Open up U.S. market, EU says in riposte to Pentagon threat

BRUSSELS (Reuters) - U.S. fears about losing European defense contracts are unfounded, Brussels told Washington on Thursday after the Pentagon demanded the European Union curtail a new military pact that it sees as a potential threat to NATO.

In a May 1 letter seen by Reuters, the U.S. government warned the 28-country EU against going too far with defense integration and hinted at retaliation should American companies not be involved in future European weapons development.

In its reply to U.S. Defense and State Department officials, the EU's foreign service said it was “fully committed” to transatlantic ties and that procurement rules had not changed.

“The EU remains fully committed to working with the U.S. as a core partner in security and defense matters,” said the May 16 letter to U.S. defense officials, which was made public.

However, the EU's letter also insisted that the United States, which dominates the global weapons market, should award more defense contracts to European companies and end export control regulations that limit the EU's ability to use capabilities developed with U.S. technology.

“Such restrictions would be unacceptable for products and technologies funded by the EU budget,” the EU letter said.

Between 2011 and 2015, more than three-quarters of international defense contracts in the EU went to U.S. companies, the EU letter said, also citing Belgium's recent decision to buy Lockheed Martin's F-35 stealth jets.

The exchange highlights the tensions between Europe and the United States over defense.

U.S. President Donald Trump regularly warns Europe it may lose American protection if it fails to spend on the military but his administration is critical of Europe's attempts at more autonomy, despite support from NATO chief Jens Stoltenberg.

The U.S. letter said the new EU pact, known as Permanent Structured Cooperation (PESCO) and its multi-billion euro defense fund, could reverse decades of transatlantic defense integration, weaken NATO and freeze out U.S. contractors.

EU governments are trying to agree legislation on how to allow the involvement of non-EU countries, including the United States and Britain after it leaves the bloc, by June.

Caught off-guard by Russia's 2014 annexation of Crimea and facing threats ranging from state-sponsored computer hackers to militant attacks, EU governments say the pact is justified by EU surveys showing most citizens want the bloc to provide security.

In Libya in 2011, a Franco-British air campaign ran out of munitions and equipment and Europe was again forced to turn to the United States, in what is considered an enduring embarrassment for the EU, a global economic power.