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Volume 2018
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.
Main headlines from this issue
Stricter enforcement lifts Israel’s offset benefits to record highs—50 contractors overdue
Counterpurchase obligations levied by Israel on foreign contractors totalled $2.45bn in 2017, $350m more than in 2016. Purchases from SMEs and from companies in Israel’s outlying areas rose by about 50 percent, the ICA’s annual report reveals. The report indicates that the ICA sees the enforcement proceedings against three companies as “success stories.”
Poland: PGZ chief says 1bn zloty in Wisła offsets is enough
Jakub Skiba, president of Polish Armaments Group (PGZ), has said that Poland is currently unable to absorb larger quantities of offsets under the first phase of the Wisła project. One billion zloty ($272m) is sufficient for raising Poland’s technological level, he said.
BAE Systems discloses internal guidelines on offset demands
BAE Systems has published a description of how the company responds to demands by its customers for offsets. All offset arrangements, it says, are governed by an Operational Framework and Code of Conduct which sets out the principles the company applies to all offset activities…
Chicken barter continues to boil in Thailand
Former Bangkok governor Apirak Kosayodhin will face the Thai Supreme Administrative Court as the fallout continues from an allegedly corrupt barter deal dating back to 2004. The deal was made between…
India: Reliance files defamation suits over Rafale accusations
Anil Ambani’s Reliance Group of companies have filed a defamation suit against the leaders of India’s Congress Party after the party failed to respond to a “cease and desist” notice served for their criticism of the Rafale deal. Reliance also filed a 5,000-crore ($715m) defamation suit against the Congress-owned National Herald.
Main headlines from this issue
India’s new offset guidelines at “final stage”
India’s Ministry of Defence has reached the final stage in its deliberations of the country’s draft defence offset guidelines. The guidelines were published in May. An officer at the Defence Offsets Management Wing (DOMW) told CTO there will be “many implications” in the final document concerning both financial and legal areas.
India: penalties thump Lockheed and Textron but Boeing wriggles free
India’s Ministry of Defence has penalised two firms for failing to fulfil offset obligations. A third narrowly escaped... The Comptroller and Auditor General alleged that Boeing had claimed offset credits on the “mere placement of purchase orders, defeating the very purpose of having obligations.”
Kuwait: KDIPA’s new project list is ready but offsets for F/A-18 jets in doubt
The Kuwait Direct Investment Promotion Authority has released a new list of projects that companies can use to discharge their offset obligations. “We have them from the government sector and from the private sector,” Manal Najem Abdullah Jaber, KDIPA’s offset director, told CTO.
U.S. government to work with partners on “burdensome offsets”
U.S. officials are consulting with foreign partners and local defence companies to address what they see as foreign countries’ “restrictive offset policies.” The moves form part of the recently updated Conventional Arms Transfer (CAT) policy which aims to increase U.S. arms sales to allied countries. The policy is undergoing a final implementation review.
Canada releases “Letter of Interest” to gauge fighter’s IP capabilities
Canada’s Department of National Defence has issued a “Letter of Interest” for the Future Fighter Capability Project (FFCP). The winning supplier will have to make investments in Canada equal to the value of the contract. The purpose of the LoI is to gain a better understanding of Canadian industrial capabilities related to the sustainment of fighter aircraft.
Main headlines from this issue
Saudi Arabia: SAMI buckles, counts localisation towards offset
A group of defence companies led by Lockheed Martin has been revolting against Andreas Schwer, chief executive of Saudi Arabian Military Industries, an intelligence report says. CTO’s inquiries indicate that Lockheed has achieved some success; SAMI has agreed to count localisation towards offset.
U.S. advances ‘Buy American’ agenda with conventional arms transfer policy
The U.S. State Department has approved the passage of an implementation plan for the country’s new Conventional Arms Transfer (CAT) policy. The policy functions as a kind of reverse offset: any defence sale must show that it can bring a tangible benefit to the American economy prior to approval.
Aero Vodochody and Paramount Group offer trainers “Built In The U.S.A.”
Czech aircraft manufacturer Aero Vodochody announced that it has teamed up with Israel Aerospace Industries (IAI) to build a new light attack aircraft, the ‘F/A-259 Striker.’ The two companies are offering to build the aircraft in the United States. South Africa’s Paramount Group is planning to make a similar proposal.
Netherlands signs IP agreement with general atomics for drone purchase
The Netherlands has ordered four MQ-9 Block 5 unmanned Predator B aerial vehicles from the U.S. as part of an FMS purchase. The procurement includes an industrial participation agreement. The Dutch Ministry of Economic Affairs declined to share information regarding the industrial participation agreement...
Sri Lanka offers tea to settle $250m Iranian oil debt
The Sri Lanka Tea Board has offered to ship tea to Iran to offset the Ceylon Petroleum Corporation’s (CPC) debts for oil imports. The debt is worth $250m. European banks are trying to find ways to continue tea exports to Iran in the face of renewed sanctions.
Main headlines from this issue
Blenheim “dissolution” mystery solved but Grant Rogan may face jail time in divorce dispute
Confusion over a Blenheim company registered in the UK with another company registered in Guernsey has led concerned parties to approach CTO. Their worry was that the offset service provider had been wound up...
Malaysia sets 60 percent localisation target for Thales’ in-flight entertainment displays
Thales has signed a “Pre-Industrial Collaboration Programme Agreement” with Malaysia’s Technology Depository Agency (TDA). The agreement provides for the localisation of In-Flight Entertainment screen manufacturing. The screens are for the Malaysia Airlines fleet as well as the global market... The TDA is using a base multiplier of...
Australian senate publishes scathing report on IP failings in naval programme
Australia’s Senate Economics References Committee has submitted a “final report” into the “Future of Australia's naval shipbuilding industry.” The report contains significant criticism of the handling of industrial participation and criticises vague definitions of Australian industry content.
U.S. DoD issues ruling on FMS indirects – redefines “offsets”
The U.S. Department of Defence has issued a final ruling on the permissibility of indirect offsets within FMS contracts. Costs associated with indirect offsets will not be deemed “unreasonable.” The first sentence of the direct offset definition has been revised to provide that a direct offset involves... and revised the definition of indirect offsets to state...
UK MoD on article 346: “There is no national security interest” – Labour opposition: “Yes, there is”
The British government’s procurement plans for up to three new support ships for the Royal Fleet Auxiliary are facing opposition from the Labour Party, the Scottish National Party (SNP), and trade unions. The opposition focuses on the application of Article 346 TFEU.
Main headlines from this issue
IT’S war – Taiwan ministries in battle for control of offsets
Taiwan’s National Chung-Shan Institute of Science and Technology (NSCIST) has hardened its approach to offsets and is continuing to draft new guidelines. The move heats up a long-simmering turf war between the Ministry of National Defence (MoND) and the Ministry of Economic Affairs (MOEA). The MoND and the MOEA have until now managed offsets together in a relationship that is rarely affable...
Conflicting signals as South Korea’s defence minister confirms rule change
South Korea's minister of national defence has announced that “a certain percentage” of the weapon system parts would have to use domestic products. The aim is to boost the level of SME participation in defence projects. A DAPA spokesman confirmed to us that “we do not expect significant changes.” The reply seems to rebuff the scope of policy changes we reported in CTO 10, which we obtained from a leaked official document.
South Korea gives China’s technology demands a frosty response
The ongoing dispute between the U.S. and China over forced technology transfer appears to be having little impact on China’s demands of other nation states. According to a South Korean business newspaper, Hankyung News, the Chinese government is asking LG Display to transfer technology to local manufacturers before granting the necessary permissions for a factory to open.
COLOMBIA: ‘ACTING OFFSET DIRECTOR’ AWAITS NEW GOVERNMENT’S SANCTION
Katerina Paton Colonia has replaced Catalina Puerta Hoyos to become acting director of science, technology and innovation at CODALTEC, Colombia’s military technology agency. Ms Paton was the deputy director and held the title of ‘offset coordinator.’
American purchase from Rafael and Leonardo sealed with offsets
Rafael and Leonardo DRS have joined forces to sell TROPHY Active Protection Systems to the U.S. Army. The deal is worth $193m in its initial stage. The manufacture of the systems will take place in Israel and the U.S., however Rafael stated that it expects U.S. manufacturing to comprise the bulk of the work.
Main headlines from this issue
The great American depression: Offsets and technology transfers at historic lows
The 22nd annual report to Congress on the impact of offsets in defence trade shows that industrial participation involving U.S. defence exporters is now at a historic low. Compiled by the Bureau of Industry and Security, the belated report collects data from U.S. exporters that have associated offset arrangements. The major take-away from the report is that in 2016 offsets involving these exporters declined significantly across a number of metrics, including...
GAMI releases new Saudi localisation guidelines
Saudi Arabia’s General Authority of Military Industry (GAMI) has revised the guidelines for localisation proposals for MoD acquisitions. GAMI now divides localisation into direct and indirect projects. Contractors must commit to a localisation agreement for at least 50 percent of the value of the supply contract.
Korea: DAPA announces new localisation regulations
South Korea’s Defence Acquisition Program Administration (DAPA) has introduced new regulations concerning the localisation of weapons systems. The scope of the parts subject to localisation has expanded from import substitution to a broad range necessary for domestic production and performance upgrades.
Updated South African DIP guidelines focus on small and black-owned enterprises
Armscor has amended its Defence Industrial Participation (DIP) guidelines to boost the prominence of SMEs and black-owned enterprises. Defence contractors must put all of their offset obligations into Black Economic Empowerment (BEE)-compliant, Black-Owned, or Enterprise and Supplier Development (ESD) businesses.
India to allow migration from old DPPs
R.R. Thakur, the Officer on Special Duty at India’s Defence offsets Management Wing (DOMW), said that vendors will be allowed to migrate from older Defence Procurement Procedures (DPPs) to the latest version. He said new offset rules will be published within one to two months.
Main headlines from this issue
Universal offset law prepared for World Bank and Unicitral
The World Bank is considering a draft law governing compensatory measures in international government procurements. The law is intended to add fairness, transparency, and accountability to the process of executing offset deals. The law, prepared for the ‘Global Forum on Law, Justice and Development,’ will apply to all offset contracts, direct, indirect, and semi-direct, added to international public procurements for commercial and defence products. The 46-page draft...
Pakistan: “Offsets needed to achieve army’s objectives”
A report from a Pakistani defence analysis group says that offsets would have to generate economic benefits to fulfil the Armed Forces of Pakistan’s own strategic objectives. Those objectives are to secure long-term funding mechanisms to support current and future big-ticket procurements. Pakistan’s defence and security establishment seldom requires public approval for defence purchases but is constrained by financial resources.
Belgian fighter replacement programme becomes a mess
Belgian defence minister Steven Vandeput has denied receiving additional details regarding a bid by Dassault Aviation to sell the country Rafale jets. The French government claims that the company has provided new offers of collaboration. Belgian opposition parties are calling for the government to pause the competition to replace its F-16 fighters and launch a parliamentary inquiry into the proceedings.
Australian audit: “Lürssen’s partner has never built a whole naval ship
Australia’s National Audit Office has declared that the Naval Shipbuilding Plan carries a “high to extreme level of risk” of cost overruns and production delays. It also found that Australian industry is taking an early role in the development of capabilities, and enjoys greater support to maximise participation in major capital equipment projects such as shipbuilding.
Study prefers Fincantieri’s industrial proposal for Australian future frigates
A study by the Australian Strategic Policy Institute has found that Italy’s bid for the Future Frigate tender (SEA 5000) has the best industrial cooperation outcomes.
Main headlines from this issue
DAPA seeks ‘offset reset,’ approves pre-offset credits and abandons “offsets for free”
South Korea’s Defence Acquisition Programme Administration is “resetting” its offset policy. A plan circulated to obligors explains that the country will now recognise that offsets have a cost. In response to the negative image associated locally with offset price increases DAPA will instead refer to “defence industrial cooperation.” The document described...
India: MoD offers investment options for discharging obligations
India’s MoD has proposed significant amendments to the defence offset guidelines. Contractors will be eligible for different multipliers through investments in specific projects. The multipliers will depend on which of three “lists” the project falls into. Opportunities for discharge will be retrospective.
GOCA knowledge sharing session “is not about marginalising OEMS”
Separate intergovernmental “knowledge sharing sessions” have become a fixture at GOCA conferences. Representatives of the offset authorities of sixteen countries discussed their policies at the Paris conference. Thirty-one delegates took part. The KSS is a platform established to enable offset authorities from many countries to share experiences and challenges, and explore improvements.
Japan offers facial recognition tech to Malaysia and Singapore alongside HSR bid
Japan has offered to share advanced facial recognition technology with Malaysia and Singapore should it win its bid for a high-speed rail project. Both countries are planning the construction of the Kuala Lumpur-Singapore high speed rail (HSR), a project estimated to be worth $12.5bn-$15bn.
Bulgaria calls for domestic production for military vehicles and aircraft
The Bulgarian government is planning to modernise vehicles and equipment for its armed forces, and is stipulating that the machines be manufactured locally. “Our aim is to [have equipment] produced in our country,” announced prime minister Boiko Borisov.