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Volume 2017
Main headlines from this issue
Eliminating offsets may be counterproductive, argues U.S. Air Force Colonel
A senior officer in the U.S. Air Force Judge Advocate General Corps is taking up arms in defence of offsets. He says that because offsets create complicated supply chains, they may foster interdependence and deter aggression.
Norway’s focus shifts to jobs as Germany agrees to buy Kongsberg’s missiles
The Norwegian government has signalled a significant offset policy shift by making job security equal to access to foreign markets and security of supply. Jobs have not previously featured as an important consideration in industrial participation programmes.
Delayed Strategic Partnerships plan continues to frustrate the ‘Make in India’ plan
Strategic partnerships pave the way for joint ventures between Indian and foreign defence firms, but slow decision-making in the defence ministry which hands out the contracts is holding up progress. The file has now been sent to the Finance Ministry for another opinion.....
Oman has more than 30 obligors - eleven new projects under consideration
No fewer than 38 government and governmental organisations are now working with Oman’s Authority for Partnership for Development (PFD), the sultanate’s offset management agency, on the country’s procurement contracts.
Airbus agrees terms for industrial partnerships with Japan
Japan’s trade ministry will seek to expand the domestic aircraft industry by advancing its ties with Airbus. Both sides would hold regular meetings so that Japanese companies can assist the development of next-generation models.
Main headlines from this issue
UAE: EDIC demands full control of joint ventures and technology transfers
The Emirates Defence Industry Company plans to develop an independent military sustainment approach for the UAE. By amending the structure of joint ventures and installing exclusive UAE management, EDIC will have full command of the offset. Obligors will be spooked by the implications.
“Dassault will not transfer technology to India for only 36 Rafale fighters”
Dassault Aviation has complained that the order for 36 Rafale fighters was “a bit small.” CEO Eric Trappier said a bigger order would ensure the transfer of technology that would position the country as a high-end manufacturing hub under the ‘Make in India’ initiative.
An abnormally positive appraisal finds that South Africa’s DIP policy has tripled GDP
A restructured evaluation of South Africa’s defence industrial participation policy discusses “the perceived non-achievement of the 1997 DIP objectives and the reality of its manifestations.” The authors argue that the DIP tripled the gross national product and improved the economy through.....
Saab offers India “more than ‘Make in India’”
Saab has pledged to build an advanced aircraft production facility in India if it wins the contract for the supply of single-engine fighter jets. Officials said the company has finalised a blueprint for the hub, which will manufacture Gripen Es for India and the global market.
Austria sues Eurofighter consortium for €1.1bn over 200 percent offset demand
The Austrian government has launched a €1.1bn lawsuit against the makers of the Eurofighter. The offset requirement in the RfP for the fighter jets was a mandatory 204.2 percent.
Main headlines from this issue
Blenheim gets tangled in the African bush
Grant Rogan, CEO of the Blenheim Group, says that assertions made in an anonymous letter to CTO are ill-conceived and intended to cause mischief. The letter described the disposal of share capital in Blenheim Capital Services Ltd. (BCSL) to a Nigerian bank. Mr Rogan says that an agreement was reached concerning a joint venture with Heritage Bank to establish an offset programme for Nigeria.....
Avascent analyses the impact of the Trump administration’s domestic labour policies
Avascent, the strategy and management consulting firm, suggests that political pushback against sharing labour on future programmes would put U.S. firms at a disadvantage in upcoming foreign deals. Current offset obligations could become a liability in the eyes of the White House.
Malaysia’s industrial cooperation programmes are worth $9bn in economic returns
The CEO of Malaysia’s Technology Depository Agency, Datuk Zailani Safari, said that his agency was optimistic that it would meet its projection for collaborative high-impact projects, especially for the commercial and defence sectors. Two local companies were summoned by a special committee for failing to implement the projects that had been planned.
Denel slows Malaysian IP pending payment
Denel Land Systems’ contract to deliver turrets for Malaysia’s fleet of DefTech AV8 8x8 armoured fighting vehicles has been delayed by two years because of the country’s economic situation. The contract mandates industrial participation in Malaysia.
UK signals “buy national” approach to government procurement after Brexit
The British government has published a 132-page strategy green paper—a consultation document—titled ‘Building our Industrial Strategy.’ The green paper addresses the governments’ contracting approach after Brexit and makes clear that the UK will favour local firms. Currently, European Union public procurement rules outlaw “buy national” policies.
Main headlines from this issue
Annual report to Congress describes low offset percentages and near death of U.S. offsets in Europe
The twenty-first annual report to Congress on the impact of offsets in defence trade suggests that U.S. prime contractors are running rings around the Bureau of Industry and Security. The report says that in 2015, U.S. firms entered into just three new offset agreements with members of the European Defence Agency. The three agreements were valued at $35.5m.....
GOCA wins key changes from DAPA
Korea’s Defence Acquisition Programme Administration has taken steps to mend its relationship with obligors by yielding to representations made by the Global Offset and Countertrade Association (GOCA) on behalf of its members.....
India’s ‘Strategic Partnership’ model ready this month
India’s Defence Minister, Manohar Parrikar, has said that the government will finalise its Strategic Partnership model by the end of January. The policy requires the government to select.....
European Commission pleads for more complaints on misuse of the defence directive
A report notes “with regret” that member states take different approaches when applying Directive 2009/81/EC on defence and security procurement and Directive 2009/43/EC on intra-European Union transfers of defence-related products.
INDONESIA’S KKIP IN DISARRAY AS FACTIONS FIGHT FOR DOMINANCE
Indonesia’s Defence Industry Policy Committee, known as KKIP, is in conflict. A ministerial overlap has made responsibility for implementing the offset policy unclear. President Joko Widodo has been asked to rule on the matter urgently.
Main headlines from this issue
Finland’s National Audit Office justifies IP cost - calls for review of IP Committee practices
A report from Finland’s National Audit Office (NAO) estimates the cost of purchasing new multi-role fighters for the Finnish Air Force at about €10bn. Industrial participation will increase the price by between five and twelve percent, it predicts, though most likely about ten percent.....
DAPA might soften Korea’s approach to penalties
Korea’s Defence Acquisition Programme Administration is re-evaluating its decision to double the non-fulfilment penalty for some offset categories. The administration had planned to raise penalties as high as 20 percent. An internal review is under way.....
Report to Congress: Russia made “significant efforts” to offer creative trade finance
A U.S. government report states that arms suppliers are increasingly using flexible options to finance weapons sales. The report, prepared for members and committees of Congress and based on unclassified data, mentions guarantees of countertrade, co-production, licensed production, and co-assembly elements in contracts to secure new orders.
Hudson Institute advises Japan to create an effective FMS system with offsets
The Hudson Institute, a think tank based in Washington, D.C., has recommended in a briefing paper that Japan establish an effective FMS programme. The programme would be vital for building and extending Japan’s defence trade opportunities and help to prevent the type of failures that torpedoed Japan’s efforts to sell submarines to Australia and other attempts at foreign arms deals.
Zimbabwe sends elephants, lions, hyenas and a giraffe to settle Congo’s debt to China
Grace Mugabe, President Mugabe’s wife, has sent a menagerie of safari animals to a Chinese wildlife park to pay for military uniforms for the Democratic Republic of Congo.
Volume 2016
Main headlines from this issue
Positives HARD to find in EC’s review of Directive 2009/81/EC; EC promises guidance on exclusions and subcontracting
The European Commission has presented a review of the implementation of Directive 2009/81/EC. The Staff Working Document, delivered to the European Parliament and the European Council, finds that member states still “seem to use” offsets “to some extent,” and “the frequency of such requirements seems to have marginally decreased.” Member states are “presumably” relying on Article 346 TFEU.....
Polish industry benefits from Sikorsky contract with Chile
Sikorsky is to provide the Chilean Air Force with six Black Hawk helicopters supplied by the Polish aerospace manufacturer PZL Mielec. Values have not been disclosed.
Australia mandates preference for suppliers that provide advantage to the Australian economy
Australia has secured crossbench support for important changes to its ‘Commonwealth Procurement Rules’. The new rules include a requirement to consider the “economic benefit of the procurement to the Australian economy” when purchasing goods worth more than A$4m ($3m).
Crawford-Browne calls for Armscor to be closed down
When Armscor CEO Kevin Wakeford declared that a proposed “turnaround process” would allow the company to sustain itself financially, his statement did not receive universal acclaim. Activist Terry Crawford-Browne thundered that Armscor is unfixable and poured scorn on Armscor’s offset proficiency.
Public Private Partnerships in the GCC face ‘make or break’ in 2017
Members of the Gulf Co-Operation Council are now looking for ways to implement public-private procurements or have already announced their intention to do so. That is despite a number of false starts that have led observers to believe that the PPP procurement model won't work in those markets, says the law firm DLA Piper.
Main headlines from this issue
Tawazun’s offset payoff plan under review
The UAE’s maverick Accelerated Project Funding (AFP) plan, introduced recently by the Tawazun Economic Council, is undergoing review and is set for significant change. Speaking to CTO, Chief Officer Matar Al Romaithi declined to elaborate other than to concede that the aim is to address “specific requirements.” The APF permits defence contractors to buy themselves out of a percentage of their obligations.....
Has Lockheed wrestled Korean satellite back from Blenheim?
Delays in the delivery of a satellite to Korea may soon be solved, bringing a conclusion to an unusual agreement. Korea’s Defence Acquisition Programme Administration (DAPA) has estimated damage caused by Lockheed Martin’s delay in delivering the communications satellite under an offset agreement at 30 billion won ($26m).
DAPA tells Washington it will continue to ask for offsets – Washington tells DAPA they are never beneficial to either side
Myoung-jin Chang, Minister for DAPA, told a panel at the Centre for Strategic and International Studies in Washington that he is holding talks with Washington about acquiring lower technologies for the country’s future KFX fighter jet under the F-35 offset programme.
Commercial offsets could be tied to Pakistan’s defence needs
The Chairman of Pakistan Aeronautical Complex, Air Marshal Arshad Malik, has called for the domestic private sector to participate in key PAC programmes, such as the JF-17 Thunder combat aircraft. He said that in addition to platform development local firms could contribute to manufacturing propulsion and industrial gas turbines.
Netherlands: “We will give domestic industry priority for our procurements or use Article 346”
“We will give domestic industry priority for our procurements, and when that is not possible, we will use Article 346 to ask for industrial participation.”
Main headlines from this issue
Holland’s industrial participation is “essential,” Belgium’s is “impossible”
A policy paper on the Belgian and Dutch defence industrial policies has argued that successive constitutional reforms in Belgium have transferred too much power to the region to make a genuine national industrial defence policy feasible. The paper also states the EU directive on defence procurement has increased bureaucracy in the Netherlands and decreased revenues from industrial participation, or offsets.
“SAUDI 50 PERCENT OFFSET TARGET IS A MIRAGE”
Lexington Institute, a think tank headquartered in Arlington, Virginia, has published an article highly critical of Saudi Arabia’s offset plans. Until the announcement of Vision 2030 Saudi Arabia had not promoted a coherent strategy for industry development or technology transfer to grow a local defence industry. “Knowledge transfer and maintenance are missing…”
Russian fund for Indonesia is springboard to regional market
Russia’s space industry has set its sights on the Asia-Pacific region. RUSNANO, a six-year-old organization which implements state policy for the development of nanotechnology in Russia, is forming an International Aerospace Fund for Direct Investments (IASF). The fund will invest in Indonesian industries through joint ventures.
MALAYSIA TURNS TO CHINA AFTER U.S. LAWSUIT IMPLICATES PRIME MINISTER
China and Malaysia have signed a raft of agreements on railways, energy, defence, and joint development of Malaysia’s naval ships worth RM144bn ($33bn). The agreements came during a visit to Beijing by Malaysian Prime Minister Najib Razak.
POLAND DISCOVERS THAT “SOMETHING HAS POPPED”
Poland’s Defence Minister, Antoni Macierewicz, is facing a boycott by European diplomats following the collapse of negotiations with Airbus Helicopters over the Caracal offsets. “If things continue this way then an ice age will begin in Poland's relations with the West,” a politician from the ruling coalition in Germany told the Polish newspaper Gazeta Wyborcza.
Main headlines from this issue
DAPA declares war on commitment dodgers
Korea’s DAPA will double the non-fulfilment penalty for some offset categories to 20 percent and will no longer accept corporate guarantees. Purchases under the FMS procedure may or may not require offsets but it is not entirely clear how contractors will know. DAPA will also change the credit banking provisions.....
Canadian complexities defended and (partially) explained
Canada’s offset practices are an arcane mixture of industrial participation and regional obligations that together form an alphabet soup of government policies and administrative bodies. Training sessions provided at the GOCA conference by the Industrial Participation Association of Canada (IPAC) left many delegates struggling.
UAE: Tawazun introduces temporary ‘Get out of trouble’ option
The Tawazun Economic Council has introduced an Accelerated Project Funding option that permits defence contractors to buy themselves out of a percentage of their obligations. Obligors will be rewarded with a multiplier of 6 for cash payments.
SSM to loosen up on bank guarantees
Turkey’s SSM is planning to relax the bank guarantee provisions. The provisions refer to deliveries under the supply contract and for the concomitant 6 percent offset fulfilment requirement – because delayed supply deliveries result in a knock-on effect on offset performance.
Thai rice barter lands $800m fine on former premier
The Thai Prime Minister, under powers he awarded himself after the coup, has signed an administrative order seeking 35.7bn baht ($800m) in compensation from former Prime Minister Yingluck Shinawatra. The former premier must pay for her role in a rice subsidy policy concerning bilateral barter agreements that led to huge losses.....
Main headlines from this issue
Official: UK will consider returning to a formal offset policy
A British Ministry of Defence spokesperson has informed CTO that the UK could return to a conventional offset policy. While it remains too early to determine whether Brexit will impact defence procurement or industrial policy, including any future offset arrangements, the effect on defence procurement will form part of the government’s Brexit planning.
China and Russia: “Fifth columnists amongst the offset community”
A former Senior Director of International Economic Affairs at the National Security Council says that offsets are now taking place in a new environment that departs from traditional risk calculations.
Poland ends offset talks with Airbus Helicopters. Francois Hollande calls off visit as deal falls
Poland has terminated negotiations over a potential offset deal with Airbus Helicopters, blaming Airbus. Airbus CEO Guillaume Faury issued a furious rebuttal, revealing otherwise confidential offset details. There would have been 45 technology transfer projects, providing Poland with at least 30 years of activity for state-owned Polish companies.
Lawsuit aims to block U.S. aid to Israel and close off offsets
A lawsuit has been filed in a Washington DC federal court challenging U.S. foreign aid to Israel. The lawsuit was filed by Grant F. Smith, Director of the Washington, DC-based Institute for Research: Middle Eastern Policy.
Directive 2009/81/EC – MEPs lobby European Parliament for tougher enforcement
The EC is finalising its evaluation of Directive 2009/81/EC for submission to the European Parliament next month. Members of the parliament have already submitted “opinions” on matters relating to the directive.
Main headlines from this issue
Israel prepares for changed IC environment after new aid agreement blocks local purchases – penalties fixed at 2 percent
Israel is facing significant changes to its industrial cooperation with the U.S. following an agreement on military aid. The agreement increases aid but requires Israel to use all of the aid to purchase American-made products. ….but the larger budget may mean bigger offsets.
BAE Systems Hagglunds agrees IC with Denmark, discusses tech transfer
BAE Systems Hagglunds has signed an agreement with the Danish government to provide systems integration, capability upgrades and support for long-term sustainment of its fleet of 44 CV90 Infantry Fighting Vehicles. The contract includes comprehensive industrial cooperation between BAE Systems and industrial partners in Denmark.
Denel and China’s Poly Technologies team up to build ships
South Africa’s Denel has agreed to a strategic alliance with Poly Technologies, part of China’s Poly Defence group. Poly Technologies intends to take a stake in the Simons Town shipyard and join Denel in constructing three naval vessels.
Russia seeks foothold in South Africa
The Russian Federal Service for Military-Technical Cooperation (FSVTS) has offered to engage in joint defence industrial research with South Africa. It is the first time Russia has made such an approach to the country. Deputy Director Anatoly Punchuk told journalists that an assessment of the technologies that could be transferred is already under way.
Airbus Helicopters invests in Romania
Airbus Helicopters has opened a factory at Ghimbav in central Romania to manufacture the twin-engine H215 helicopter. The investment cost €52m.
Main headlines from this issue
Korea: DAPA is shocked to discover FMS contract prices take offsets into account
DAPA is rethinking whether it wants to pursue offsets in FMS programmes. The hesitation comes after the administration sent letters to a number of U.S. contractors asking whether the companies included offset expenses in the total costs of the FMS programme. DAPA is now uncertain whether it wants the offsets after all…. the recently introduced ‘Offset Challenge Products’ policy is on hold.
US-India Business Council raises credit tardiness with Indian delegation
The USIBC has raised with Indian Defence Minister Manohar Parrikar the concerns of U.S. defence contractors about what the contractors see as the casual approach of the Defence Offset Management Wing to signing off credits. Some U.S. companies are 120 weeks beyond the signing of the contract and are still waiting for DOMW to approve them.
India rejects DCNS’ foreign direct investment proposal
The Indian government has rejected the country’s first 100 percent defence FDI proposal. The proposal was submitted in May by the French naval firm DCNS. India’s Finance and Defence ministries say the AIP system on offer is not new technology.
Australia alarmed as South African departments argue over China’s abuse of local content
A Chinese company bidding to build a train fleet for Victoria, Australia, is causing considerable anxiety to Australia officials. The company has failed to meet local content requirements for a contract in South Africa.
Turkey in partnership talks with Eurosam
Turkey’s National Defence Ministry and SSM are in talks with the Italian-French consortium Eurosam to purchase the SAMP/T Aster 30, a long-range missile defence system. Technology transfer and co-production will be feature as a long-term solution.