CTO Newsletter

Main headlines from this issue

Exposed: “UAE slush fund financed D.C. think tank from offsets”

The hacked email account of Yousef al-Otaiba, the influential UAE ambassador in Washington, has provided some startling insights into the Emirates’ offset arrangements. The emails reveal that the UAE created a “slush fund” from offset obligations and funnelled money meant for domestic economic development projects to a high-profile think tank in the United States in order to curry favour for arms sales.

Czech Republic to restore industrial participation policy

The Czech Republic is drafting an industrial participation policy to be used on a case-by-case basis. The move comes ahead of major military purchases planned for a modernisation programme. The requirements include helicopters, armoured patrol vehicles... The draft has the MoD and the Ministry of Trade and Industry (MITI) as co-signatories...

Romania forges ahead with domestic IP demands

Romania’s Supreme Council for Defence has indicated that contracts for military equipment should favour domestic industrial participation whenever possible. When domestic IP isn’t possible, offsets should be for at least 80 percent of purchase contract value. Romania is advancing numerous defence deals on the premise that they will include domestic IP

*“It’s crackers” as Indonesia’s offset law implemented for the first time

Indonesian Trade Minister Enggartiasto Lukita has included crackers in the list of foodstuffs to be bartered for eleven Russian Sukhoi Su-35 fighter aircraft. Defence Minister Ryamizard Ryacudu has revealed details of the financial terms. “I am serious [about the crackers], because there is added value,” Mr Enggartiasto said, implying there would be additionality.

Australia introduces a Local Industry Capability Plan for defence infrastructure projects

Defence Minister Marise Payne declared that local industry will have more opportunities to participate in major defence infrastructure projects as part of a pilot programme. The Local Industry Capability Plan pilot will ensure that Australian businesses have the best opportunity to take part in the government’s $200bn (US$160bn) investment in defence capability over the next decade, she said.

Main headlines from this issue

Kuwait prepares defence offset choices as obligors reject first menu

The Kuwait Direct Investment Promotion Authority is preparing a new selection of projects for offset obligors. Sheikh Dr. Meshaal Jaber Al-Ahmad Al-Sabah, KDIPA’s Director General, expressed dismay that industry had rejected the options offered to contractors at a seminar held on June 4th but said that the authority will make adjustments.

UK refreshes DSIEP policy as “pesky civil servants” scrutinise reports

The Defence and Security Industrial Engagement Policy, Britain’s mock industrial participation strategy, is under review and facing a “refresh.” The review will consider national security capabilities and the support needed for ongoing implementation of the Strategic Defence and Security Review.... “This year it may be a little bit of a fudge in terms of the reporting process.”

UAE: Saif Mohamed Al Hajeri leaves Tawazun – new appointment announced

The Tawazun Economic Council has announced the appointment of Tareq Abdul Raheem Al Hosani as the Chief Executive Officer of the council and of Tawazun Holding. He replaces Saif Mohamed Al Hajeri.

Saudi Arabia establishes new agencies to focus on local content and technology transfer

Saudi Arabia has established a new authority, the General Authority for Military Industries, to organise and develop the military industries sector. GAMI’s duties will include negotiating with foreign companies to transfer technology and increase local content. The Public Investment Fund announced the launch of a state-owned military industrial company.....

Bell Helicopters “accepts Romanian request for domestic production”

Romanian Defence Minister Adrian Tutuianu has signed a Letter of Intent to purchase an undisclosed number of helicopters from Bell Helicopters. Further talks are scheduled regarding the company’s plans to establish a joint venture with a subsidiary of Romarm.

Main headlines from this issue

Countertrade overtakes offset for military and commercial purchases as Indonesia deals with Russia and pressures Africa

Indonesia will purchase eleven Sukhoi 35 fighter jets from Russia under a financial arrangement that includes a significant amount of countertrade. The agreement is structured to promote additionality.... The government has also embarked on a co-ordinated approach to foreign governments to promote commercial bilateral countertrade agreements.

“Priority Industry Capabilities were a product of their time” – Australia’s new approach will maximise industry involvement

Christopher Pyne has said that his government will require international partners and contractors to work more closely with local industry. Suppliers, he said, must look harder across their business groups for innovation and export opportunities for Australian SMEs. “We seek to maximise Australian industry involvement across the acquisition.”

Pakistan looks for foreign partners to build defence industry at Kamra Aviation City

Pakistan’s Chief of Air Staff has announced that the country could seek partnerships with Turkish, South African, Brazilian and Ukrainian companies, among others, to build at the newly inaugurated Kamra Aviation City. Air Chief Marshal Sohail Aman declared that there would be a “blanket initiative” to develop next-generation weapon systems.

Trump “planning to punish China for forcing technology transfers”

The Trump administration is weighing plans to punish China for forcing U.S. and foreign companies to share their technology in return for access to the vast Chinese market.

Sri Lanka overrides Indian objections to defence technology from China

China and Sri Lanka are now in the process of overhauling Chinese-built F7 jets in accordance with an agreement finalised last year. The agreement covers the launch of a technology transfer programme, an uncommon requirement in Sri Lankan defence procurements, and is being implemented despite objections from India.

Main headlines from this issue

Contractors give hostile reception to DAPA’S policy shift

Contractors have expressed dismay that Korea’s Defence Acquisition Programme Administration is “walking back” some of the policy pledges announced at the GOCA conference in April. DAPA introduced plans for revised guidelines at a two-and-a-half hour industry seminar in Seoul in late June. One concerned party described those plans as “rapacious”, an opinion that DAPA does not accept. The June seminar heard that a so-called 'demerit table'……

Australia: New template “demands more than ever before” from defence companies

Australia’s Department of Defence is adopting new procurement policies to demand more Australian involvement in defence projects. The Minister for Defence Industry, Christopher Pyne, announced new arrangements that change the process companies need to follow when responding to tenders for defence equipment. He said the move sends a clear signal to large overseas contractors.....

Australian industry demands tougher submarine terms

The Australian Industry and Defence Network-Victoria has welcomed the stand taken by Victorian Government Minister Wade Noonan to call for stronger commitments on Australian industry involvement in the submarine programme. He called for tougher contractual obligations on the prime contractors.

UK’s Defence Secretary warns U.S. against closing its defence markets

Michael Fallon, U.K. Secretary of State for Defence, said at a Centre for Strategic and International Studiesroundtable in Washington that the UK has been buying a huge amount of high-end kit from the U.S. Britain, he noted, expects a fair return.

CETA agreement between European Union and Canada bans commercial offsets except for aboriginal businesses

The Canadian government has delayed an announcement to provisionally apply the Comprehensive Economic and Trade Agreement, most likely by at least two months.

Main headlines from this issue

Israel’s ICA chief blames previous Directors General for “mess”

Ziva Eger, Director General of Israel’s Industrial Cooperation Authority, began her presentation a Stuttgart offset conference with an outspoken attack on her predecessors. Ms Eger accused them of work processes that were not clear, were not being used consistently, and were unequally enforced. “Actually, to tell you the truth it was a kind of a mess,” she declared.

Australian senator fears DCNS’s local content will have Australians assembling IKEA flat packs

After speculation in the Australian media about the percentage of Australian industry involvement in the country`s largest ever defence procurement, South Australian Senator Nick Xenophon has warned of falling participation. Damning evidence presented at a Senate hearing, he said, suggests that DCNS has backed away from its initial local build and assembly commitment to Australia’s Future Submarines.

Australian trade association calls for tough consequences for non-delivery of local content

The Australian Industry and Defence Network, an association for SMEs in the defence and security sectors, has called for additional requirements to be levied against contractors that fail to deliver Australian content of at least seventy-five percent of the value of their Australian Industry Capability projects.

Norwegian defence industrial strategy to be defined by the submarine programme

Norway has selected Germany as its strategic partner for new submarines, making Thyssenkrupp Marine Systems the likely supplier. An MoU between the two nations will cover co-operation. There is no contract yet but the offset obligation will be for 100 percent of procurement contract value.

Dutch wind will be a new industry for Russia

A Dutch company, Lagerwey, has agreed to provide the Russian state nuclear corporation, Rosatom, with technology transfers on wind turbine production. Lagerwey will also have to localize wind equipment production in Russia for at least 65 percent of sales contract value.

Main headlines from this issue

Kuwait’s nighttime lecture has obligors shaking heads and nodding off

Contractors summoned to a nightfall offset conference at the premises of the Kuwait Direct Investment Authority encountered more than one bad dream. Some of the 30 to 40 participants were asked to sign a note acknowledging their outstanding obligations. …. KDIPA introduced the new strategy for implementing them.

Obligors end Romanian stand-off with a draw

Rivalry between Romania’s state-owned and private sector defence companies for the execution of offset benefits has ended in stalemate. The offsets are linked to a contract for Aerospike anti-tank missiles. The companies have agreed to implement some of the five separate projects in the private sector. However, Patromil, the defence trade association, believes it has been short-changed.

Japan relaxes rules to lure foreign defence technologies

Japan’s Acquisition Technology and Logistics Agency (ATLA) will allow entities headed by foreign nationals to apply for subsidies for defence technology research. …. the aim is to further Japanese acquisition of next-generation military technologies from overseas.

Finland confirms IP requirement for battle system

Finland’s Defence Minister, Jussi Niinistö, has confirmed that industrial participation will be integral to the procurement of a battle system for the Finnish Defence Forces’ Logistics Command. A preliminary invitation to tender has been sent to three supplier candidates for the Squadron 2020 project.

South Africa: New Black Economic Empowerment requirements affect obligors - send mining companies diving

South Africa’s Broad-Based Black Economic Empowerment Commission has declared that from June 9th, 2017 the threshold value for major B-BBEE transactions to qualify for registration is R25m ($2m). All major B-BBEE transactions must be registered within fifteen days of being concluded.

Main headlines from this issue

South Africa puts local content provisions in draft procurement law - obligors seek exit through penalties

South Africa’s National Treasury is working on a broad Public Procurement Bill that could cover both commercial and defence industrial participation policies. The draft bill is intended to create instruments to enforce compliance in the specification, advertising, evaluation, adjudication and awarding of tenders to leverage industrial development.

Saudi Arabia to introduce tiered approach to mandatory domestic spare parts production

Defence contractors to Saudi Arabia may be required to prepare and define a programme for achieving local spare parts manufacturing. Opportunities for foreign military contractors have so far been restricted, but the restrictions are about to change.

India: Foreign suppliers relegated to second place for all government procurements

India’s Finance Ministry has issued an enabling provision to the General Financial Rules that favours domestic industry over foreign companies in government procurement contracts. The policy initiative is meant to support the government’s ‘Make in India’ programme.

Will Germany give Boeing preference for investing in Cotesa?

Boeing is sending a message to the Bundeswehr by expanding its supplier base in Germany. Cooperation could influence the Bundeswehr’s order for the next heavy-load helicopter of the German Armed Forces for which the company is competing with Sikorsky.

Australian MoD: “Protectionist measures always bring only illusionary gains – so we have the Australian Capability Programme”

Main headlines from this issue

UAE’S NEW POLICY - How EDIC will generate output credits: “It’s a big change for everybody, a new direction”

Plans are well under way and contracts are already in place with some contractors for the Emirates Defence Industries Company to take control of joint ventures and transferred technologies. We were startled to be told the changes are taking place in an atmosphere of peaceful coexistence.....

India: Details of Defence Ministry’s “strategic partner” policy for defence production

India’s MoD has reached a decision on the long-delayed policy for identifying “strategic partners” (SPs). The MoD had not released details of the new policy as we went to press, but three individuals present at the department’s meeting told India’s Business Standard the new policy’s scope, the criteria and the procedures for selecting SPs and the foreign OEMs they would partner.....

Saudis tighten up on local content

Prince Mohammed bin Salman has declared that the Saudi government has reached the unanimous decision that any industry benefitting from a government purchase must be linked to the government's local content requirements. In some industries, suppliers have refused to transfer technologies. The Kingdom will now require them to use materials made in Saudi Arabia.

Former SSM chief says failure of U.S. and Europe to offer offsets has led Turkey towards China and Russia

A blogger understood to be SSM’s former Undersecretary for Defence Industry, Murad Bayar, said that Turkey is giving preference in defence procurement to Russia and China because those countries are ready to offer offsets that NATO members refused to consider.

Main headlines from this issue

Kuwait gives obligors three enigmatic choices

An official document circulating among Kuwaiti ministries details new procedures for the follow-through and execution of offset projects. Civil and defence contractors with obligations are now being summoned to the Kuwait Direct Investment Promotion Authority to discuss how they will discharge commitments made under contracts with the National Offset Company before the NOC was shut down. Any option selected will receive a multiplier of.....

Israel threatens 28 delinquent obligors with blacklisting

Israel’s (Industrial Cooperation Authority has sent warning letters to 28 foreign companies asking them to explain why they have not undertaken all of their reciprocal purchases. The companies have been told they face blacklisting. They are said to collectively owe more than $1bn of purchasing commitments.

OECD publishes paper on offsets, sees bribery as commonplace

A paper published by the Organisation for Economic Co-operation and Development (OECD) says that indirect offsets requiring longer-term commitments are becoming more prevalent in developing countries. Many countries, it says, require joint ventures or the transfer of actual design and production capabilities instead of foreign direct investment in a wholly-owned subsidiary. The paper also takes the customary swipe at offsets for being a potential avenue for corruption.

Canada: Leadership contender on the stump offers offset credits

Canada’s leadership hopeful for the opposition Conservative Party, Erin O’Toole, has offered to give offset credits for water infrastructure projects whose systems need repair through Public Private Partnerships. The projects would be a top priority in his plan to improve the relationship between the government and indigenous communities, he said.

Australia’s Submarine Programme: committee calls for report on securing intellectual property ownership

The independent Australian technology developer Defence Materials Technology Centre and the French shipbuilder DCNS have announced the signing of an Australian industry participation agreement……A joint standing committee report into Australia’s Future Submarine Programme with France has raised concerns about intellectual property ownership. The committee requests that the Department of Defence provides a report to the committee during the 2018 winter sittings of parliament.

Main headlines from this issue

Finland forestalls EC intervention with policy statement supporting offsets

Finland’s MoD has issued a lengthy statement about its industrial participation policy for defence procurements. The statement precedes two major procurement projects for new fighter aircraft and new naval ships, and pre-empts possible criticism from the EC regarding the application of Article 346 TFEU.

DAPA responds to GOCA’s policy requests – guidelines to be changed

Trade organisations often ask government authorities to make policy changes on behalf of their members. Much rarer are government authorities that publicly agree to many of those changes. Korea’s Defence Acquisition Programme Administration therefore caught GOCA, and conference delegates, by surprise when the Deputy Director of its offset division, Lieutenant Colonel Kim Dongwoo, provided straightforward answers to questions put to it and agreed to make improvements in a number of important areas.....

Australia’s IP policy now focused on defence export strategy

“Our circumstances are changing,” Matt Ramage, Assistant Secretary, Defence Industry, told GOCA conference delegates. The focus will now be on sovereign industry capabilities and on developing, for the first time, a defence export strategy. That strategy is not in Australia’s DNA “but we’re changing the way we think.”

How offsets determined the winner for Canada’s search and rescue aircraft requirement

Navdeep Bains, Canada’s Minister of Innovation, Science and Economic Development (ISED), has explained that Airbus won the competition for fixed-wing search and rescue aircraft in large part because of its ‘value propositions.’ The VPs included strong partnerships with Canadian industry, he said, and opportunities for Canadian companies in the Airbus Defence and Space supply chain were also critical to the successful bid.

Britain pledges “cutting-edge” military technology to India for co-production

British Secretary of State for Defence, Michael Fallon, will offer cutting-edge military technology to India for co-production of weapon systems. They would together become \world beaters\" in arms exports he told his counterpart Arun Jaitley during a visit to Delhi."

Main headlines from this issue

Malaysia’s programme over-achieves

Malaysia’s offset programme continues to develop strongly. Deputy Finance Minister Datuk Seri Johari bin Abdul Ghani informed delegates at an offset conference that each dollar spent on procurement achieved a multiple of between three and four by way of job creation, technology transfer, and qualitative investment.....

Indonesia: MoD tightens grip on KKIP

The Director General of Defence Potential for Indonesia, Dr Sutrimo Sumarlan, confirmed that the MoD has assumed control of the country’s Defence Industry Policy Committee, known as KKIP. Competing factions had made responsibility for implementing the offset policy unclear.

Belgium decides on offsets for the Air Combat Capability Programme

Belgium’s Council of Ministers has settled its internal political difficulties and released an RfP that invokes Article 346 TFEU….Offsets will qualify for a weighting of ten percent in the bid evaluation process, significantly more than the allocation for operational and technical support; ‘employability and deployability’; and ‘growth and evolution potential.’

Philippines expected to make offsets for defence procurement mandatory

The Philippines International Trading Corporation is awaiting the formal approval of its president and CEO, Dave M. Almarinez, to structure an offset policy. The new policy will compel the military to engage in offsets instead of requesting offsets on a “best efforts” basis. In practice the military doesn’t ask.

Pakistan’s offset law is a paper tiger

Pakistan’s formal offset regulation sits on the online portal of the Directorate General for Defence Purchase. The regulation states that offset is mandatory for defence procurements over $15m and provides policy details consistent with well-considered and conventional offset principles. But Pakistan does not appear to have required any foreign defence contractor to follow them.....

Main headlines from this issue

Israel’s offset division divides into three, applies penalty provisions

Israel’s Ministry of Economy has divided its management agency for offsets, the Industrial Cooperation Authority (ICA), into three departments. The foreign investment division remains separate. The ministry has also revised the obligors’ undertaking document and introduced non-performance penalties.

Romanian decree puts offsets back in the spotlight, retains regulations

Romania has enacted a decree regulating the national defence industry. The decree, in part, focuses on the application of Article 346 TFEU and is structured to bolster the domestic defence industry. However, the law is not yet in force and the prevailing offset regulations will not be replaced.

DKF runs for cover as TV station chases “Club for crooks”

The DKF was forced to move its Bremen conference to a hotel after a German TV station door-stopped delegates and questioned them about corruption in offsets. The interviews became somewhat farcical.....

Turkish public faces medicine shortage as Health Ministry commences offset campaign

Turkey’s Health Ministry has become the country’s first civil procurement agency to take advantage of an amendment to the February 2015 Public Procurement Law. The ministry published offset guidelines for its ‘Health Industry Partnership Programme’ in January 2016. Now it is putting the guidelines into practice.

EU complains of Chinese pressure to release advanced technology in exchange for market access

The European Union Chamber of Commerce in Beijing has published a lengthy report complaining that European business is facing intense pressure to turn over advanced technology in exchange for near-term market access.