CTO Newsletter

Main headlines from this issue

ITC report raises local content concerns as India drifts towards national offset policy

The U.S. International Trade Commission has welcomed India’s recent draft for offset procedures. The commission says the draft will increase transparency and accessibility for foreign partners. However, the report criticised a new requirement expanding local content and localisation. The rules require foreign firms to buy Indian inputs and produce a part of the product within the country in sectors including ICT, electronics, defence, and aerospace.

Czech defence minister calls for industrial participation to support domestic industry

The Czech Republic’s Defence Minister, Martin Stropnický, told representatives of domestic arms companies at a national armament conference that the participation of Czech manufacturers in contracts would be considered at each defence procurement.

Armscor stuck over MBDA’S obligation – just one new ‘DIP’ last year

Armscor’s annual report for 2014/15 reveals that after yet another year, MBDA’s Defence Industrial Participation (DIP) obligation remains delinquent. Fulfilment seems unlikely, the report says. No reference is made to the penalty provisions or any intention to apply them….. Armscor is currently managing seventeen DIP agreements.....

South Africa’s boat building policy proves its worth

South Africa’s Trade and Industry Minister, Rob Davies, has declared the country’s boat building policy a success. The policy compels foreign boat builders to partner with domestic companies as part of their obligations under the National Industrial Participation Program.

Snowden revelations provides China and other countries with pretext to demand technology access

Foreign technology companies seeking access to the market in China are facing increased pressure from Beijing to open their proprietary source codes for review.

Main headlines from this issue

India’s Aviation Ministry demands gulf airlines give offsets for passengers

India may ask Gulf airlines for a share in the offset benefits the airlines receive when buying civil aircraft, the country’s Aviation Ministry has said.  “The plan is to get manufacturing offsets in return for the huge traffic that we provide to some foreign airlines.\" 20151026"2The Netherlands presents its case for industrial participationPieter Taal, Commissioner for Military Production at Holland’s Ministry of Economic Affairs, rejected his country’s reputation for using doubtful justification to bypass the EU defence directive. He conceded that the absence of an EU definition of national security interests makes the strategy risky.

GOCA’s legal committee begins confidential fact-finding mission

GOCA has formed a legal committee comprising seven members. The committee will identify recurring issues that complicate the offset process, publicise “best practices,” seek to reduce contention, manage risk, and improve outcomes.

Australia: Japan pledges 100 percent technology transfer and a domestic submarine build

Tokyo has improved its offer to Australia by revealing additional details of a proposal to design and build submarines. The head of a high-powered Japanese delegation, Masaki Ishikawa, said Japan would transfer 100 percent of the technology involved in building a larger version of Japan’s state-of-the-art 4,000-ton diesel-electric Soryu-class submarine.

Russia and North Korea reach agreement on rouble settlement as barters gather pace

Russia's Sever Group and the Kim Chaek metallurgical plant in Chongjin, North Korea, have reached a monthly trade turnover of $2m by use of barter and monetary settlements. Now Russia and North Korea have agreed on the need to optimize foreign trade operations and are already able to make settlements in roubles.

Main headlines from this issue

Indonesia: Powerful forces criticise KKIP’S drift towards integrity

Indonesia’s Defence Industry Policy Committee, known as KKIP, is facing hostility from government ministers who want to shut it down. The ministers, we were told, view the KKIP’s enforcement of the offset regulations as an obstacle to securing backhanders.....

Taiwan: Defence ministry extends influence over industrial cooperation, demands directs

As the government of Taiwan reorganises and downsizes its Industrial Cooperation Program Office (ICPO), the influence of Taiwan’s Ministry of National Defence is growing. The result is greater demand for direct projects.....

DAPA “lied and exaggerated” about F-35 technology transfer

Korean MPs have accused DAPA, the country’s offset agency, of misleading the public and exaggerating the terms of a contract for the transfer of technology. The U.S. rejected the export of four of 25 technologies relating to the F-35 fighter jet, citing security reasons. The refused technologies include the Active Electronically Scanned Array (AESA) radar system.

“Offsets are everywhere in the European Union” – The defence directive is a fiasco

“Offsets are still here, everyone is still compliant,” Guy Anderson, Senior Principal Analyst for IHS Aerospace, Defence and Security, told the GOCA conference during a talk assessing “Offsets in the European Union Post 2011.” The big issue when evaluating the impact of Directive 2009/81/EC is how countries apply Article 346…..

Russia looks to Southeast Asia for military joint ventures

A Russian minister has declared that Russia’s defence industry is focused on finding reliable partners, particularly in Asia. The country does not intend to lag behind in scientific and technological cooperation in the global arms market, he added.

Main headlines from this issue

Directive 2009/81/EC - EC pressures member states to respect directive as governments skirt offset restriction

The EC has issued notices to member states asking them to respect the intent of directive 2009/81/EC. The directive prohibits offsets in most cases. Member states remain engaged in a discussion on acceptable conditions to include government-to-government contracts and on possible exemptions from the directive. The same talks affect FMS-type procurement. The UK has taken particular exception to the tone of the discussion…..

UAE changes tack – announces policy revisions

Tawazun has introduced significant changes to the UAE’s offset guidelines. The penalty provisions and multipliers have been modified and non-defence projects are back in favour. Credits for input and output activities have also been reviewed.

UK’S defence industry powers ahead with help of DSIEP policy

This year’s annual report on the UK MoD’s Defence and Security Industrial Engagement Policy (DSIEP) shows that signatories to the policy increased investments in the UK’s defence sector by 240 percent over the last twelve months. The reported total is £1.17bn ($1.8bn). Nine foreign prime contractors signed up and detailed their investments.

Russia introducing localisation measures on foreign contractors

The Russian authorities are further developing the country’s regulatory framework to adopt import substitution measures and stimulate localisation. Law firm CMS Russia recommends that foreign suppliers exercise caution when implementing a production localisation project in Russia. The country currently has no practice or precedent in the application of the new provisions.

Indian Israeli collaboration weighed down by ‘Alice in DPP land’

Tarun Vijay MP, a member of India’s Parliamentary Standing Committee on Defence, told an international seminar on 'Strategic Defence Cooperation between India and Israel' that discharging offset obligations used to be a challenge for Israeli companies. That changed in August…..

Main headlines from this issue

Czech Republic prepared to defy EC and re-engage with offsets

The Czech Republic is considering re-engaging with offset. The country plans to embark on a major defence equipment acquisition program and will demand offsets on a case-by-case basis, starting with the requirement for 3D radar. The government will not publish rules or guidelines.

Saudi Arabia approves easier credit award process

Saudi Arabia has made no formal changes to its offset guidelines since 2007 or to how the authority is implementing their programs, but has made helpful adjustments to the way the guidelines are put into practice. The Economic Offset Committee declared in June 2013 that it intended to make significant changes to the guidelines, but appears to be in a state of stasis.....

Doubts remain as Kuwait “permanently” ends the offset policy

The Kuwaiti government has announced that the Cabinet has endorsed a proposal to liquidate the National Offset Company. A terse statement said: “The Council decided to permanently stop the offset program.”

Qatar to amend law – Qatari partnership to be mandatory

Qatar’s Shura Council has voted to revoke the law governing public procurement and to introduce changes to streamline and standardise the public procurement process. The proposed amendments will permit tenders valued at $250m or higher to be awarded to foreign entities provided they have a Qatari partner.

Australia: GPA negotiations stall over preferential treatment of SMEs

The Australian government’s negotiations for accession to the WTO Agreement on Government Procurement (GPA) appears to be faltering. Australia’s preferential treatment for SMEs would be prohibited on the basis that it indirectly discriminates against foreign entities.

Japanese delegation refuses to speak about submarine parts for Australian industry

A Japanese consortium competing for the $35.68bn contract to build submarines for Australia has irritated local suppliers by failing to share key information about its proposal or discuss specific collaboration possibilities during their visit. Australian defence contractors said they were rebuffed when they sought one-on-one meetings.

Main headlines from this issue

Elbit overcomes Swiss political battle, lands UAV contract with commitments to civil projects

Swiss offset volumes will receive a boost after a flat couple of years as a result of an unreported offset commitment. The Elbit program in 2015 will be one of the first to re-engage with Switzerland’s offset / industrial participation program.

India: DPP 2013 amended – partnership selection eased

India has amended Defence Procurement Procedure 2013 (DPP 2013) to allow foreign contractors to select partners at the execution phase of the contract instead of the evaluation phase. The change, which is retrospective and takes immediate effect, will make changing partners easier over the intervening period.....

South Africa: German shipbuilder joins competition for patrol vessels

German shipbuilder Abeking & Rasmussen has partnered with Rheinmetall Denel to bid for the supply of vessels to the South African Navy’s Project Biro. One of the challenges reported to be facing contenders will be complying with the varied and sometimes conflicting local content thresholds and industrial participation quotas.

U.S. companies engage with Danish contractors and provide access to U.S. market

Lockheed Martin and the Danish firm Systematic will co-operate on a project to establish an electronic warfare support system in Denmark. In return, SSBV-Rovsing will receive marketing assistance for its solar array simulator in the U.S. market.

Poland: MOD furious at allegations concerning selection of Airbus helicopters

Poland’s MoD has angrily rejected allegations in Wprost, a Polish weekly, that it broke procurement rules when it selected Airbus Helicopters. PZL-Świdnik has issued a lawsuit against the MoD alleging errors in the tender process. Now the MoD is threatening legal action against the weekly. The contract is no closer to being finalised, particularly the offset requirements.

Main headlines from this issue

Political stalemate leaves Belgium in a bind on IP policy, changes grind to a halt

Belgium’s coalition government remains deadlocked over its approach to defence industrial participation and has failed to approve or reject a pending IP proposal. The proposal was put forward last year for the forthcoming F-16 replacement program.

Australia: Submarine competition catches fire - Japan gets serious

A former commander of the Japanese navy, Admiral Takashi Saito, will head a 40-strong delegation to Australia this month to negotiate roles for local industry should Japan be successful in its bid for a submarine contract. The delegation will include government officials and specialists from Kawasaki and Mitsubishi.

“Blame Spain” for EU’S rampant embargo on defence offsets

Another manuscript has been published seeking to explain how the European Union, by challenging national defence offsets, brought discord to a formerly exclusive member state competence. The authors say, with indubitable understatement: “Our process-tracing analysis shows that the EU’s recent challenge of defence offsets was a case of supranational self-empowerment.”

Canada awards radar contract based on ‘value proposition’ policy

The Canadian Department of National Defence has awarded Rheinmetall-Canada and ELTA Systems, an IAI subsidiary, the Medium Range Radar (MRR) program. The deal used the Industrial and Technological Benefits Policy’s Value Proposition to rate and weight bid proposals.

BAE Systems overhauls Saudi industrial participation portfolio

BAE Systems is advancing its re-organisation of the group's portfolio of interests in a number of industrial companies in Saudi Arabia to comply with commitments under the Kingdom’s industrial participation program….. An expansion of the Omani program has also been agreed.

Main headlines from this issue

India: Eternal recommendations continue to land on Parrikar’s desk

The importance of being earnest has not occurred to India’s defence offset policymakers. As proposals and drafts bumble along, offset practice has become a grisly business with plenty of advice and little action. India’s \Committee of Experts for Amendment of DPP-2013\" chaired by former Home Secretary Dhirendra Singh has now prepared a cock-eyed construct for Defence Minister Manohar Parrikar....."

SQUIRM OF THE YEAR AWARD GOES TO 'MAKE IN INDIA'

Consulting firm Frost & Sullivan has selected the government of India for an award in recognition of the \outstanding contribution\" of the 'Make in India' program's “vision and implementation excellence.\"

The defence directive: The EDA and the EC are vying for advantage – “But at least they are playing the game”

Behind the triumphant words of press releases about the “harmonisation” of defence procurement in the EU, Defence Directive 2009/81/EU leaves many issues “flexibly unclear” and many questions unanswered. Dr Aris Georgopoulos argues: “The role of the EDA remains crucial.”

“EC USED DEBT ISSUE TO CLAMP DOWN ON GREECE’S IP ASPIRATIONS”

“The European Commission is angry with Greece not only because of the debt repayment question, but also Greece’s recent attempts to secure participation for local companies in a government-to-government agreement with the U.S. for the €500m upgrade of the P3 Orion surveillance aircraft.”

Korean professor says technology transfer for the F-35s looks impossible

The United States' reluctance to transfer core fighter jet technology is likely to derail South Korea's KF-X project to build indigenous combat planes, said Choi Jong-kun, a Professor of Politics at Yonsei University. \Given the data from DAPA the transfer of critical technology we wanted and we expected to get seems impossible……\"

Main headlines from this issue

India bumbles back to type as DPP 2015 fades away

Traditional political theatre has interrupted the publication of India’s latest Defence Procurement Procedure (DPP 2015). The Defence Minister has scrapped the plan and is now looking for an October release.

Finland welcomes an independent ‘go ahead’ to demand IP for the fighter replacement program

The Finnish government has accepted the recommendations of an independent study into its forthcoming Fighter Replacement Program. The study determined that the country’s derogation from the defence directive under Article 346 TFEU is justified: Finland can ask for industrial participation.

Oman’s new regulations will make multipliers of ten-plus achievable

The new Omani Authority for Partnership for Development regulations indicate that multipliers for inputs and outputs will range from 1 to 5. In practice, however, those multipliers may even exceed 10.....

Czech Republic celebrates offset benefits and prepares for more with new procurements

The Czech Republic’s economy has gained 31.6bn crowns ($1.3bn) since 2004 from the offset program associated with the lease of the Gripen fighters, Saab officials claimed. Opportunities for future benefit programs remain as the military prepares a number of procurements likely to meet the criteria for offsets under Article 346.

Israel: ICA to introduce penalties for obligors with a broken record

The ICA is to introduce non-performance penalties into offset contracts on a selective basis. The decision marks a significant departure from the policies of predecessors.

Main headlines from this issue

Huge relief as DoD waves indirect offset ‘cost analysis’ on FMS contracts

The U.S. Department of Defence has introduced an interim rule, effective immediately, that will ease the bureaucracy required for foreign military sales (FMS). The new rule no longer requires contracting officers to analyse indirect offset cost agreements between a U.S. defence contractor and an international FMS customer. One U.S. defence contractor described the change as “a blessing.”

Oman regulation confirms input/output approach and launches milestones

Oman has finally published its new Partnership for Development (PFD) regulations, the sultanate’s equivalent of an offset program. Although termed ‘regulations’, the PFD has structured a model designed to offer flexibility based upon a collaborative approach and.....

India is still seeking views for policy changes

Although India is due to publish its Defence Procurement Procedure policy document, DPP 2015 on June 30th, a Committee of Experts convened a meeting this month and listened in silence to recommendations.A delegate described the session as “technical” and “boring” with the usual points hung out to dry.

Airbus Group consolidates Indian operations as it pledges support for 'Make in India'

The Airbus Group has brought all of its Indian operations under one entity, Airbus Group India Private Ltd., in a move which the company said would allow it to greatly support the 'Make in India' initiative. India is the first international market where local operations are being brought under a single company as part of the Group's 'one roof' policy, the company said.

Australia launches bid to join GPA – offset policy may be at risk

Australia has formally launched its bid to join the Agreement on Government Procurement (GPA). The country said it planned to submit an initial market access offer for GPA accession within the coming months, which will trigger the negotiations on its entry terms.

Main headlines from this issue

Canada announces key policy changes and a new banking approach

The Canadian government has announced a number of enhancements to its Industrial and Technological Benefits (ITB) policy. The banking provision will be changed to boost the attractiveness of investing in Canada in advance of a contractual requirement…..The Investment Framework will increase from 5 percent to 25 percent of contract value the cap on investments in SMEs.....

Russia on course for a formal offset policy

Russia convened a meeting of the Council of Ministers in March to consider the development of offset legislation. The ministries of Economy, External Trade, and Finance were asked to produce a report on ways to increase knowledge of offset practice and to recommend a policy. The report is expected.....

India: D-Day is June 30th; DPP 2015 has stringent penalties, new nodal agency

On June 30th the Indian government will give contractors some good news. It will announce that an amendment to the country’s DPP 2013 will allow the offset policies introduced gradually between 2006 and 2013 to be applied retrospectively. India will also release a new plan: DPP 2015.

Poland: obligors should take an anxiety pill before approaching the MoD

The MoD has acquired just one person from the Ministry of Economy, and contractors will notice when they go for meetings that the offset team is completely new to offsets. Consequently they are inclined to require the obligor to come up with proposals and to figure out how the MoD wants to satisfy the obligation.

Australia to move all ‘Industry Engagement’ matters to the Department of Industry

In April the Australian government released a report proposing the abolition of the Defence Materiel Organisation (DMO) that that all industry engagement matters associated with defence procurements, currently Australian Industry Capability (AIC) and Global Supply Chain (GSC) plans, be moved to the Department of Industry to align with broader industry policies. The government has said the review will be implemented over the next two years.

Main headlines from this issue

South Africa lays out new plans for civil and defence industrial participation

The South African government has set out new strategies for its offset policies. The Industrial Policy Action Plan affects both civil and defence industrial participation. The new strategies will be developed in conjunction with sector desks, and will either become part of the general National Industrial Participation (NIP) guidelines or will be included as annexures to tender documents.

European Parliament committee censures EC’S stance over misuse of Article 346, calls for tougher action

The European Parliament’s ‘Committee on the Internal Market’ has published a report that severely criticises the approach of the European Commission and member states towards Directive 2009/81/EC. The committee, comprising MEPS from every member state.....

India circulates draft offset policy

A ten-member committee from India’s MoD has put a draft offset policy into limited circulation for comments by industry associations. The draft suggests that India will request ‘directed offsets’ with compulsory investment by obligors in selected manufacturing capabilities.

Kuwait: Another battle begins as minister decides to wind up ‘National Offset Company’

Kuwait’s Finance Ministry has said it will ask the Council of Ministers to approve the appointment of a liquidator to wind up the National Offset Company. The company’s former CEO told CTO he would oppose the move because the NOC was not properly established and cannot therefore be subject to liquidation.

Hotchpotch Ukrainian transporter to crash land in Saudi Arabia

Saudi Arabia is to manufacture aircraft under a joint venture with the Ukrainian manufacturer Antonov. The joint venture will build transport planes for military and civilian use in a deal strengthening the kingdom's drive to develop a domestic military industry.