CTO Newsletter

Main headlines from this issue

Frankenstein’s Law: Poland’s 100 percent penalties rise from the dead

Changes to Poland’s offset law will see the return of some eye-watering requirements. Penalties will be set at 100 percent of the non-performed or under-performed offset commitment, and the submission of a performance guarantee will be obligatory.....

New Vietnamese law looks at the technical submission of the bidders

Vietnam has announced that legislation enacted by the National Assembly last November to apply a new method of selecting contractors will take effect from July 1st, 2014. The law looks both at the price and the technical submission of the bidders.

South Africa: Arms Procurement Commission told bidders were hijacked with offset demands after they had won contracts

The government's chief negotiator for the 1999 arms deal, Jayendra Naidoo, told the commission that negotiators had to reduce the cost of the package and get \substantial and solid\" offset deals after the preferred bidders had been chosen. The bidders already felt they had won contracts and so were reluctant to improve their bids.

Philippines: more obligations as Health Ministry subscribes to policy

The Philippines International Trading Corporation (PITC), the management authority for the country’s countertrade and offset program, is seeing a surge in the number of contracts engaging in the process. The country’s Department of Health recently adopted the policy.

“Taiwan has no credit cap” – direct industrial cooperation requirement increased

Taiwan’s Industrial Cooperation Programme Office (ICPO) has firmly denied that the country limits the credits that may be issued at any one time to $20m. Several contractors had expressed concern at suggestions of a limit last year.

Main headlines from this issue

Kuwait moves the offset program from the Finance Ministry to the KDIPA – Official

Kuwait’s Council of Ministers has approved a proposal to move the offset program from the Finance Ministry to the Kuwait Direct Investment Promotion Authority (KDIPA). Offsets will be managed by a department within the KDIPA.....

Indonesia will award multipliers for offsets and for counterpurchases – high penalty provisions expected

Silmy Karim, a senior member of Indonesia’s Defence Industry Policy Committee (KKIP), has provided a clearer understanding of the requirements that defence contractors will face under Indonesia’s new offset and countertrade guidelines. In an interview with CTO.....

Oman: three candidates compete to head the ‘Partnership for Development’ program

Oman’s Minister of Commerce and Industry is understood to be putting three candidates before the Board of Governors to head the ‘Partnership for Development’ (PFD) program.

New Indian government to tie FDI cap to technology level

India’s Department of Industrial Policy and Promotion (DIPP) has proposed three different caps for FDI in defence: 49 percent, 75 percent and 100 percent.....

EC’s threats against member states in breach of Article 346 are all bark and no bite

Last December a Portuguese MEP, Ana Gomes, wrote an angry letter to José Manuel Barroso, President of the EC, accusing the EC of ignoring its own guidance on the prohibition of offsets under Directive 2009/81. Michael Barnier has replied...

Main headlines from this issue

Denmark halts defence contracts pending new guidelines

Denmark’s parliament has rescinded the country’s industrial cooperation regulations as it prepares new guidelines. Without legislation governing industrial cooperation large procurement contracts cannot be signed.

“Norway will retain its ‘special demands’ for industrial co-operation,” says MoD

John I. Laugerud, the Deputy Armaments Director at Norway’s MoD, is resolute that Norway will retain its “special demands” for industrial co-operation on procurements concerned with national security.....

Thailand: A fairy-tale barter brings down a Prime Minister

Thai Prime Minister Yingluck Shinawatra has been forced out of office and faces impeachment by the country's Senate. She has been indicted for dereliction of duty over her government's controversial rice subsidy scheme.

Qatar unimpressed with UAE offset program

A former U.S. ambassador to Qatar, currently President and Executive Director of the U.S.-Qatar Business Council, wrote in an article for the National Defense Industrial Association that Qatar is not particularly enamoured with the concept of offsets.

SAAB loses Swiss Gripen deal – fallow IP years beckon for Switzerland

The Swiss said goodbye to the $3.4bn procurement of 22 Gripen fighter jets as the referendum narrowly rejected the government’s planned procurement. Swissmem, the trade association that administrates offsets for Armasuisse, said the no-vote will deprive the Swiss economy of CHF 2bn of orders.

SAAB loses Swiss Gripen deal – fallow IP years beckon for Switzerland

The Swiss said goodbye to the $3.4bn procurement of 22 Gripen fighter jets as the referendum narrowly rejected the government’s planned procurement. Swissmem, the trade association that administrates offsets for Armasuisse, said the no-vote will deprive the Swiss economy of CHF 2bn of orders.

Main headlines from this issue

Switzerland: Gripen on the brink

A survey by the leading research and polling institute GfS Bern predicts a close result in the May 18th referendum on the procurement of Gripen fighter aircraft. A negative result would see shrinking offset volumes in Switzerland for the next two years before new armament programs begin to fill the gap.

India’s first ‘Buy and Make (Indian)’ RfP attracts significant interest

The Indian Air Force has issued an RfP seeking participation from domestic companies in a proposed $1.2bn programme to manufacture 106 Pilatus trainer aircraft. Several private sector Indian defence manufacturers have expressed an interest. The RfP was described by the defence industry as the first tender of its kind.

New Saudi appointment promises vigorous civil offset program

Abdul Rahman al-Zamil, who was previously a board member of the MoD’s Economic Offset Committee, has been appointed Chairman of the Council of Saudi Chambers. His first statement as chairman was to announce that a new economic offset program for civil contracts will be introduced after it has been tested for military contracts.

South Africa launches new initiative to stimulate black participation in localisation programs

A new business organization, the Industrialisation Supplier Development Association, has been launched…...ISDA is tasked with improving prospects for higher levels of local content in South Africa’s multibillion-rand infrastructure programme.

Russia orders compensation initiatives to boost exports

President Vladimir Putin said the easing of central controls together with initiatives to encourage the use of loans; debt repayment initiatives; offsets; and industrial participation should be employed to support Russian military exports.

Main headlines from this issue

Indonesian guidelines demand commodity counterpurchases

Indonesia will publish the official text of its offset guidelines, just three months ahead of the presidential election. A spokesman confirmed that counterpurchase, as distinct from offset, will be a significant component.

Colombia heading for one hundred projects

Colombia, which took its first step towards a formal offset policy in 2004, has signed 47 offset framework agreements so far. Those agreements are worth $2.5bn. About 40 complimentary agreements are worth $1.5bn.

Brazil has noble ambitions, but are they legal?

Three Brazilian presentations left the audience somewhat bewildered. A new National Policy for Offset Agreements, known as PNAC, is awaiting final approval, we were told; new thresholds will be announced on the military side and for different civil sectors. The Ministry of Health and the Ministry of Development, Industry and Foreign Trade are preparing for Brazil’s first mandatory civil offset requirements.

The future for offsets and countertrade

Close to $500m has been or will soon be invested in developing partnerships between leading universities, offset obligors, and recipient countries. Those partnerships in turn are creating global technology parks.

Poland’s defence minister encourages ‘Polonisation’

Poland’s Defence Minister, Tomasz Siemoniak, said that more than half of the Defence Ministry's asset spending goes to domestic suppliers because Poland wants to develop its own industrial potential. Foreign procurement programmes now being implemented therefore call for the involvement of domestic companies.

Main headlines from this issue

The defence directive: Burkard Schmitt sanctions unsolicited offers

Sometimes a presentation leaves you with a big, dumb, grin on your face. Dr Burkard Schmitt, the European Commission’s defence expert at the Internal Market and Services Directorate General, wore his well when he responded to questions with silence after speaking about the current state of the EU defence directive and its impact on offsets.

South Korea: DAPA’s new guidelines put the spotlight on SME exports

South Korea’s Defence Acquisition Programme Administration has revised its offset policy to reflect further emphasis on SME participation and the export of manufactured products. The policy now puts less emphasis on technology transfer.

Poland: soon there will be clarity… followed by confusion

The offset regime is still technically in place and yet the government is already negotiating using the projected rules that are set to come into force.

Kuwaiti court confused by allegedly untruthful submissions

A court in Kuwait hearing an application to rule the National Offset Company’s status void was thrown into confusion by a submission by the NOC’s lawyer…..Then the other side submitted a Ministry certificate allegedly confirming that submission invalid.

Malaysia to revise program management structure on the civil side

Malaysia is planning policy revisions to its national offset policy that will include implementation phases.

Main headlines from this issue

Kuwait’s NOC must prove its case or face closure

A court in Kuwait has called the National Offset Company to present its case at a hearing on March 27th in response to an application that the company’s status be declared void.  A legal team will argue that the NOC is in breach of decrees that led to the establishment of the NOC and to the transfer of the offset program from the Ministry of Finance to the NOC.

The directive: Barnier ignores pleas on subcontracting, pushes ahead regardless

A conference in Brussels on February 24th heard offset delegates express their concerns to senior EC officials in an open and frank debate about the sub-contracting provisions of Directive 2009/81 EC.  Just eight days later Brussels re-convened…..Commissioner Michel Barnier and his underlings, showing disdain for the views expressed earlier, said.....

“A hundred cases of corruption involving offsets are not a lot”

Transparency International is wrong, says an academic study by Switzerland’s University of St.Gallen. There is no evidence that arms trade offsets are often corrupt.

India: DOMW opens dialogue unit for exasperated obligors

The Indian MoD’s Department of Defence Production has opened a “facilitation cell” at the Defence Offsets Management Wing (DOMW).

South Africa: We’re not going to make the deadline, says Judge Seriti

The Commission of Inquiry into South Africa’s arms deal is at risk of not completing its mandate before its term expires in about eight months’ time, Judge Willie Seriti said.

Main headlines from this issue

EC holds lively debate with industry on subcontracts. “They are not working but EC doesn’t really understand,” say delegates

An EC conference in Brussels to discuss the sub-contracting provisions of Directive 2009/81 and cross-border market access for SMEs was described by delegates as “open and frank.” The EC, certain of its dominance, is now likely to report that it has held talks with stakeholders and can continue its policy of squeezing offsets from European trade.

Portuguese MEP demands EC upholds the defence directive – “They completely botched it”

A Portuguese Member of the European Parliament has written an angry letter to José Manuel Barroso, President of the EC, attacking the EC’s approach towards offsets. The letter accuses the EC of ignoring its own guidance…. under Directive 2009/81 and of failing to initiate proceedings against those that misuse Article 346 TFEU.

South African offsets for Malaysia, brokered by ‘MIGHT’

A series of indirect offset projects have been agreed between South African and Malaysian companies, with three MoUs settled and another five under negotiation.

Malaysia kickstarts competition as its civil carrier approaches fleet renewal

Malaysian Airlines has begun evaluating its fleet replacement. The government has signalled that offsets will be an important consideration. A release by the official news agency Bernama lays the groundwork for a forthcoming battle between Airbus and Boeing.

Iran: Ayatollah Khamenei calls for more barters

Iran’s ‘supreme leader’ has called for an “economic jihad” to mobilise his country against the effect of international sanctions over the nuclear program. He said Iran should use barter deals in foreign trade and diversify the origins of its imports.

Main headlines from this issue

“A transformational approach” as Canada’s IRBS become ITBS and bids will be assessed by weighted ‘value propositions’

The government of Canada has adopted substantive recommendations from a report into the country’s defence procurement practices. The government has now committed itself to transforming Industrial and Regional Benefits (IRBs) into Industrial and Technological Benefits (ITBs), though it still wants a regional component.....

France invokes Article 346 as it restricts ‘competition’ to a single French group

France has launched a tender to replace its armoured vehicles but is only accepting local tenders from French companies, citing technical, security, and operational reasons for localisation.

Annual Report to Congress – fewer agreements with fewer countries, but bigger deals

The 18th Annual Report to Congress on the Impact of Offsets in Defence Trade prepared by the U.S. Department of Commerce's Bureau of Industry and Security shows that in 2012 U.S. defence contractors reported entering into 43 new offset agreements with seventeen countries, a decline from 62 agreements with 27 countries in 2011. The total value of those offset agreements though was $10.1bn, almost double that of 2011.

Oman issues decree at last

The announcement of Oman’s new Partnership for Development policy was scheduled for September 2011. Time slipped by. Although details have been conveniently leaked during the intervening years the Royal Decree was finally issued on February 3rd, 2014.

Lionel October: present policy avoids past mistakes by focusing on directs

As testimony to South Africa’s Arms Procurement Commission continues to corroborate the ineptitude and worse in the award of offset credits under the Strategic Defence Procurement Packages, the current DTI Director-General, Lionel October, provided a functional account of present-day policy.....

Main headlines from this issue

Kuwait’s ‘National Offset Company’ to be wound up

Kuwait’s Council of Ministers has decided to transfer authority for the National Offset Company’s offset program from the Ministry of Finance to the Ministry of Commerce and Industry…. All offset contracts will be subsumed into the new agency which will have the status of a government department rather than a limited company.

Kuwait: “Notarised Power of Attorney was untruthful” – Court petition to declare Chairman and Board invalid

Mr Quraishi’s lawyers allege several technical but actionable violations by members of the NOC’s board…. A confidential letter sent to the Minister of Finance by Quraishi’s legal team requested that the Deputy Prime Minister and the Minister of Finance take legal action against Mr Sheetan...

Kuwait: Litigation from former CEOs takes its toll

Othman Al Quraishi has opened two lawsuits against the NOC and our sources indicate he is considering a third. Mr Mutawaa’s case has reached the stage of…. Court records indicate that Mazen Madooh was last month awarded...

Mexican love affair hits the rocks – offset initiative suspended

The Mexican government’s work towards a formal offset policy has been suspended, in effect closing it down...

EC seeks to muzzle CTO

The European Commission has banned the Editor of CTO from attending a conference titled “Defence Market Access for SMEs: from Offsets to Subcontracting” scheduled for February 24th, 2014 in Brussels.

Main headlines from this issue

Avascent says Denmark among worst violators of EU’S offset ban

A paper on the European Defence Industrial Base published by the strategy and management consulting firm Avascent blames France for resisting market liberalization, but spreads its accusations into Scandinavia.

China has complied with WTO requirements but continues to “encourage” reciprocity

The 2013 Report to Congress on China’s WTO Compliance says some of China’s revised measures continue to “encourage” co-operation, and it appears that Chinese government officials at times continue to use the foreign investment approval process to pressure foreign companies.....

South Africa’s Arms Procurement Commission resets the agenda, delays Mbeki’s appearance

As South Africa’s Arms Procurement Commission resumes it hearings the focus shifts to allegations of fraud and corruption and to the controversial industrial offset programme. The commission has announced a revised schedule for witnesses.....

Thales collaborates with Indonesia’s PT LEN Industri

Thales UK has won a contract worth over $165m with the Indonesian Ministry of Defence for ForceSHIELD, Thales’s integrated Advanced Air Defence system. In the early stages of the delivery there will be in-country integration of some of the components.

Greece draws level with South Africa and India as kickbacks are uncovered

Greece will overhaul arms procurement to make the process more transparent, said defence minister Dimitris Avramopoulos after a wide-ranging corruption inquiry led to the arrest of a former defence official and two arms dealers.

Main headlines from this issue

Heads of State silent as EC threatens to limit exclusions to the defence procurement directive

December’s European Council Summit for heads of state or government was a washout for member states alarmed by the European Commission’s uncompromising position on the elimination of defence offsets. Those concerned about the Commission’s determination to further restrict the use of Article 346 TFEU had little to cheer either.....

Policy paper defines Poland’s robust approach to the EC

A policy paper authored by the chief of Poland’s Foreign Industry Cooperation section at the Armaments Policy Department of the Ministry of National Defence takes a hearty stand against further EC tightening of the defence directive.

“Offsets, obscenities, and lies” damage Greek parliamentary debate on submarines

The Greek left-wing opposition party, Syriza, has failed in a bid to have parliament launch an inquiry into a stalled deal for the completion of Hellenic Navy submarines.

Poland changes Public Procurement Law on sub-contracts

Greater protection for subcontractors in public procurement contracts was introduced under new legislation which came into force in Poland on December 24th, 2013.

Events diary for 2014 – see CTO 1

Events diary for 2014 – see CTO 1