CTO Newsletter

Main headlines from this issue

Turkey: Legislation imminent for mandatory civil offset

A committee of Turkey’s Grand National Assembly is examining legislation for mandatory civil offsets. The GNA is expected to approve the bill in about a month and it will become law two months later, according to an informed government source.

Thailand to open bidding for railway projects paid for with rice, rubber, and tapioca

Despite much scepticism, the government said its plan to barter Thai farm products for Chinese high-speed trains is likely to be finalised before the end of the year. The government still plans to hold a bidding contest for the railway projects, and said that barter is a mechanism open to all countries.

U.S. to expand audits to ensure compliance with Buy America Act

The Office of Inspector General will conduct audits that include examinations of compliance with both the Berry Amendment and the Buy American Act. The BAA requires that ‘substantially all’ of the costs of foreign components not exceed 50 percent of the cost of all components. It is criticised by many foreign suppliers for its equivalence to an offset policy.

South Africa: Further consideration of the impact of changes to the B-BBEE codes

The amendments significantly change the manner in which a firm's B-BBEE status (or level) will be calculated. For example a firm with an \old\" B-BBEE level 4 rating (65 points) will automatically become a \"new\" B-BBEE level 7.

Netherlands tops the EC’s infringement league

The Netherlands, Luxembourg, Poland and Slovenia were all referred to the Court in 2012 with a proposal for financial sanctions because of the late transposition of the directive on defence procurement. A summary of referrals last year puts them into context by disclosing the extent to which there were other alleged infringements.

Main headlines from this issue

Special Report – European Commission struggles to measure the impact of the directive

The European Commission has ordered a study to prepare for its report to the European Parliament. The report will describe the impact on defence markets and industries of Directive 2009/81/EC. Titled “Openness of Member States’ defence markets,” the study has not been published and its contents are not expected to be made public. CTO has secured a copy and here we appraise its 202 pages.

Taiwan: contractors must contend with unwritten rules and resignations

A “unique situation” in Taiwan has thrown up a number of complications that are causing some trouble for obligors on the island, Jim Grzella, president of the service provider Global Partnering Solutions, told the DIOA/GOCA conference. The trouble comes as the MoD focuses on defence industrial cooperation projects to supplement a defence budget shortfall.

South Africa: DTI confirms B-BBEE threshold increase

Nomonde Mesatywa, chief director of the Broad-Based Black Economic Empowerment unit (BBBEE) at the DTI, has confirmed a decision to increase from R20m to R50m ($5m) the threshold of the equity value needed for a company to qualify as a \new entrant.\" The codes now require that enterprises should be 40 percent empowered. Many existing enterprises which had met the requirements of the previous codes will lose their status.

Offset academies to spread across the globe

Discussions are under way with trade organisations in the U.S.A., India, and France to collaborate in rolling out an international offset advanced training programme. There could be collaboration between the British programme, backed by the UK trade organization ADS, and the French programme....

Main headlines from this issue

Brazil announces national offset policy

Brazil will have a national offset policy for civil purchases. On the defence side the country will establish a trading company to be owned and managed by the MoD. The national offset policy, known by the acronym PNAC, is projected to be rolled out in November 2013 with particulars of the defence trading company to be ready one month later.

South Korea: DAPA deals a new deck of offset rules

DAPA has judo-flipped on some of its key offset initiatives. From this month new regulations will steer defence contractors firmly towards..... Participation in commercial items is also in favour.

After thirty years of offset and industrial participation Turkey has become an obligor

Turkish defence companies are going into international markets and facing the same offset requirements as other foreign contractors, especially in the Middle East and North Africa.

Thailand: boiled chickens exchanged for 315 fire trucks, 30 fire boats and twelve years in jail

Two former officials in Thailand have just been sentenced to long jail terms for inflating the price the government paid to buy fire trucks and boats from an Austrian company.....

Thailand prepares weapons shopping list –to be paid for with yet more boiled chickens

Thai Prime Minister Yingluck Shinawatra has ordered the armed forces to prepare their weapons purchase plans for the next decade. Ms Yingluck has also asked each of the armed forces to consider negotiating a barter deal to purchase the weapons.

Main headlines from this issue

Armscor’s bunker mentality – 100 percent penalty has industry in a spin

Executives at Armscor have been gagged all the way to the top and no-one is permitted to speak about the Defence Industrial Participation (DIP) policy. Anyone who has tried seeking clarification on policy issues faces a brick wall. The silence has spawned a waterfall of rumours.

Ukraine’s offset policy introduces a novel twist on quotas

Details of Ukraine’s offset policy have recently become clearer — and include a strange view of quotas. They vary according to the purchasing sector and are set as a percentage of the costs of acquisition under the main contract.

Denmark: “Bring us jobs or we don’t buy from you”

Candidates bidding into the Danish Fighter Replacement Programme will have to bring Danish jobs to the negotiating table, the Defence Ministry said. \All four candidates will be informed of the same: If there won’t be jobs coming to Denmark then we won’t be buying planes from them.\"

India: “Muddled thinking on FDI – and we have trashed the concept of multipliers”

India’s MoD often claims that foreign investors are guided purely by economic considerations and that they are neither influenced by the FDI limit nor by other provisions. Major General Mrinal Suman believes the ministry’s position reflects \ignorance of the dynamics of FDI flow.\"

Thailand revisits countertrade

Thai Prime Minister Yingluck Shinawatra has raised with China the prospect of a bilateral countertrade deal with Thailand supplying agricultural goods against unspecified Chinese technologies.

Main headlines from this issue

India calls in the penalties

India’s Department of Defence Production has issued default warnings concerning two offset contracts. The MoD is claiming penalties of $2.5m for shortfalls in meeting the obligations. The department has initiated action concerning a further eight contracts where interim shortfalls of $23m have been reported by contractors..….A “high level collegiate committee” will report to the Offset Directorate.....

Norway cleared for revised offset regulations

Norway, together with Iceland, will transpose defence directive 2009/81 EC into national legislation by December 14, 2013. They will be the last European countries to comply. Norway’s tiff with Liechtenstein is over.

Japan to manufacture components worth ten percent of F-35A’s value

The Japanese companies Mitsubishi Electric and IHI will manufacture 24 components of the F-35A. The agreement will enable the companies to acquire technologies necessary for an indigenous Japanese fighter to be assembled in the future.

Scotland would lose out on UK defence contracts awarded under Article 346

The minutes of oral evidence taken at a recent House of Commons Defence Committee hearing on the defence implications of possible Scottish independence raised surprising issues concerning the application of Article 346 of the defence directive.

Unusual Zimbabwe barter deal paves way for infrastructure development

A major South African construction company has been given 134 hectares of land as part-payment under a barter deal involving the construction of a direct link between Zimbabwe’s city centre and Harare International Airport. The land will be used for a mall.

Main headlines from this issue

South Africa’s Arms Procurement Commission migrates from farce to shambles

South Africa’s Arms Procurement Commission has begun its public hearings in Pretoria into the Strategic Defence Procurement Package but already there is concern that the commission’s credibility is seriously wrecked…. The SDPP belongs to the nineteen nineties, when the weapons would cost R30bn and the public were told they would generate more than R100bn in offset obligations.

Macedonia legislates for offsets

The former Yugoslav Republic of Macedonia is to require offset programmes for purchases of military equipment as part of a larger reform to regulate weapons procurement.

Peru announces a new focus on co-production

Peru has turned up the volume on its industrial participation policy. Defence vice minister Valakivi Jakke said Peru will co-produce because it is time to “change the mode of acquisition”. The focus now is on co-production, and self-sufficiency, he said.

Colombia’s new offset initiative

Colombia’s defence industry will be transformed as the government of president Juan Manuel Santos considers new strategies for foreign direct investment and offset programmes. Colombia's new focus is on becoming a manufacturer and exporter of military equipment.

India: CAG finds “ambiguities and irregularities” in VVIP offsets

India’s Comptroller and Auditor General found several instances where the acquisition rules were ignored in the VVIP helicopter deal. Their report found ambiguities and irregularities in the offset obligations AgustaWestland had promised.

Main headlines from this issue

EC threatens action plan to end all offsets

The European Commission has issued a communication that will bring further consternation to member states who wish to challenge the restriction on offsets under the defence directive. In an unambiguous statement of intent the Commission says that it will ensure the rapid phasing out of offsets.....

South Africa’s Seriti Commission produces witness list

The Seriti Commission has decided to call former president Thabo Mbeki and members of his cabinet to testify in the country’s arms deal inquiry. A list has been released with only the names of those to be called in the first phase of the inquiry, which began on August 5th. … President Zuma has accepted the resignation of judge Francis Legodi.

Indian IT firms face $10bn in lost business from MOD’S ‘service’ ban

A memorandum published by India’s MoD in June warning that services such as software development would no longer qualify for offset credits was confirmed last month. The ban is now in force. Only ‘products’ may be offered under the offset clause.

Italy downplays F-35 spat – assembly has begun

Italian firms have won about $1bn of orders under the F-35 programme, equivalent to about 76 percent of Italy’s estimated investment in the programme. Fuselage components and wing parts have already been loaded and prepared for alignment.

Patria grants Poland ten year export license

Poland has agreed terms with Patria that will permit the WZM Military Mechanical Plant in Siemianowice licensed production of Rosomak AMV armoured vehicles and to promote their sale to global export markets.

Main headlines from this issue

Finland lets genie out of the bottle – new IP rules retain multipliers but lose penalties

Finland has published new rules - not guidelines - on industrial participation. The rules promise multipliers for indirect (defence) projects and make no mention of penalties. The most significant differences.....

Brazil’s Health Ministry to become pill producer with Israeli technology

Israeli biopharmaceutical company Protalix Biotherapeutics has secured a supply contract with the Brazilian Health Ministry, promising technology transfer for….. The contract is further evidence of Brazil’s drift into a civil offset policy.

Australia passes legislation for civil offsets

The Australian Senate passed the Australian Jobs Act the day before prime minister Julia Gillard was replaced by her party. The Australian Jobs Act will ensure that all projects worth A$500m ($455m) or more will complete Australian Industry Participation (AIP) plans, regardless of their location and regardless of their industry sector.

A.K. Antony vs. Anand Sharma in the battle for FDI

India’s Defence Minister, A.K. Antony, has opposed moves to raise the Foreign Direct Investment (FDI) cap in defence manufacturing from 26 percent to 49 percent. But Commerce and Industry minister Anand Sharma declared that Mr Antony's reservations are part of the wider discussion process in government and that India will raise the limit.

Sandeep Verma investigates the culture of corruption in offset transactions

Designing offset rules and regulations without compromising integrity and transparency in the procurement process may be challenging but it’s a challenge with which Sandeep Verma, is familiar.....

Main headlines from this issue

South Africa: Armscor’s secret policy changes revealed

Armscor has put new offset rules into operation. Details of the new policy remain unpublished but the South African corporation is already applying them to bids. Foreign defence contractors are facing stricter requirements and a penalty of “at least” 100 percent.....

“EC’s bid to ban offsets is failing”

The European Commission is worried that its efforts to eliminate offsets in all of its forms are failing. “They are not going down if you look at the picture overall.”

EC to pursue a policy of ‘Positive Reciprocity’

Rupert Schlegelmilch, European Commission director for Services, Investment, Intellectual Property, and Public Procurement, told the ECCO conference that a new proposal would see the EC close access to other countries in European markets if EC member states are not given substantial market access to their markets.

China to adopt a formal approach to defence offsets

China intends to develop a detailed offset policy and to gradually impose offset requirements for its weapon procurements. Training will be given to personnel to make them aware of the importance of offsets and the various practices that are available.

France: “Other countries adopt a different view”

The French government’s official position on offsets was made clear by Claire Waysand, deputy director general and chief economist in the Directorate-General of the Treasury at the French Ministry of Economy and Finance. \We do not request offset in France. We support the efforts of the EC to restrict offsets and of the entry into force of the 2009 defence directive.\"

Main headlines from this issue

Saudi Arabia’s new guidelines recalled – expect changes

Saudi Arabia’s Economic Offset Committee has recalled the country’s newly approved offset guidelines. The committee is planning to make changes, but officials decline to reveal what they might be.

Chief judge on national security exception for offsets: “No-one knows what it means, and no-one wants to know what it means.”

Judge James Bacchus, chairman of Greenberg Traurig’s global practice group, a former U.S. Congressman and a one-time chief judge at the WTO, said that offset and countertrade may cease to exist within ten years. The world is turning toward rules that will discipline these kinds of performance requirements, he predicted.

Speakers consider growth of civil offsets in emerging markets

Mike Fisher, GE Aviation’s regional manager for industrial cooperation and offset, said that of about 80 countries that practice some type of formal offset, about eighteen require civil offsets.  Requests for civil offset programmes are clearly growing.

South Korea: DAPA revises offset guidelines

South Korea’s Defence Acquisition Programme Administration (DAPA) has reviewed offset guidelines and introduced a number of changes.

Australia’s AIC “flat earth” policy

Australia’s government doesn’t like offsets and doesn’t practice them, Malcolm Taylor, CEO of the C&I Projects Group, told a conference. Or at least that’s what they like to say.

Main headlines from this issue

“Courageous Denmark” – leads the initiative as Nordic countries take issue with the directive

The Nordic countries, under pressure to comply with Directive 2009/81/EC, are making a determined effort to preserve their industrial participation policies. Negotiations have been conducted with EC officials largely behind closed doors …. How far they are prepared to test EC tolerance?

Offsets are not permitted in New Zealand – unless you offer them

New Zealand’s Economic Development Minister, Steven Joyce, has announced new rules on government procurement. The rules comprise 94 pages, replacing 44 different pieces of legislation, cabinet directives, and miscellaneous guidance released by a multitude of government agencies over many years. They come into force on October 1st, 2013.

Kuwait’s NOC produces data to head off criticism

A river of statistical data from Kuwait’s National Offset Company has diluted the effect of a study by the Kuwait Economic Society. The study looked at the performance of the NOC. ..... The release of so much raw data may well change the perception of the NOC’s achievements.

Israel’s ICA chief steps down

Industrial Cooperation Authority director-general Bina Bar-On is stepping down after nine years as head of Israel’s ICA. Government policy is to restrict the term of office of senior government officials.

Russia says all defence import transactions will be concluded with offset programmes

The deputy premier and chairman of Russia’s Military-Industrial Commission, Dmitriy Rogozin, called for Russia “to switch to the offset operating arrangement.”

Main headlines from this issue

Italy completes new offset guidelines

The Italian government has concluded informal discussions on new draft offset guidelines submitted to the EC in Brussels. The guidelines are currently awaiting the approval of the defence minister and the Secretariat General. Credit banking will no longer apply.....

Estonia revises offset guidelines – policy to continue

Estonia has decided that its offset policy will have an open threshold. In practice, few procurements under 150m Kroons (about €10m) will attract an offset obligation despite new guidelines that predict a lower threshold in due course.....

Japan pledges to transfer nuclear technology to UAE, gains energy concession

To renew its role in an oil and gas concession in the UAE, set to expire in 2018, Japan has had to agree to deliver to the UAE technology related to a nuclear cooperation deal.

Cuban airports will be upgraded – Brazil will receive “irresponsible” Cuban doctors

Brazil has begun negotiations to hire at least 6,000 Cuban doctors to work in rural areas. Brazil will finance the modernization of five airports in Cuba.

Bulgarian president challenged over transparency of offset benefits

The Bulgarian Industry Association has called on President Rosen Plevneliev to guarantee the openness and transparency of public procurement and related offset agreements, their implementation and their impact on the economy.