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Volume 2018
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.
Main headlines from this issue
‘Defence Industrial Capability Plan’ re-defines Australian defence industry
The Australian MoD has released its Defence Industrial Capability Plan. The plan reveals the ‘Sovereign Industrial Capability Priorities’ (SICPs) that the country hopes will build its local defence industrial base—and adds a complex layer to an already complex policy. Australia’s current local industrial cooperation policy, known as Australian Industrial Capability (AIC), will acquire the SICPs with the help of various other projects and grants.
Infringement cases: legal expert predicts EC will back off
Dr. Aris Georgopoulos, a law professor and expert on European Law from the University of Nottingham, believes the EC will take a cautious approach to infringement cases given the risk of creating a legal precedent. He said the EC’s investigation into the possible misuse of offsets under the defence directive is unlikely to progress significantly.
India’s “chilling effect”
“We are appreciative of offset banking, but what we would really require as [anyone] doing business in India, is clarification that the offset has been realised. Because unfortunately I submit to you today that companies have been given penalty letters, payments are being withheld, and this creates a chilling effect,” said AECOM’s Rahul Madhavan.
Industrial participation from a Nordic perspective – and Denmark’s reply to the EC
Finland, Sweden, and Denmark sit together on many issues but differ in their views of defence solutions. A panel comprising representatives of the countries’ defence industry associations insisted that Article 346 TFEU was used only when essential national security interests were at stake. Norway was not represented... The Danish government has replied to the EC, saying...
Swiss offset policy revised—banking terms clarified
Switzerland has modified its offset policy by streamlining the language and introducing the terms and conditions of the offset agreement and the banking agreement into the guidelines. The armaments policy is also in revision but will not be ready for another year.
Main headlines from this issue
Trump administration baffled by Annual Report to Congress on Offsets
The twenty-second annual report to Congress on the impact of offsets in defence trade is long overdue. The report is usually published each January. We are told that the reason for the delay is to do with the new administration... said it is reasonable to speculate that president Trump and his administration haven’t a clue what the report is about.
Major changes to India’s offset approach
Dr. Ajay Kumar, secretary (defence production), acknowledged that OEMs and the government are both dissatisfied with the current policy, and indicated that the MoD wishes to engage in a further dialogue with all stakeholders. Defence minister Nirmala Sitharaman said the armed forces have been given a free hand to procure their choice of equipment from Indian or foreign manufacturers instead of having to procure locally.
India: new jet fighter RfI demands much and promises little
A newly released Request for Information (RfI) for the procurement of fighter jets asks contractors to provide significantly more detail regarding the technology transfer and IP proposals than is customary. OEMs will be put to significant cost and trouble to comply, especially as the MoD indicated it is only a fact-finding exercise and there is no commitment from the government to the programme.
Ukraine to pursue import substitution agenda for defence equipment
The Ukrainian Cabinet of Ministers has adopted a resolution calling for a study of import substitution measures for military-industrial areas. The cabinet will create an interdepartmental commission to implement the initiative.
Australia faces patrol boat IP problems
Australia is struggling to add a third local manufacturer to the production of Offshore Patrol Vessels (OPVs).
Main headlines from this issue
Korea’s DAPA — delay to policy shift hurts contractors
A spokesperson for South Korea’s Defence Acquisition and Procurement Agency (DAPA) has admitted that the delayed release of an updated offsets policy is causing difficulties for contractors. The January 2017 version of the regulations remains in effect, we were told. The degree of change is expected to be considerable, fundamentally shifting the way DAPA offsets work.
Raytheon and Lockheed accept 100 percent liquidated damages for Poland’s ‘Patriot’ contract
Poland’s Ministry of National Defence has signed offset agreements with both Raytheon and Lockheed Martin for the first stage of the WISŁA air defence system. Both contractors surrendered to the 100 percent penalty provisions, though with qualifications.
Beware: India’s DPP 2018 is under way
India’s Department of Defence Production has highlighted proposed changes to its procurement policy. The proposals come in a newly released draft of a forthcoming Defence Production Policy 2018 (DPP 2018). The changes include streamlining the offset process. The DDP is conducting a survey and considering comments from stakeholders.
China promises to stop demanding tech transfer
The Chinese government has announced new commitments to end forced technology transfer amidst growing international criticism of the practice. Speaking to journalists Chinese Premier Li Keqiang said that the country would end the practice as part of its commitment to reform."
Tawazun winds up its offset fund
Tawazun Economic Council has announced the closure of its defence investment fund ‘Alfia.’ Formerly known as the ‘Chescor Capital Offset Fund,’ it was said to have fulfilled its purpose, serving as a vehicle through which defence contractors could discharge their offset obligations.
Main headlines from this issue
UAE: EDIC takes control, finds new focus
When the Emirates Defence Industries Company (EDIC) announced plans in 2015 to take control of joint ventures and transferred technologies defence contractors scoffed. Three years later it appears EDIC has got away with it. “Everybody now understands how we work and nobody seems to have a problem with it” Fahad Al Mheiri EDIC’s director of business development informed CTO."
Germany risks conflict with the EC over offsets
Germany has adopted a procurement approach that distinguishes between offsets and industrial participation, without defining either. In practice defence contractors maintain that it is impossible to win a major programme in Germany without local production. The Bundeswehr told CTO that while Germany considers offset agreements between governments and contractors unlawful, requests for industrial participation are legal.
European Parliament legislator on PESCO: “We can’t allow offsets, they are very murky”
A feisty Portuguese MEP with a hard dislike of offsets will campaign for their exclusion from the Permanent Structured Cooperation (PESCO) defence integration project. Left-winger Ana Gomes said she is hopeful that the newly-formed PESCO will enable the EU to move away from offset contracts because they tend to be corrupt."
Nigeria commands all ministries to demand local content
The Nigerian government has issued an executive order increasing the level of local content in large public procurement deals by any of its ministries. The order awards preference in contracts for goods and services to domestic bidders, or to foreign companies that can demonstrate a “verifiable plan for indigenous capacity development.”
Sikorsky makes pre-emptive strike as Romania encourages offsets
State-owned Romaero has signed an MoU with Sikorsky for the local production and maintenance of Black Hawk helicopters. The MoU calls for the establishment of an equipment and maintenance centre focussed on the Sikorsky UH-60. The centre will also complete Black Hawk airframes built in Poland by PZL Mielec.