Offset agreement
BIS - whose main task is protecting U.S. security from the point of view of export of high technology, fostering commercially acceptable U.S. foreign policy, and protecting U.S. economic interests - deals with U.S. aerospace and defense companies that export defense products, systems or services, involving "offset agreements," that is, those sales' collateral or additional agreements requested by purchasers.
"[7] The U.S. government underlines the compulsory aspect of this trade practice, since the United States, with other weapons exporting countries, such as Germany and France, opposes offsets as forms of protectionism and harmful transgressions of free market rules.
[8][9] In 2008 the Brazilian Minister of Strategic Affairs, speaking of a major defense purchase by his country, highlighted this key point: "We will not simply be buyers or clients, but partners.
"[10] The competition by different companies “in offering comparable weapons to a country" is also on the level of "sharing" or "partnership" with the purchaser, Roberto Mangabeira Unger added.
If one adds the prevalent political aspect of spending huge public funds on modern weapons, then the motivating significance of defense offsets could not be underestimated in contemporary decision processes of democracies.
[13] But the key question is: to what extent is the offset proposal a factor in the consideration of defense contractor's tender during the evaluation and the decision procedures?
In 2000 Daniel Pearl wrote an article about the universe of offsets: "could the sale of U.S. weapons in the Persian Gulf help an oil concern unload gasoline stations in Europe?
The purpose of these industry meetings is to educate, and to foster relationships between the various offset obligors and beneficiaries so that real and sustainable economic benefits can be delivered to nations who are seeking to improve their respective economies.
[23] Offset fulfillers /service providers may perform various support services: including marketing assistance, sourcing and structuring venture capital or other forms of corporate credit for Foreign Direct Investment (FDI), or more complex things, such as a joint ventures to produce shrimp (Devcorp, Bahrain), a sugar factory, or, recently, environment and renewable energy.
[26] These kinds of pre-offset activities are sales arguments to convince the buying state of the strength and reliability of the aerospace & defense company as potential supplier and partner.
The known FMS disadvantage is that DSCA adds to the final sale price a small percentage for its own administrative costs; the advantage is some free training with U.S. Armed Forces for joint international operations.
DSCA has made available in its complete manual details and analytical explanations for U.S. Defense companies on how to include the offset various costs into their contract and invoices.
On the seller's point of view, in Bureau of Industry and Security (BIS) Annual Reports to U.S. Congress one can find the position on offsets of weapons exporters countries like U.S. Magazines and specialized publications like Jane's Defence Industry, EPICOS, Countertrade & Offset or CTO give detail accounts and updates on national policies, requests, changes, etc.
The program is directed by Ministry of Economic Affairs (Industrial Benefits in the Field of Defense Procuremen).t[45] The threshold value is usually 11 million euro, but it is lower if it is not a public and open tender.
[47] The subsidies/offset issue was particularly acute in the repartition of direct and indirect industrial benefits for one of the recent acquisition with offsets: 242 Mowag Piranha for the Belgian Army from General Dynamics, over 700 M Euro.
The ITB/VP program applies only to defence and Coast Guard procurements (and resulting contracts) for which the Canadian government has invoked the National Security Exemption (NSE).
The ITB portion identifies the total offsets a bidder commits to achieving (measured in Canadian Content Value, or CCV) once under contract.
The VP portion identifies the CCV a bidder commits to achieving toward five pillars: The ITB/VP policy requires contractors to allocate a certain percentage (typically 15%) of the total contract value to small and medium-sized businesses.
According to The Prague Post "the investigation will center on two main issues: the alleged bribery of politicians and the military's reasons for paying three times more for the Pandur than Portugal, which also purchased" the same armoured vehicle.
Two remarks: Japan, Germany and Italy, in spite of evident cultural differences, have similar political attitudes in "balancing" foreign weapons procurements.
Since 2007 there have been fundamental changes, making offsets requirements more effective and complex, including the multipliers systems, with more attention on the tangible benefits for Kuwait.
The only existing offset agreement has been signed with Alstom which won the contract to build Morocco's high-speed train system and which is also responsible for the construction of tram networks in Rabat and Casablanca.
Since its election in 2012 as President of the CGEM Confédération générale des entreprises du Maroc [fr], Miriem Bensaleh Chaqroun has been lobbying for the creation of a legal framework making mandatory for state controlled companies, offices, local authorities to sign offset agreements.
The action was the creation of the commission compensation industrielle et accès aux marchés publics in 2012 which was headed by the former CEO of the CGEM Mehdi El Idrissi.
The Baltimore Sun reported that "such side deals have long been criticized in Washington as a form of kickback that defies the natural forces of free trade, including when Duncan Hunter called offsets "economic bribes" during a hearing on Capitol Hill this summer (2004)."
Foreign Direct Investments are authorized and supervised by SAGIA, and they receive high multipliers according to the most strategic sectors and the Kingdom's priorities (such as water, electricity, communications, etc.).
[79] Ministry of Defense - General Direction of Armaments and Material (DGAM) - Industrial Cooperation Agency of Spain (ICA) is responsible for the negotiation and the supervision of offsets.
The primary purpose of the voluntary and non-binding Code is to promote a "European Defense Technological and Industrial Base" and to outline a road map to arrive to a complete elimination of offset practices within the domestic EU market.
[89] This U.S. offset story brought to light the issue of the impact of confidential agreements by defense companies on U.S. non-military business, in some instances with devastating effects.
346 of Lisbon Treaty, written more than 50 years ago, is there to wisely avoid disruptive effects caused by unjustified military secrecy in civilian offsets in the common European market.
