe’s defence sector, we must acknowledge the continued barriers facing ROK-Europe cooperation. First, a major spike in demand for defence equipment from the ROK could place pressure on Korean producers – there are productive limits, even in the case of the ROK’s DTIB. For example, there is already evidence to show that the size of the orders placed with the ROK will mean more time is required to deliver equipment to global partners and customers. As of June 2024, SIPRI data showed that of the total orders placed with the ROK only 10.6% had actually been delivered to customers. Clearly, a strategy has already been put in place by the ROK and its partners for this eventuality, with many of the acquired products being manufactured under licence in Europe. For example, one research institute calculates that 61% of the tanks ordered by Poland from the ROK will be produced in Poland, and 45% of howitzers will be manufactured in Poland under the same arrangements.

However, and secondly, the continued structural fragilities of the European defence market may undermine cooperation between Europe and the ROK. For example, there are news reports that indicate that Poland may not be ready for technology transfers from the ROK based on the assumed vulnerabilities of Poland’s defence industry. Indeed, recently there were vocal concerns from senior government officials of the ROK that the plan to transfer tank technology to Poland was on hold until Polish assembly plants were upgraded. It is important for Seoul and ROK producers to recognise that European states may not yet be ready to assume the challenging tasks of mass producing licenced equipment. The ROKmay have to take the initiative and transfer all the know-how needed to set up production facilities and processes. In this case, the relationship between the companies involved in both countries would have to evolve into something more organic than just cooperation or joint ventures. This challenge is made all the more challenging given that there is no single European defence market, with individual nations either having a high degree of state control over the defence industry and others having long moved to a privatised defence market.

Thirdly, European defence industrial supply chains tend to be organised on either a national or pan-European basis. The differences can be seen by national champions that favour a largely closed national defence market and pan-European firms that are less dependent on any single government. Having in place these two forms of industrial organisation means that it is difficult for the ROK to engage a more European-wide network of defence industrial partners and governments. Engaging national champions may mean the ROK is faced with economic nationalism, but engaging pan-European firms comes at the risk of them being dislocated from governments. As other analysts have made clear, fractured European defence markets means that it will take time for the ROK ‘to identify and stabilise’ its defence partnerships in Europe. The ROK have tried to offset this challenge by developing Memoranda of Understanding with European nations, but any steps to truly deepen defence industrial cooperation will imply a closer set of partnerships on strategic questions. Alternatively, a ROK company could acquire a European defence company, giving it time to adjust to being part of Europe and gradually expand its horizons.

Fourth, the room for the ROK to strike-up a direct partnership with the EU is limited given that EU defence industrial initiatives are primarily geared to EU member states. The EDF comes with strict conditionality on partnerships, with the overriding concern to safeguard European defence technologies and property rights. This is why the EDF is only open to non-EU partners once strict conditions are followed including the need for partnering firms to not be controlled by “third countries”. While the rules for engagement for the future EDIP have not yet been agreed, it seems as though strict technology controls will be imposed on non-EU partners. In any case, the ROK appears to be interested in closer relations with NATO rather than the EU on defence matters. As part of the so-called “IP4” with Australia, Japan and New Zealand, the ROK is investing its diplomatic capital into closer ties with the Alliance (and by extension the US and key bilateral European partners). While NATO has limited financial resources available to stimulate cooperation – with the exception of DIANA or the NATO Innovation Fund –, working closely with the Alliance allows Seoul to develop partnerships with European governments and to learn more about the NATO defence planning process and industrial initiatives.

However, for all of the obvious challenges hindering ROK-Europe cooperation in the defence sector, there are avenues that can lead to deeper cooperation. First, there is every chance that the existing cooperation on major platforms such as armoured vehicles, tanks and howitzers could lead to a more sustained technology partnership with key European states. There is already evidence of this, with Polish firms such as WB Group and the ROK’s Hanwha agreeing to collaborate on submarine technology and guided missiles. Although the ROK’s best avenue for partnerships currently is via bilateral contracts and agreements with European states, Seoul should be prepared for possible cooperation in high-tech areas of the defence sector. The ROK has an added-value in high value dual-use technologies, but currently the country is known mainly for its exports of heavy defence industry equipment to Europe. Large defence companies prefer to sell finished products that generate huge revenues, so they are unlikely to be interested in selling core components with advanced technology if they do not see sufficient demand. From a marketing point of view, the ROK has an opportunity to market its growth in areas related to emerging and disruptive technologies (EDTs) such as Artificial Intelligence.

Finally, the ROK should invest more time and effort into cultivating its broader defence partnerships with Europe. It may seem counter-intuitive, but greater efforts to understand and work with Europe’s specific security interests may benefit defence industrial partnerships. For example, a major political issue that will demand close ROK-Europe cooperation is on the growing proliferation of dual-use and military technologies among and beyond countries such as China, Russia, Iran and the DPRK. Arms embargoes and technology controls are essential in limiting proliferation among these actors, and this is a major diplomatic effort that should be developed by the ROK, Europe and like-minded partners. The ROK’s support for Ukraine has also been highly appreciated in Europe, even if aid has been transferred to Ukraine via the stipulations of the Foreign Trade Act. Still, there is a need for the ROK and Europe to maintain a united front on Ukraine, not least because it ensures Europe’s continued interest in security in the Korean Peninsula. There should also be more opportunities for joint exercises between the ROK and European militaries. This would not only confirm the capabilities of each other’s weapon systems, but also give them the opportunity to experience interoperability first-hand, exchange tactics and technical procedures to use these systems more efficiently and build true military trust at the field level. The participation of European militaries in events such as the “K9 User Club”, even if they do not own the equipment, would provide a great opportunity.

Conclusion

In this CSDS Policy Brief, we have outlined the shape and nature of ROK-Europe cooperation in the defence industrial sphere. We have concluded that there is growing cooperation between the ROK and certain European nations, and this cooperation is set to grow over the coming years. The ROK has emerged as a major supplier of arms and technologies, and Europeans view Seoul as an increasingly important defence partner. Although arms exports to Europe have been mainly made to cover Europe’s short-term military needs, it is clear that the acquisition of defence systems from the ROK can lead to cooperation over the medium and longer-terms. In the coming years, there will be a European interest in cultivating stronger defence technological ties with the ROK, not least as Europe attempts to enhance its military-technological position. Nevertheless, there are challenges along the way including how the ROK will navigate closer European defence cooperation and meet increasing global demand for defence equipment. The sale of weapons systems should be based on trust between nations, not simply the transfer of the means of violence. The real challenge for Europe and the ROK will be to increase trust and get close enough on defence industrial matters. In this Policy Brief, we outlined some of the steps the ROK can take including moving closer to NATO defence planning processes and engaging in a wider diplomacy in defence that ensures that the ROK and Europe deepen their common strategic understanding and outlook.

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