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Volume 2019
Main headlines from this issue
UAE: Tawazun’s new approach - remove mandatory outputs, simplify penalties, allow indirects
The Tawazun Economic Council is discarding a dusty economic mandate that has been the offset policy’s bedrock since 1992. Among the changes is the need for contractors to fulfil their obligations by generating profitable activities with a minimum level of input and output-based credits. Tawazun will also remove or simplify penalties for non-fulfilment, bank guarantees, and milestones...
India signs 21 offset contracts in three years
India’s MoD has announced that it signed 21 defence offset contracts with a cumulative value of approximately $5.67bn over the last three years. Last month a parliamentary standing committee on defence announced that India had signed 42 defence offset contracts since introducing the offset policy in December 2002, and had seen few returns.
Australia walks back 60 percent local content level in submarine deal
The Australian Department of Defence has signed a Strategic Partnering Agreement with Naval Group for the production of twelve “Attack-class” future submarines. Naval Group won the $A50bn ($35bn) tender two years, ago, but the SPA has faced significant delays.
Russian Helicopters identifies potential partners in India for the KA-226T
Russian Helicopters, a subsidiary of Rostec, signed five industrial participation MoUs with Indian firms at Aero India 2019. The parties agreed to explore the production of assemblies and components for the Ka-226T helicopter.
Venezuela offers India oil barter
Venezuela is open to barter payment arrangements with India as a workaround to U.S. sanctions, Venezuelan oil minister Manuel Quevedo said at a press conference in Delhi. Caracas currently buys medicines and other products from India and is looking for alternative payment methods.
Main headlines from this issue
Turkey’s SSB on Law 7161: “This doesn’t apply to us”
Turkey’s Savunma Sanayii Başkanliği (SSB) denies that Law 7161, effective since January 17th, provides obligors with a way out of their offset commitments. “Their denial, from a legal perspective, is not reasonable,” a lawyer told us. “It is not possible to say it does not cover offset agreements”.
Ukraine makes offset mandatory for defence procurement
Ukraine, which has an increasing need for defence materiel, has introduced legislation to make offsets mandatory for defence procurements. Ukraine used to require foreign OEMs to engage in assembly and parts production on an ad hoc basis.
Australian companies warned: Don’t gouge the taxpayer
Australian defence minister Christopher Pyne has warned Australian companies wishing to benefit from industrial participation not to charge unfairly high prices. “Our defence industry doesn’t have a green light for gouging the taxpayer,” he told companies that had failed to win contracts. “We’re not interested in building people’s second beach houses.”
Romanian union leader criticises lack of offsets contracts, blames corruption
Dumitru Costin, leader of Romania’s National Trade Union Bloc, has criticised the lack of offsets applied to Romanian defence procurements. He complained that according to contracts agreed with foreign prime contractors, offset investments worth around €750m have been pledged, but none have so far been executed.
European countries to establish joint Iran barter instrument
Germany, France and the UK (the E3) have established a joint Special Purpose Vehicle to circumvent U.S. sanctions against Iran. The vehicle is a barter mechanism.
Main headlines from this issue
New Turkish law allows obligors to void their offsets
Turkey has approved a law that can help suppliers dodge their offset obligations. The obligors need only prove that input costs have “unexpectedly increased.” Law 7161, effective since January 17th, maintains that all public procurement contracts, including offsets in both the civil and defence sectors...can be terminated if the manufacturing cost of the contract has unexpectedly increased. To terminate the contracts the contractors must...
Transparency International buckles under pressure – ADS leads the way
Defence companies have come out strongly against key sections of a draft Transparency International UK questionnaire. TI-UK distributed the questionnaire last year and has now published responses from defence companies. Most excoriate the NGO. The British defence industry organisation, ADS, held a “very constructive three-and-a-half hour meeting” with TI-UK on January 25th. Although the offsets discussions made up just a small part of the conversation...
CTO announces a new publication - The “CTO Global Offset Database”
CTO announces publication of a unique offset transaction record for the defence sector. The “CTO Global Offset Database” covers ten years to the end of 2017. The information has been compiled from analysis of data provided by SIPRI, and from CTO’s own extensive unique in-house archive. It is confined to commitments under defence contracts.
Israel sees increase in counterpurchases
Counterpurchase obligations levied by Israel on foreign contractors totalled NIS13.5bn ($3.68bn) in 2018, up 56 percent compared to 2017. The Industrial Cooperation Authority says that some 1,065 Israeli companies enjoyed benefits from the country’s industrial cooperation program in 2018, some 243 companies more than in 2017.
Korea: DAPA PUBLISHES PRIORITY OFFSET PROJECT LIST
South Korea’s Defence Acquisition Program Administration has announced a list of priority offset projects for 2019. CTO publishes the list.
Main headlines from this issue
Korea: DAPA clarifies the new offset policy
Korea’s Defence Acquisition Program Administration has clarified a number of issues in the country’s revised offset guidelines. The English translation of the guidelines, published on December 17th, left key policy changes open to misinterpretation. A DAPA official has written to us to clarify them.
“Downsizing India Rapid Reaction Cell is not a downgrade”
The U.S. government has downsized its India Rapid Reaction Cell (IRRC) but concerns about the reduction are unfounded, says Benjamin Schwartz, head of the US-India Business Council’s (USIBC) Defence and Aerospace program. The changes were made for internal reasons, he explained. The downsizing, combined with a move out of the Pentagon, sparked alarm...
“Downsizing India Rapid Reaction Cell is not a downgrade
The U.S. government has downsized its India Rapid Reaction Cell (IRRC) but concerns about the reduction are unfounded, says Benjamin Schwartz, head of the US-India Business Council’s (USIBC) Defence and Aerospace program. The changes were made for internal reasons, he explained. The downsizing, combined with a move out of the Pentagon, sparked alarm...
Greek F-16 offset demand sparks controversy
Greece’s main opposition party has confronted outgoing defence minister Panos Kammenos over an offset amendment in a deal to upgrade the Hellenic Air Force’s F-16 fighter jets. The amendment sparked corruption concerns. Mr Kammenos had previously pledged to end the use of offsets.
India’s Congress bashes Ambani over Rafale offsets
India’s governing BJP Party and opposition Congress Party continue to trade accusations over the choice of Anil Ambani’s Reliance Defence as the Indian Offset Partner for the procurement of 36 Rafale fighter aircraft. The Congress Party’s assault focuses on the rejection of Hindustan Aerospace Ltd (HAL).
Main headlines from this issue
Korea: DAPA’s contemporary offset policy leans heavily on exports
DAPA has unveiled long-promised revisions to its offset policy guidelines. The changes are designed to boost defence exports and create new jobs. Seoul introduced the country’s offset policy in the early 1980s. The revisions change the basis on which the policy has until now been sustained. Amid the fog of DAPA’s English translation we have identified a number of important amendments in the 402-page guidelines....
South Africa: DTI admits “No local content” on massive rail contracts
A South African government official has revealed that the government omitted localisation obligations from most projects for a huge Transnet rail contract. Popo Molefe, the newly appointed chair of Transnet, told a parliamentary committee that the contracts were “unlawful and irregular” from the beginning, and called for action to be taken.
EU tells China: “Forced tech transfer has to stop”
The European Commission, which oversees trade policy in the 28-member EU, has announced that it is significantly broadening and deepening the scope of its WTO action against China. European companies should not be compelled to transfer technology to gain access to the Chinese market, said Nicolas Chapuis, ambassador of the European Union to China.
Indian Supreme Court finds no favouritism in Rafale offsets
India’s Supreme Court has found no irregularities in the procurement process for 36 Rafale fighter jets from Dassault Aviation, and dismissed demands for an inquiry into the country’s decision to buy the planes. The deal has been subject to immense controversy in India concerning allegations of improper Indian Offset Partner choices, as well as high costs.
CONFERENCE DIARY 2019
CONFERENCE DIARY 2019 – eleven events listed
Volume 2018
Main headlines from this issue
Transparency International urges defence contractors to respond to intrusive offset questionnaire
Transparency International UK has released a draft version of a questionnaire for its Defence Companies Anti-Corruption Index 2019. The questionnaire focuses on a number of issues related to defence corruption, and includes four questions on offsets. The questions differ significantly from those asked for the Defence Companies Anti-Corruption Index 2015, the last edition of the publication.
The next issue of CTO will be published on January 7th
As the year draws to a close, all of us at CTO and QB would like to thank you for subscribing to our publications. We wish you a Merry Xmas and well in the New Year. The next issue of CTO will be published on January 7th, closely followed by the January issue of QB. Please check that your renewals are up to date.
Quebec premier criticises lack of local content in train deal
The premier of Quebec, François Legault, has attacked the Canadian federal government’s award of a train tender to Siemens. Mr Legault’s criticism focuses on the lack of local content. “[We] have a federal government which is not going to require Canadian or Quebec content? That’s not right,” he insisted.
China to transfer satellite tech to Ethiopia
Ethiopia is to launch its first satellite, with China providing technology transfer and training. Design, development, and manufacturing will be shared between Ethiopian experts and their Chinese partners, the Ethiopian government declared.
Wanted man extradited for role in India’s helicopter scandal
Dubai has extradited Christian Michel, a UK national at the centre of the Indian AgustaWestland helicopter scandal, to India. Michel was taken from Dubai, where he was held last year, to Delhi where he was remanded in custody. The CBI claimed that one of Mr Michel’s companies was in charge of providing assistance with the offset agreement. He denies any wrongdoing.
Main headlines from this issue
“Australia’s IP programme is not just a compliance exercise”
Australia wants its industrial cooperation programme to make contractors compete rather than just comply, says an Australian official. “We want companies to use their creativity, not just take it as a legalistic compliance. In fact that’s exactly the wrong mindset,” we were told.
South Africa torments OEMs with new BEE sector code for the defence sector
South Africa’s Department of Trade and Industry has revised the country’s broad-based BEE code for the defence sector. The code requires companies to procure at least 60 percent of their defence materials and technologies from local producers. The black ownership sub-contract target is now 30 percent instead of 25 percent. The code also requires foreign contractors to place 75 percent of their contractual obligations under the defence industrial participation (DIP) programme with BBBEE-compliant suppliers.
Dutch government characterises opportunities for IP
The Dutch Ministry of Defence and the Ministry of Economic Affairs have published a Defence Industrial Strategy document. The ministries justify the use of industrial participation in defence procurement and identify key areas where national industrial capacities should be developed and maintained. The 55-page document cites “essential security interests” as a justification for derogating from the injunction on offsets in Directive 2009/81 by applying Article 346 TFEU.
DAPA briefs companies on new offset policy
South Korea’s Defence Acquisition Programme Administration (DAPA) held a seminar last month at the National Defence Convention Centre on “innovative trade” for domestic and foreign defence companies. Officials discussed plans to implement offset credit banking and boost SME export levels. DAPA has launched the Defence Export Promotion Centre (DExPro) to support local defence firms seeking to export their products to foreign markets.
Cuba hopes to benefit from EC sanctions busting
Cuba hopes that a special payment system the EU is creating to avoid U.S. sanctions on Iran will help it to sidestep its own Washington-imposed trade embargo. The EU is building a special purpose vehicle to allow member states to continue to trade with Iran through a counterpurchase arrangement.
Main headlines from this issue
Universal offset law presented to World Bank, Saab asks for something simpler
Chantal Dagnaud, chairwoman of the European Club for Countertrade and Offset (ECCO), has presented a draft law governing compensatory measures in international government procurements. The draft, offered to the World Bank’s legal forum in Washington DC, is intended to add fairness, transparency, and accountability to the process of executing offset deals. “The proposed text is an opportunity to start a process with UNCITRAL and to update its 2004 International Public Procurement model law,” Ms Dagnaud told us.
Netherlands and EC nearing closure over infringement charge - policy to continue
The Netherlands and the EC have been holding discussions to resolve a dispute over infringement proceedings. The EC launched procedures against the Netherlands last year for imposing what it sees as unjustified offset requirements in breach of Directive 2009/81/EC. The exchange of views was described as positive, with a conclusion to the dispute quite near.
“Directive 2009/81 has given us the worst situation that we could imagine”
Dr Enrique Navarro dismissed the notion that offsets had fallen out of favour in Europe following the implementation of Directive 2009/81/EC. Member states are towing the EU line on offsets in public while continuing to approve rules allowing their countries to use them, he told GOCA delegates.
TAIWAN WANTS PRE-MOA OFFSETS
Taiwan’s Ministry of National Defence confirmed that deputy minister Chang Guan-chung is negotiating to establish an early evaluation process for offsets before issuing Letters of Acceptance. Taiwanese officials were speaking at and on the sidelines of a U.S.-Taiwan Defence Industry Conference in Annapolis, Maryland.
Brazil’s unified offset policy sees further delays
Representatives of the Brazilian Air Force have confirmed that a new unified offset policy under development in the country could still be a year or more away from approval. The new policy, known as the National Compensation Policy, or PNAC, aims to create a single set of offset guidelines for all branches of the military as well as civil agencies.
Main headlines from this issue
Canada says Value Propositions “have been a real game changer”, but the “harms test” comes under attack
Addressing the GOCA Fall Conference in Vancouver, a spokesman from Canada’s Innovation, Science and Economic Development (ISED) talked up the success of his country’s Industrial and Technological Benefits (ITB) policy. Businesses on the receiving end talked it down.
Contractors warned: Not even God can overrule India’s auditors
“Clean up your act,” Dhiraj Mathur, partner (Aerospace and Defence) at PWC’s Delhi branch, told contractors attending the GOCA conference. He issued a stark warning to anyone with obligations in India that the government is cracking down on compliance and documentation in response to a number of dodgy offset claims.
UAE: Tawazun’s fresh, happy approach
The Tawazun Economic Council’s “Contractors Council Workshop” adopted a fresh approach at its October meeting. It invited contractors to be frank and honest when raising their concerns. Astonished delegates accepted the challenge. A feedback session was done in very good humour. There was no update on the new offset policy, however.
Report analyses importance of offsets to Poland
A report by the Polish Institute of International Affairs explains that the country is an outlier among European countries with a defence industrial base that consists largely of a single state-run company. The value of exports produced by the Polish Armaments Group is relatively low and the group is dependent on domestic sales.
Anxiety over offset costs grips Switzerland
The Swiss government has organised a series of meetings between foreign contractors and local companies to explore industrial participation opportunities associated with its forthcoming fighter jet procurement. Oskar Schwenk, boss of the Swiss aircraft manufacturer Pilatus, has criticized the initiative which he says would increase the price by 15-20 percent.
Main headlines from this issue
Taiwan delays changes to offset guidelines
The US-Taiwan Business Council has convinced the Taiwanese authorities to delay the release of its new industrial cooperation policy. Prime contractors had raised concerns about the forthcoming changes. A Taiwanese MoD official is scheduled to speak about the industrial cooperation policy at a symposium in...
Ukraine revises offset policy, expands variable quotas
Ukraine’s cabinet of ministers has adjusted the country’s offset quotas and separated them into three categories instead of two. The quotas vary with the purchasing sector and are set as a percentage of the acquisition costs in the main contract.
Oman rolls out global veterans to inspire a prominent domestic audience
The Omani Authority for Partnership for Development (OAPFD) has held a three-day offset symposium in the country. The programme included two days of customised offset training for officers from local ministries and agencies, as well as presentations from a number of notable international figures in the industry. Oman currently has seven development projects under way, and eleven projects in the pre-operation phase.
World Bank to receive legal framework document for offsets next month
The European Club for Countertrade and Offset’s chair, Chantal Dagnaud, will present the final version of the proposed model law on offsets at the Law, Justice and Development symposium. The model is meant to establish a globally acceptable legal framework for offsets. Interested parties are still invited to submit proposals for changes to the draft text.
Dassault: “Reliance will only receive around 10 percent of the total offset value”
Éric Trappier, Dassault Aviation’s CEO, has sought to clear the air regarding controversial offsets for the 36 Rafale jets sold to India. In a translated interview published on Dassault’s website, Mr Trappier claimed that Reliance Aerospace will only receive around 10 percent of the total offset value.
Main headlines from this issue
SPECIAL REPORT ON KOREA - Korea: Incoming Policy Details
South Korea is changing the basis on which its Defence Acquisition Programme Administration (DAPA) accepts offsets. The move follows last month’s appointment of a new controller for DAPA. “It won’t favour offsets.”
Korea: F-35 Contract: “Senior DAPA Offset Negotiators are Facing Jail”
DAPA is now wondering whether the whole F-35 programme was a conspiracy. Senior people who negotiated the offset contracts with Blenheim and with the FMS are being investigated and are facing jail. Also: “A U.S. government official who negotiated a deal with us now works for a company who provides funding - It would have been all over the news.”
Korea: DAPA Blames Obligors for Hiding Costs: “They Made Us Look Like Idiots”
Neither the government nor the contractors were willing to discuss offset costs, so DAPA wrote to some of the largest companies with which it does business... “No-one was helpful in sharing the numbers.” Then they discovered the cost was...
Germany and Norway pursue broader “indirect” industrial cooperation
Germany and Norway are continuing with a bilateral government-to-government industrial cooperation agreement. Norwegian MoD says that the agreement differs from the traditional direct offset approach and is now viewed as an indirect (defence) offset opportunity.
Australia: Naval Group snubbed - fail to agree strategic partnership agreement
Australian government officials are growing frustrated with Naval Group following delays in the signing of a Strategic Partnership Agreement linked to the Future Submarine procurement. Defence minister Christopher Pyne snubbed meetings with high level French officials.
Main headlines from this issue
New Argentinean local content regulations permit credit banking, introduce stiff penalties
New public procurement regulations have come into force in Argentina for both commercial and defence procurement. The regulations establish a preference for bids that include locally made goods and allow credit banking for over-performance. Pre-existing defence procurement regulations, however, have not been explicitly overruled...
South African anti-corruption campaigner reignites the SDP offset scandal
Terry Crawford-Browne, a South African anti-corruption crusader, has called on the country’s new “Commission of Inquiry into State Capture” to release documents related to alleged offset corruption under the 1999 “Strategic Defence Package.”
Israel and the Philippines sign multiple IP agreements
Israeli and Filipino business groups and companies have signed multiple industrial participation and technology transfer agreements following a visit to Jerusalem by president Rodrigo Duterte. Mr Duterte threatened to personally intervene if Israeli businesses experienced corruption while operating in his country.
IAI moves Arrow production to the U.S.
Israel Aerospace Industries has announced that it has relocated the production of Arrow Weapon System (AWS) anti-ballistic missile canisters to the U.S.. The missile canisters are now being produced by Mississippi-based subsidiary Stark Aerospace, with IAI confirming that it has received its first deliveries.
India rejects Russia partnering with Adani group – new rifle RFI announced
The Indian MoD has rejected a request by the Russian government to partner with the Adani Group in the manufacture of AK-103 rifles. India is currently negotiating a Rs 3,000 crore ($551m) procurement of 600,000 AK-103 rifles from Kalashnikov Concern.