Explainer-Can non-EU companies be part of EU's big defence fund?

BRUSSELS (Reuters) - The European Commission this week proposed rules for a new 150 billion euro ($162.4 billion) rearmament fund - part of a major drive to get the European Union ready to defend itself by 2030 amid fears of a Russian attack and doubts about U.S. protection.

The Security Action for Europe (SAFE) fund will be financed through joint borrowing and give loans to EU members and certain other countries such as Ukraine for projects that bolster their defences and boost Europe's arms industry.

Some commentators have complained the fund is closed to firms from big defence industry players such as Britain - home to BAE Systems - and the United States, with its raft of big arms companies such as Lockheed Martin and Boeing.

The Commission insists there are ways for companies outside to take part. But they are not straightforward.

The eligibility criteria are a hot topic even within the EU. France favours a strong "buy European" policy while countries such as Germany and The Netherlands favour a more open approach.

Here is a summary of the rules, which are only a proposal at this stage and may change in negotiations among EU governments.

WHICH COUNTRIES CAN PROCURE VIA THE SCHEME?

The scheme encourages joint procurement. Projects should involve at least two EU members, or one EU member alongside Ukraine or one of the members of the European Economic Area and the European Free Trade Association - Norway, Iceland or Liechtenstein.

Also eligible if they partner with an EU member taking a SAFE loan: Countries in the EU accession process, EU membership candidates, potential candidates and countries that have a Security and Defence Partnership with the EU.

Countries in the EU accession process include Albania, Moldova, Montenegro, North Macedonia, Serbia, Turkey and Ukraine. Bosnia and Georgia are candidate countries while Kosovo is considered a potential candidate.

Countries that have a Security and Defence Partnership with the EU include some of those above and Japan and South Korea.

Both Britain and Canada are in talks with the EU about such a partnership. Diplomats say the British deal could be signed at a summit in May but that may depend on progress on other issues such as British-French fishing disputes.

WHAT ARE THE RULES FOR PRODUCTS?

For simpler products such as ammunition, missiles and small drones, 65% of the costs must originate inside the EU, EEA EFTA countries or Ukraine.

Up to 35% of the value of the product can come from outside this group of countries.

For more complex products such as air and missile defence systems and larger drones, there is an additional hurdle: it must be possible to substitute components that could be subject to restrictions imposed by other countries.

WHICH COMPANIES CAN TAKE PART?

To be eligible to provide at least 65% of the cost of a product, companies should be established in the EU, an EEA EFTA country or Ukraine - and not be controlled by another country.

Companies established in the EU that are controlled from outside the bloc can also take part - but only if they have been screened by the EU and can guarantee that their involvement would not contravene the EU's security interests.

In other words, an EU-based subsidiary of a British or U.S. company could potentially take part.

In addition, companies based outside the EU could be eligible - if they are based in an accession country, a candidate country, a potential candidate or a country with a Security and Defence Partnership with the EU.

Such countries must also conclude an additional agreement with the EU to take part in a SAFE project.

($1 = 0.9236 euros)

(Reporting by Andrew Gray; Editing by Andrew Heavens)