The UK is set to begin talks over British companies’ ability to contribute to military projects funded by EU defence loans.
The European Commission is planning to issue billions of pounds in loans to EU countries to help them buy weapons together.
British ministers want to conclude a deal in the coming weeks to allow UK-based firms to take part in contracts funded by the loans.
The agreement will set limits on how much British firms can contribute to projects, with the EU also demanding the UK pay an entry fee to take part.
The Security Action for Europe (SAFE) scheme, announced in March, is part of an EU-wide effort to rearm after Russia’s full-scale invasion of Ukraine.
It will see the European Commission borrow up to €150bn (£130bn) to fund long-duration loans to support joint defence projects.
Eligible projects will require an EU country in receipt of a loan to partner up with another EU nation, or Ukraine, Iceland, Liechtenstein, Norway and Switzerland.
It aims to boost defence spending by allowing EU countries with higher borrowing costs to take advantage of the Commission’s favourable credit rating.
The loans will be able to fund the purchase of kit including ammunition, artillery, missile defence systems and military drones.
The UK cannot apply for such loans, but a defence pact agreed with the EU in May paved the way for UK-based defence companies to contribute to projects that receive funding from the scheme.
Officials will now thrash out a further deal to set the details of British participation, after EU ministers formally authorised negotiations on Thursday.
As well as the UK entry fee to take part, talks are expected to centre on the maximum contribution British firms will be able to make to projects.
At the moment, UK defence companies would be limited to supplying 35% of the total value of a finished defence product.
This could be increased during the talks that are set to begin, although France is reportedly keen to limit the extent to which companies outside the EU will be able to benefit from EU-backed loans.
Defence Secretary John Healey has previously said the UK is willing to pay its “fair share” in financial contributions to access the scheme, but wants to “have a say” in the programmes and retain UK intellectual property rights.
Nick Thomas-Symonds, the minister responsible for EU relations, recently said he wanted a deal in place to allow British companies to take part in the first round of bids, with applications due by the end of November.
Nineteen of the 27 EU countries have applied for the loans, which are expected to be issued early next year.
Poland has been allocated the greatest share of funding, at €43.7bn, followed by Romania at €16.6bn, with Hungary and France each allocated €16.2bn.
The UK government welcomed the opening of talks, adding it was in the interests of both sides to “bring together our unique capabilities and expertise to make Europe a safer, more secure, and more prosperous place.”
Canada is also in talks to allow its companies to take part in the scheme.