EU to Open $150 Billion Weapons Market... Korean Defense Industry on Alert [Yang Nakgyu's Defence Club]

Poland to Receive 71 Trillion Won in Loans Starting Next Year
Strict Local Production Requirements Raise Questions About Impact on Korean Defense Industry

The European Union (EU) has decided to jointly purchase a total of 150 billion euros (approximately 244 trillion won) worth of weapons starting next year. This is welcome news for domestic defense companies that have established strategies such as setting up local factories to target the European market. However, industry experts note that the overall impact on the Korean defense industry remains to be seen.

On September 9 (local time), the European Commission, the executive branch of the EU, announced the allocation plan for the 150 billion euro budget of SAFE, the joint weapons procurement loan program, by member country. According to the Commission, Poland will receive the largest loan amount at 43.734 billion euros (about 71 trillion won). Romania will receive 16.68 billion euros (about 27 trillion won), while France and Hungary will each receive 16.216 billion euros (about 26 trillion won).

The Commission divided the disbursement amounts based on each country's application, and the final support amounts will be determined in November after reviewing the detailed plans submitted by each country. Loan disbursement will begin early next year. SAFE is a policy included in the so-called REARM Europe Plan, a defense funding policy announced by the Commission in March. Member states participating in joint procurement can receive low-interest loans backed by the EU budget and repay them over a maximum of 45 years. There are also benefits such as a 10-year grace period for repayment. Notably, this system grants "equal participation rights" to non-EU countries such as Ukraine and the European Free Trade Association (EFTA) states, which is expected to provide indirect support to Ukraine's defense industry.

According to SAFE regulations, countries that have signed security and defense partnerships with the EU, such as Japan, the United Kingdom, and Canada, are also in principle eligible to participate in joint weapons procurement. South Korea also signed a security and defense partnership with the EU in November last year, meaning it is, in principle, eligible. Andrius Kubilius, the EU Commissioner for Space and Defense, said at a press conference, "This is the most open program among the defense (support) initiatives we have established so far."

Domestic defense companies are closely monitoring the EU's policy. While there are expectations that companies that have set up local factories to enter the European weapons market will benefit, there is also a cautious view that it will take some time to secure profits. Hanwha Aerospace signed a joint venture agreement with Poland's WB Group this month and plans to produce the CGR-080, an 80-kilometer-range guided missile to be used in the Polish version of the Chunmoo, called Homar-K. Hyundai Rotem also set the quantity for its second contract with Poland this year at 180 units. Some of these will be produced locally in Poland as the K2PL version, led by the Polish state-owned defense company PGZ, which has received technology transfer from Hyundai Rotem.

A Hyundai Rotem official said, "Even with a local factory in Europe, it will take a long time to generate profits due to a severe shortage of partners and manpower. We have no choice but to wait and see, given the volatility of the SAFE budget in each European country." A Hanwha Aerospace official also stated, "We need to determine whether this SAFE budget is a short-term or long-term plan."

Domestic defense companies without local factories face even higher barriers to entry into the European weapons market. This is due to the so-called "Buy European" policy, under which the EU requires 65% of defense spending to be fulfilled with European-made components. This means it will not be easy for domestic defense companies to secure direct contracts.

According to the Stockholm International Peace Research Institute (SIPRI) report "Trends in International Arms Transfers 2024," the share of U.S.-made weapons among NATO European member states increased from 52% to 64% between 2020 and 2024. French- and Korean-made weapons each accounted for 6.5%, followed by Germany (4.7%) and Israel (3.9%).