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Volume 2018
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.
Main headlines from this issue
Grant Rogan emerges in the Congo
Grant Rogan, chairman of the offset service provider Blenheim Capital, and one of the offset community’s most controversial characters, has emerged in the Republic of the Congo. According to Mr Rogan, the prime minister and the president of the central African country have approved Blenheim’s proposals for establishing formal commercial offset guidelines. The guidelines will be modelled on the Omani policy...
Turkey revises commercial offset policy, increases penalties
Turkey’s Ministry of Science, Industry and Technology has amended the guidelines for implementing industrial cooperation partnerships through commercial procurement agencies. The ministry has raised non-performance penalties, and reconstructed the categories for discharging offsets, reducing them from four to three.
Minister: “‘Make in India’ policy is a failure”
India’s minister of state for defence, Subhash Bhamre, has called the country’s ‘Make in India’ policy a failure. In a recently leaked presentation made to the Prime Minister’s Office in November last year, Mr Bhamre outlined a number of major areas in which the policy has failed to live up to expectations.
Gang of Three prepare ‘forced technology’ case against China
The U.S., EU, and Japan are jointly working to file a case against China through the World Trade Organisation. The case concerns forced technology transfers. The parties allege that China forces companies that want to enter the Chinese market to transfer key technologies as part of a wider strategy to acquire foreign expertise.
Dassault AND Eurofighter Consortium furious over EU ban on Malaysian palm oil
A European Union ban on importing palm oil into Europe threatens to block Malaysia’s purchase of defence equipment from France, the UK, Sweden, and Italy. France is opposing the ban, which could hinder both the Dassault and Eurofighter consortium’s offers of fighter jets. The UK is instead offering Malaysia export credit and industrial participation.
Main headlines from this issue
Netherlands snubs European Commission with new IP tender
The Netherlands has issued a new military tender that is likely to attraction the attention of the European Commission. The tender calls for the building of 1,434 mobile offices and workplaces for the Ministry of Defence. It includes an industrial participation requirement... “Of course it is legal because it is based on Article 346,” said...
Freedom of Information’ request reveals lower IP Target for Australia’s Future Frigate Programme
The Australian government has hit back at critics within the Senate who have accused it of lowering the minimum percentage of local participation on the Future Frigate Programme.
Germany shoves policy aside, demands IP for helicopters
Rheinmetall and Sikorsky will together lead a team of German industrial providers to offer helicopters for the German Air Force’s “Schwerer Transporthubschrauber” (STH) programme. The formation of the joint venture was a demand of the German government. “Essentially it is an offset, but in practice they will just give it another name, like ‘teaming agreement,’” a well-placed source told CTO.
Trump’s offset policy takes root
The U.S. State Department has told America’s allies and partners that when they buy American arms, they also receive training, support, and stronger security relations in addition to equipment – America’s equivalent to an offset programme. “You are getting a package that nobody else offers.”
“Dassault has not yet selected an Indian offset partner”
India’s government is undergoing another pant-wetting session. The inexperience of recently appointed defence minister Nirmala Sitharaman forced the government to clarify the deal for the acquisition of Rafale jets from Dassault Aviation.
Main headlines from this issue
European Commission bares its teeth, bites Denmark and The Netherlands
The European Commission has launched infringement procedures against Denmark and the Netherlands. The two countries are accused of imposing unjustified offset requirements by demanding compensation from non-national suppliers when purchasing defence equipment. The member states have two months to respond. Asked if he believes there was any wrongdoing by Denmark...
Defence Acquisition Council simplifies ‘Make II’ procedure
India’s Defence Acquisition Council has announced significant changes to the country’s Make-II policy. Only Indian vendors are eligible for participation under this acquisition category. Suppliers may now use the ‘Make’ procurement category either in isolation or with any of the five other bands. Offsets apply to the ‘Buy (Global)’ or ‘Buy and Make’ categories...
Malaysia-Singapore HIGH-speed rail project brings rich benefits for Malaysia, shrugs for Singapore
The governments of Malaysia and Singapore have agreed to collaborate on a multi-billion dollar high-speed rail project connecting the two nations' capital cities. Malaysia will call for local industry participation and technology transfer as a mandatory part of any bid under the country’s Economic Enhancement Programme. Singapore has no such policy.
Us-India Business Council enters ‘productive dialogue’
The US-India Business Council is now upbeat on the potential for U.S. companies to work with India’s defence sector, despite earlier unease. A productive dialogue with the Indian government is now addressing the concerns raised in a USIBC letter sent last August.
President Trump’s Davos speech echoes EU on offsets
President Donald Trump told global finance leaders at Davos he will always put the U.S. first when it comes to trade, but his comments regarding reforms to the international trading system may foreshadow policies that will influence how American prime contractors will react to demands for offsets.
Main headlines from this issue
DAPA offset rule update faces delays and political upheaval
South Korea’s Defence Acquisition Programme Administration has again delayed the implementation of its offset policy changes. So far only the demerit table, announced last June, has come into effect. Approval of the changes has been deferred until the end of this year. The new policy will include alterations to both the new demerit table and the country’s localisation quota...
Mystery regarding UAE/South Korea 'double contract’
New information has emerged in South Korea regarding a reported ‘double contract’ with the UAE. The deal was signed in 2013 and concerns a mutual logistics support agreement (MLSA) between the two countries' militaries, according to The Hankook Ilbo. The report contends that the deal includes reciprocal provision of logistical support, supplies and services in return for either cash payments or provisions.
Sanctions boomerang as Russia embarks on a tech revolution
The Kremlin has responded to sanctions imposed on Russia by the West following the country’s annexation of Crimea in 2014 by launching a ‘Make in Russia’ revolution. The initiative is principally for new technologies.
Airbus deepens industrial cooperation with China ahead of A-320 order
Airbus has signed a new agreement deepening its level of industrial cooperation with China for the production of new aircraft. Initial reports suggested that Airbus received little in return for the increase in local production, however...
Indo-Korean minesweeper deal collapses
A large deal between India and South Korea for the production of minesweeper vessels for the Indian Navy has collapsed at the final stage of negotiations. The vessels were stipulated to contain at least 60 percent indigenous content.
Main headlines from this issue
Countdown begins as Philippines military prepares for mandatory offsets
The Philippines has taken another step towards mandatory offset demands for foreign OEMs in military and aerospace purchases. At an offset summit held last month the Secretary of National Defence, Delfin Lorenzana, joined more than 115 people, including some of his undersecretaries and assistant secretaries, officers and executives of the various armed forces, members of the bids and awards committees and the technical working group.....
Turkey: SSM to sanction major guideline changes
Turkey’s Undersecretariat for Defence Industries (SSM) is considering revoking the requirement for domestic defence contractors to provide offsets. Other recommendations include reducing the 6 percent bank guarantee on offset performance to 4 percent and to halve the weighting in the evaluation criteria for industrial participation from 40 percent to 20 percent.
WHY Korea can’t cope when defence customers demand offsets
South Korea, whose Defence Acquisition Programme Administration (DAPA) imposes exacting and stringent demands on foreign contractors selling defence equipment, struggles when buyers make similar demands. The challenge is costing valuable orders.
India’s 50 percent local content requirement hits railway buffers
Nripendra Misra, principal secretary to Prime Minister Narendra Modi, has asked all government agencies to give preference to domestically manufactured products over imports for public-funded programmes. The command was issued after the Steel Ministry complained about the railway’s global tender for rails as part of its track replacement programme.
Brazilian RfP allows OEM to build one corvette abroad, three in Brazil
The Brazilian navy has issued a Request for Proposal (RfP) for four general-purpose Tamandaré-class corvettes. Three of the ships must be built by local shipbuilders, whether state-owned or private. The first vessel may be built abroad. The estimated cost is about $1.6bn.
Volume 2017
Main headlines from this issue
“The Boeing effect”— Canada marks down “harmful” corporations
Canada has broadened its criteria for winning bids for defence programmes to include the “harm” a corporation might cause to the Canadian economy as well as the benefits the company offers. Contenders deemed to be harming the country’s economic interests will find themselves at “a distinct disadvantage.”
Thai government selects ten commercial sectors for ip deals with foreign OEMS
The Thai government has extended its industrial participation approach into the commercial sector. Ten industries have been selected for inclusion, starting with the commercialisation of locally-made defibrillators for hospitals.
Left’s cunning plan challenges European Commission’s inaction on the defence directive
The European Parliament’s Committee on the Internal Market and Consumer Protection (IMCO) has asked the European Commission to exert greater control over exemptions applied to the defence directive. A proposed amendment to Directive 2009/81/EC on defence and security procurement requires the exemptions to “be duly justified.” Igor Šoltes, a Slovenian lawyer and Green Party MEP, said that after eight years of inactivity he is calling for....
Eurofighter offers Belgium investments and a voice
The European consortium promoting Eurofighter has revealed further details of its industrial offer to Belgium as part of its bid to replace the Belgian air force’s F-16 aircraft. Anthony Gregory, Campaign Director for Belgium at BAE Systems, said the proposal ensures that every Euro invested by Belgium in Eurofighter would help sustain more than 100,000 direct jobs across the continent, including in Belgium.
Russia’s four-stage programme for building helicopters in India
Russian Helicopters will produce 200 Kamov lightweight multi-role military helicopters for India in four stages. The approach is meant to ensure the transfer of technology for the aircraft’s main components to the Indo-Russian joint venture, a senior official for the programme said. The first stage includes....
Main headlines from this issue
“My government is stupid” - Romania’s Patriot contract ignites a firestorm
Romania’s agreement to purchase Raytheon’s Patriot air and missile defence system has angered the country’s defence community. Although a statement issued by Raytheon suggests otherwise, the agreement makes no reference to domestic industrial participation. In calm and measured insults, the Executive Director of the Romanian Defence Trade Association accused his government of being “stupid,” and Raytheon and other American companies of lacking vision for the future.
Watchdog reprimands Portuguese agencies over execution mismanagement
Portugal’s Court of Auditors has accused the Ministry of Economy and Employment of not properly considering the interests of the state when negotiating offsets. The criticism concerns the 2012 discussions for the C-295 tactical transport aircraft programme.
The Rafale fighter sleaze circus gets under way
Rafale International, comprising Dassault Aviation, Safran, and Thales, is facing the time-honoured convention of an Indian outburst. A landslide of political and media conspiracy theories has insinuated that something shady is behind the procurement of the Rafale fighters, the offsets, and the joint venture partner. The accusers have failed to provide any evidence.
Peru: A steady policy showing $2bn in benefits over its first six years
Peru launched its offset policy only in August 2010 but has already seen the execution of projects worth almost $2bn. General Wolfgang Dupeyrat, Director General of Material Resources at the MoD, said that only one country is missing from states whose defence industries are supporting Peru with offsets; the United States.
European Union issues decision concerning Article 346 TFEU, changes nothing
The Joint Committee of the European Economic Area (EEA) has amended an annexe to the agreement known as XVI (Procurement). The committee has decided that references to Article 346 TFEU shall be read as references to Article 123 of the EEA Agreement. Article 123, like Article 346 TFEU, provides a loophole for EEA members that want to demand offset.
Main headlines from this issue
Thailand and China to set up joint defence facilities, include other countries
Thailand’s Defence Technology Institute (DTI) plans to establish a joint centre with China to produce and maintain military equipment. The Defence Ministry said the government is also holding preliminary discussions with Ukraine, Russia and South Africa about joint defence manufacturing facilities. The DTI recently signed an MoU with Leonardo covering technology transfer and the establishment of...
Taiwan: Science and Technology Institute prepares new guidelines
Taiwan’s Ministry of National Defence is focusing on a ‘buy local’ policy to enhance the country’s defence capabilities, with the spotlight on sustainment and capability. The National Chung-Shan Institute of Science and Technology (NCSIST) is drafting new industrial cooperation guidelines.
GPA phase-out overshadows significant increase in Israel’s commercial obligations
Israel has enjoyed a boom in reciprocal procurement over the last two years; the number of local SMEs benefitting from the programme increased by 17 percent to 204. The growth continues a trend that began more than eight years ago. Industrial cooperation in the country continues to be “significant in scope” and its impact on the economy “has been considerable,” said Ziva Eger, Director General of the Industrial Cooperation Authority (ICA).
Russia planning for civil aircraft production In UAE
Russia and the UAE are planning to jointly develop a civil aircraft based on Russia’s MC-21 jetliner, according to Rostec’s CEO, Sergey Chemezov. He said joint production could be placed in the UAE. In February Mr Chemezov announced that Russia had initiated talks with the UAE to co-develop a new generation fighter jet.
Philippines parliament to debate bill making countertrade contracts simpler
The Deputy Speaker of the Philippines’ House of Representatives, Raneo Abu, is backing a bill to amend the country’s outdated countertrade regulations. The bill seeks to exempt all government countertrade transactions concerning the import of some items and services in the statutory procurement process and bidding requirements.