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Volume 2016
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.
Main headlines from this issue
Five contenders for Belgium’s F-16 replacement programme still unsure of IP requirements
The five contenders for Belgium’s F-16 replacement programme remain hamstrung by government indecision. Both the budget and the industrial participation remain unresolved. The government remains concerned about the scope of Article 346 TFEU.....
National Audit Office’s mixed appraisal of Australia’s IP policies
Australia’s heady mix of industrial participation policies has undergone a performance audit by the National Audit Office (NAO). The NAO found that since the programme’s inception, the value and number of Global Supply Chain contracts has risen but remains concentrated among a small number of companies.
EU’S psychopathy: ‘juste retour’ policy to penalise suppliers, but not U.S.
The EU has issued a draft regulation to allow the imposition of price preferences against some bids that include a significant amount of non-EU goods and services. The regulation will apply where bids emanate from a country that the EU determines does not apply reciprocity in procurement transparency and openness. It will allow EU public bodies to discriminate against some foreign bids.
Algerian joint venture with Leonardo-Finmeccanica signals policy shift
Algeria’s Ministry of National Defence and Leonardo-Finmeccanica have reached agreement on the production of AgustaWestland helicopters at Sétif Province in north-eastern Algeria. An MoU calls for the parties to establish a joint venture this year dedicated to the manufacture of light and medium helicopters.
Israel approaches a billion dollars in offsets for F-35 procurement
Reciprocal transactions worth 3.8bn NIS ($993m) have been agreed so far in relation to Israel’s procurement of F-35 fighter aircraft, the country’s MoD disclosed in its biannual report. Since December 2015 new deals amounting to 835m NIS have been signed, marking a 28 percent increase in reciprocal purchases.
Main headlines from this issue
EC delays report on effectiveness of the defence directive
Publication of the European Commission’s evaluation of the 2009/81/EC Directive has been delayed, the EC says, but the report will be ready before the end of the year. The document, which will be submitted to the European Parliament and the European Council, examines whether the directive’s objectives are being met. At the end of February 2016 the EC sent administrative letters.....All member states have responded.
China continues to demand technologies but companies prefer not to complain
Two commissions have described forced technology transfers in China as a critical policy tool for both defence and civilian use. The latest report by the Commission on the Theft of American Intellectual Property has described an increase in theft and compulsory technology transfer in China….
Civil sector takes exception to Oman’s PFD policy
Omani contractors undertaking government-funded infrastructure projects are finding the Sultanate’s mandatory Partnership for Development programme hard to fathom. The Oman Society of Contractors, an umbrella group of local construction contractors, has expressed reservations about the policy.
South Africa: ‘B-BBEE’ fronting practices have become the norm
Over the last year South Africa has completely overhauled its broad-based black economic empowerment (“B-BBEE”) policies. The most significant changes include the criminalisation of fronting practices, the establishment of the B-BBEE Commission, and the promulgation of the new B-BBEE regulations which came into force on June 6th, 2016.
Transparency International calls on the EC to issue guidance on use of Article 346 TFEU
Transparency International has completed an evaluation of the functioning and impact of Directive 2009/81/EC across 20 EU states. The document identifies what TI sees as positive and negative practices, trends in the use of the security interest exemption. TI focuses on its perception that defence procurement lends itself to corrupt measures.
Main headlines from this issue
Russian import substitution rules have far-reaching implications for foreign players
Russia’s federal and regional governments are increasingly demanding localisation, including for defence products. The government has adopted action plans for import substitution, reducing foreign-made industrial products and replacing them with domestic items by 50-100 percent by 2020.
Korean delegation asks for core technologies – USG defers
South Korea has called on the U.S. to transfer core technologies it needs to build its own fighter jets under the ‘KF-X’ project. The request came as delegates met in Washington, DC for the first ever American / Korean Defence Technology Strategy and Cooperation Group meeting. The Koreans have expressed concerns about the performance of an offset project.
Canada: Frigate designers must hand over intellectual property
Canada’s National Defence and Public Services has demanded that ship designers for the country’s frigate replacement programme hand over most of the intellectual property data for the vessels’ combat systems. A copy of the draft RfP, obtained by CBC News, shows that the federal government is asking.....
South Africa’s Seriti Commission Report rumbles on!
South African arms deal critic, Terry Crawford-Browne, has asked the Constitutional Court to set aside the Seriti Commission's report. The report was released by President Jacob Zuma in April 2016 and found that the offsets meant to flow from the Strategic Defence Procurement Packages (SDPP) have “substantially materialised.”
BAE Systems is negotiating ‘Saudi British defence co-operation programme’ renewal
The current five-year Saudi British Defence Co-operation Programme is due to expire at the end of 2016. Discussions between BAE Systems, the UK government and Saudi Arabia are under way to define the terms of the next five-year contract.
Main headlines from this issue
Boeing’s boost to UK employment is “not strictly reportable” under the DSIEP programme
Boeing plans to double its workforce in the UK to 4,000 within a decade. The company, one of the earliest signatories to the Defence and Security Industrial Engagement Policy (DSIEP), was recently awarded two defence contracts in the country. Boeing used the figures supplied in its annual DSIEP report to make the announcement and described the company’s plans for the future.
India stumbles over ‘Strategic Partnerships’ – when committees can’t agree, form another!
India’s Defence Ministry has formed a new internal committee to finalise the Strategic Partnership model after the previous committee failed to agree. The new committee is chaired by the Director General (Acquisition).
India contemplates offset Venture Capital Fund
India’s MoD is reported to have produced a concept note allowing foreign defence companies that have sold equipment to India to invest in Venture Capital Funds (VCFs). The funds would be used to discharge part of their offset obligations. Foreign companies could invest up to 25 percent of their obligations in such funds.
Nigeria tells Samsung to obey local content laws or pay the price
Nigeria’s House of Representatives’ committee on local content has warned international oil and gas services companies, including Samsung Heavy Industries of South Korea, against flouting Nigerian local content laws. Committee Chairman Emmanuel Ekon said the committee would use its legislative instruments to protect indigenous operators in the oil sector and in other sectors too.
POLAND SEEKS CHINESE TECHNOLOGY FOR SPACE CENTRE
Poland’s space agency, POLSA, has signed an agreement with the Chinese National Space Administration (CNSA) to cooperate on research and developing new telecoms solutions. The development of space technologies will certainly include discussions on transfers of technology from the Chinese space sector.
Main headlines from this issue
UAE: Obligors get the message as Tawazun calls in the penalties
The Tawazun Economic Council has delivered penalty notices to several obligors. The Council has called in the bank guarantees on contractors that have missed the first performance milestone. A number of contractors believe the policy impossible to comply with and there is talk of a boycott of future defence procurements.
EC backs off after complaining to Denmark
Commissioner Elżbieta Bieńkowska has informed the European Parliament that the commission cannot determine whether Denmark has breached European Union law regarding offsets. The dispute concerns the purchase of new fighter aircraft. Ms Bieńkowska says that the European Commission lacks sufficient information.
Defence Directive after Brexit - UK MoD misjudges outcome
The British government published a thirteen-page guidance note for defence and security contracts just ahead of the Brexit referendum. The document considers the government’s legal position regarding Article 346 TFEU, explaining in excruciating legal jargon what the article is about and when it can be used. A fourteen-page “overview” on regulations for defence and security contracts was published the same day.
DPP 2016 – Annexures and offset guidelines are released
India’s MoD has published the annexures and appendices to DPP 2016, including the defence offset guidelines. The inclusions inflate the policy document to 459 pages. DPP 2013 was a mere 361 pages. A chapter on strategic partnerships will be added by the end of the year.
India: Strategic Partnerships will raise huge constitutional issues
The aim will be to identify and select one Strategic Partner for each segment, with segments referring to specific types of equipment. For each segment the MoD will identify a private player to partner the OEM.
Main headlines from this issue
Kuwait’s offset policy set for relaunch?
Kuwait, facing diminished oil revenues and the need for economic reform, may be reconsidering the cancellation of its offset policy. A key official told CTO that unsigned contracts for which Kuwait required offset when negotiations began can now expect a new demand.
Britain’s largest trade union demands offsets from Boeing
Britain's biggest trade union, Unite, said it was worried about the lack of offset agreements in Defence Secretary Michael Fallon’s decision to buy from Boeing. Mr Fallon has serious questions to answer about the UK’s secretive procurement policy, the union said.
Israel’s new policy includes countertrade
Ziva Eger, CEO of Israel’s Foreign Investment and Industrial Cooperation Authority, has decided that counterpurchase is an acceptable choice for the discharge of obligations. Ms Eger spoke of a Chinese company that submitted a proposal for a tender and asked if it could buy olive oil. “Sure, why not?” she said.
Oman’s programme makes serious headway
The Omani Partnership for Development programme embraces defence and civil offset, and is currently working with more than 39 Omani government and semi-government units. More than 25 obligors from eleven countries have commitments.
India’s new offset scandal becomes a cause célèbre
Investigators are awaiting information from the British Virgin Islands, Dubai and the UK about companies that Sanjay Bhandari used to channel funds and buy properties abroad. The tax authorities are asking whether the money was meant for the offset business, and whether it was meant for kickbacks.
Main headlines from this issue
French MEPs petition to repeal Directive 2009/81/EC
Three French MEPs have petitioned the European Parliament to repeal Directive 2009/81/EC. Sophie Montel, Dominique Bilde, and Florian Philippot of Marine Le Pen’s National Front contend that the directive jeopardises the French arms industry by obliging public procurement procedures to take place “at the European level”.
Switzerland amends IP regulation, demands “substantial” sales increase as a requirement for full credits
At the request of the Federal Finance Auditing Authority, Switzerland is amending a section of its industrial participation regulations. The government has changed the so-called ‘additionality code’..... The required amount of Swiss added value has also been raised.
Offset in Central and Eastern Europe is alive, well and dysfunctional
Every country in Europe has its own offset policy, and each country is interpreting Article 346 TFEU and the defence directive in a different manner. As a result, offsets in Europe have become increasingly dysfunctional, particularly in Eastern Europe. That was the grim impression made during a presentation on Europe’s offset environment.
Avascent survey: government partners are too secretive
The management consulting firm Avascent’s second survey of offsets in the aerospace and defence sector found that only 31 percent of respondents are satisfied with the transparency and openness of government partners; a full 69 percent are dissatisfied.
Colombia revises its approach to offsets
The Colombian government has declared its offset policy a success and is preparing to make revisions. The policy was introduced eight years ago. The new focus will be on technologies that are not available in the general market and which do not carry high costs.....
Main headlines from this issue
Romania drafts new offset policy - “Non-defence offsets acceptable until now”
The Romanian government is in the process of changing its offset policy. The new policy awaits approvals from the ministries of Defence and the Interior, as well as from other relevant organizations. The regulations will focus on the application of Article 346 and will be “modified from head to toe.”
‘Offset India Solutions’ raided by tax officials –Pilatus implicated
Income tax officials have searched eighteen premises used by the service provider Offset India Solutions (OIS). A Hindustan Times investigation reported that Sanjay Bhandari received Rs 69.38 crore ($10.4m) from 35 shell companies between 2009 and 2014 and that the government was concerned over “the unusually high growth of his business in recent years.”
South Africa: Transnet threatens penalties over localisation obligations
Transnet, South Africa’s state-owned freight transport company, has implemented a new series of governance, control, and monitoring measures. The move is intended to ensure that OEMs meet the company's localisation obligations and supplier development commitments.
“Shameful” Australian ship deal goes to Spain
Australia has signed a contract for Spain to build two new navy supply ships. Prime Minister Malcolm Turnbull has defended the decision, saying that Australian industry would have substantial involvement.
India: Latest data shows two obligors fined
Defence data released to India’s parliament discloses that the country has signed 29 offset contracts since the offset guidelines were introduced in 2005. Nineteen were for the Air Force, seven for the Navy, and three were for the Army. The total value of all obligations is about $6.13bn.