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Volume 2017
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.
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.