CTO Newsletter

Main headlines from this issue

Turkey’s 5th directive moves policy to a new level

SSM is placing greater emphasis on the scope of the IP, revising the multiplier table, lowering the threshold, and raising the quota. It is also offering new incentives for engaging with SMEs in defence projects ........

Structured trade finance will survive the directive, with a geographical shift

Colin Heritage, Managing Director of Stemcor Trade Finance, predicted that the EC Procurement Directive will reduce offset obligations in Western Europe but that Asia, Latin America, South Africa, and in particular the Middle East and India, will see a rapid growth in the practice.

Kuwait: primes baulk at sharing offset feasibility study with other parties

What has changed is the offset project process. Foreign companies may satisfy their offset obligations by proposing direct and indirect projects and selecting a local partner, which may or may not be involved in the project......

Greek procurement law expected by June

A new Greek Procurement Law, which will show how Greece will adapt to the EC Procurement Directive, has to be ready before Parliament rises for its summer break in June.

Kazakh barter default laid to rest after 18 years in Indian court system

The Indian Supreme Court has ruled that Export Credit Guarantee Corporation of India must honour its commitments resulting from a countertrade agreement.

Main headlines from this issue

Oh! Calcutta!

The aim of the current Indian Defence Minister, A. K. Antony, has been to raise the level of indigenous defence production and reduce the level of inputs. DPP 2011 was published in January and contained very significant changes, particularly in the area of offset. So far, those changes have yet to be felt on the ground......imported defence equipment has increased and the percentage of programs procured offshore is now 75 percent.

EU Directive: implications on offsets

Discussion on the EU directive continued at the GOCA conference, once again producing plenty of heat, but lots of smoke and little clear vision.

Russia drafts legal changes to regulate offsets

The Russian Ministry for Economic Development has drawn up amendments to the 94th Law on State Procurement. The amendment introduces the concept of offset deals in which ........

Poland prepares amendment

Poland is adapting its law to comply with EU directive and practices in the use of offsets. It is not a process that is undertaken with relish. The proposed wording is.....

Polish Treasury probes Bumar’s Malaysian contract

Bumar is to undergo an audit by the Treasury Ministry, which is investigating an agreement signed in 2003 for the sale to Malaysia of 48 PT-91M tanks.... The $380m offset contract is part of the largest export deal ever signed by the Polish arms industry...

Main headlines from this issue

Greek proposal to settle expired offset contracts derided as unrealistic

The Greek MoD has published a draft ‘Ministerial Decision’ to end the country’s expired offset contracts saga. The Greek defence industry has been invited to comment. Some proposals may find their way into the document but informed sources say that the MoD is unlikely to make any fundamental changes.

Indonesia intends to live the dream – policy ready by 2012?

Dr. Ir. Irnanda Laksanawan, Indonesia’s Deputy Minister for State Owned Enterprises, told the JIDD conference that Indonesia will make significant arms procurements in the period to 2014.....

Oman approves higher multipliers and tighter monitoring

Oman will soon announce new offset guidelines. The ‘Partnership for Development’ program is intended to..... The policy is expected to be announced within the next three months, but is subject to final review.

How Malaysia’s ‘MIGHT’ is putting a contrary offset model on the right track

Mohd Yusoff Sulaiman, President and CEO of the Malaysian Industry- Government Group for High Technology (MIGHT), explained that a study in 2001 found that fifty percent of companies in Malaysia participating in offset programs later shut down.....

RAND report takes the shine off those critical of China

Yet another U.S. report critical of China’s relationship with the domestic aerospace industry has been published. The conclusion however also contains some unusually favourable comments that might weaken the impact of the carping community.

Main headlines from this issue

Portuguese court gives go ahead for offset fraud case

A Portuguese court has ruled that three German executives and seven Portuguese businessmen are to face trial charged with robbing the Portuguese state of €34m ($48m). The case centres on the offsets that Man Ferrostaal allegedly promised to deliver with regard to a submarine contract.

India: yet another leak of offset documents meets with the usual refrain: “the file was not sensitive”

The Indian Defence Ministry has launched another inquiry after receiving an anonymous envelope containing four pages of a leaked draft field trial report of 145 M777 Ultra-Light Howitzers to be procured for the army.

Greek Defence Minister: “nasty offsets have corrupted Greece”

“When I talk about the need to have an autonomous defence industrial base I am referring to common defence projects that address the vicious policy of offsets, and the vague and problematic notions of internal defence industrial participation and Greek added value”.....

What are they afraid of? EC refuses to be held to account at GOCA’S Amsterdam conference

The European Commission has refused to send a representative to speak to GOCA delegates on the guidance note the EC published on offsets under the Procurement Directive. A GOCA delegate described the decision as bizarre .........

ECCO INAUGURATED IN PARIS AS OFFSETS FACE EC CHALLENGE

A new offset association, the European Club for Countertrade and Offset (ECCO), held its first board meeting in Paris this March.

Main headlines from this issue

The Directive: EC denies Member States were ambushed – diplomat disagrees

European Commission Defence Expert Burkard Schmitt shrugged off any misgivings he might have felt before facing an audience in Brussels from the National Defence Industry Association (NDIA) of smaller EU Member States, and came out fighting.

Kuwait planning radical policy initiatives to encourage joint ventures

Kuwait’s National Offset Company is planning to end its demand for a liquidated damages bank guarantee. The end of the requirement will not be entirely unconditional however......

French delegation promises investments and technology transfers for Indonesia ahead of formal offset policy

France has expressed interest in expanding investment and technology transfers to aircraft component manufacturers in Indonesia, said Budi Darmadi, Director General for Technology at the Indonesian Ministry of Industry.

FOI study exposes the truth about Singapore – and finds that offsets often lead to technological advances for the seller

FOI, a leading Swedish research institute in the areas of defence and security, has published a study based on four ‘representative’ large Swedish defence export orders.

UAE: “The future is about skills, knowledge and technology”

Saif Al Hajeri says that experience over the last two decades has enabled the OPB to bring ‘a sharper focus’ to the industrial projects and partnerships between government and international suppliers.

Main headlines from this issue

Balkan offset conference surrenders to rival’s command performance

SMi and the Abu Dhabi International Offset Conference (ADIOC) put on offset conferences only days apart. The ADIOC event in Abu Dhabi was very different: it had the numbers – more than five hundred registered delegates - but was more of a networking opportunity than an offset conference.....

The EU directive on offsets —the experts’ view

When a discussion on “European Offsets and Austerity Measures” touched on the Commission’s ruling that the practice is illegal, there was plenty of concern, some opposition, and a noticeable absence of support for the decision, both from the panellists and from the floor.

“This is not the end of offsets”

Dr Aris Georgopoulos provided an optimistic assessment of the EU’s Directive on Offsets. The real battle will be fought over Article 346.

EC directive leaves Switzerland high and dry

Per Magnus Larsson, a senior legal advisor and Offset Manager at Armasuisse,  described how his country’s policy may be affected by the developments in Europe.

Having tasted the pleasures of offset, Bulgaria now fears the advance of the EC directive

There could be no doubt about the views of Bulgaria’s Deputy Minister of Economy on the EC Directive.....

Main headlines from this issue

Annual Report to Congress on The Impact Of Offsets cuts back.

More indirects – fewer new offset agreements with EDA member states 

The 15th Annual Report to Congress on the Impact of Offsets in Defence Trade has revealed that in 2009 thirteen U.S. firms reported entering into 56 contracts that had related offset agreements for the sale of defence items and services. These contracts, signed with 21 countries, were valued at $10.68bn.

Comment – An Annual Outing that has Lost Its Way

The Annual Report to Congress is continuing to wither in both size and content. Its release used to be an event that took the reader on a tour of the world with country-specific data; now it is an orphan on an annual outing......

Turkey: SSM overhauls its industrial participation and offset policy

Turkey’s Undersecretariat for Defence Industries (SSM) is about to introduce major changes to its offset directive that will redefine the programme’s objectives. Although subject to final confirmation, we are advised that the new approach will......

Deloitte predicts a harder year ahead as offsets define goals

Many countries have complex and challenging offset requirements that should be incorporated into upfront capture strategies, says Deloitte in its Outlook 2011 report on the aerospace and defence sector.

Vincent Tchenguiz pursues his offset quest with string of small investments

Vincent Tchenguiz has quietly invested as much as £12m ($19m) in a range of defence, cyber security and intelligence companies over the past four years. He has now taken a stake in an Israeli defence technology company as part of a much larger plan to....

Main headlines from this issue

INDIA: DPP-2011 – A recipe for further discord

The Defence Procurement Procedure 2011 (DPP 2011) expands the scope for offset fulfilment to include most aspects of civil aerospace, marking the first official intrusion into the civil sector. Internal security projects and training now also qualify for offset..... Yet the policy remains full of dangerous shadows.

India: DOFA’s secret offset file is found by roadside

An inquiry has been ordered into how a file marked ‘secret’ connected to the $10.4bn acquisition of 126 medium range multi-role combat aircraft (MMRCA) went missing. The document was found on New Year’s Eve on the side of a road. The file dealt with the evaluations of the offset proposals submitted by the six global competitors.

South Korea: DAPA plans changes; FDI disappoints

South Korea’s offset authority, the Defence Acquisition Programme Administration (DAPA), is planning to extend multipliers to SMEs, the first significant multiplier change in the 29 years of Korea’s offset programme.

UAE: OPB offset guarantee clause guaranteed unacceptable

An umbrella agreement that every contractor with an offset obligation must sign to move from the old offset policy to the new policy under the UAE Offset Program Bureau’s (OPB) revised guidelines has hit a snag over the bank guarantee.

Prospects for Indian / South African countertrade

MMTC, India’s state-owned commodity trading company, is to set up an office in South Africa to source coal, gold, diamonds and other minerals.

Main headlines from this issue

Indonesia to present draft offset regulation to parliament

The government of Indonesia has drafted a policy regulation that will make offsets a requirement of defence procurement. A bill enabling the regulation will be presented soon for the approval of Parliament. Indonesia will then establish a formal offset policy, although those responsible for the task recognise that formulating such a policy may take some time.

Change sweeps UK procurement policy, but EC directive is swept under the carpet

Contrary to earlier suggestions a Green Paper published by the British Secretary of State for Defence includes scant reference to offset or industrial participation practices. However, the UK is reviewing its policy to ensure IP remains valid and complements key priorities.

ISRAEL’S 180 PERCENT F-35 OFFSET AGREEMENT WAS PIE IN THE SKY

It was all much ado about nothing. The deal described by the Ministry of Defence bureau was not the one the Americans were aware of.

EVENTS DIARY 2011

Full listing of offset, countertrade, and trade finance events.

“Offsets and the art of bribery”

A doctoral candidate says there is almost no scholarly work that examines offsets as a potential source of corruption. She has set about correcting this anomaly.

Main headlines from this issue

EC holds its ground in reply to trade associations

The European Commission has replied to the thirteen European defence trade associations that wrote to protest the EC’s Interpretative Communication on the practice of offsets. The reply is unlikely to make any of them happy......

Canada: F-35 purchase sparks heated debate on industrial benefits

Canada’s purchase of the F-35 Joint Strike Fighter has generated a new wave of arguments about the contract’s industrial participation benefits. A Liberal Party motion to open the competition for purchase of the new planes was defeated by a coalition vote of the Bloc Québécois and the Conservatives.

Pakistan approaches Sri Lanka, Iran and Turkmenistan in barter mission

Pakistani President Asif Ali Zardari has called for a barter agreement with Sri Lanka to boost trade between the two countries. Pakistan is Sri Lanka’s second largest trading partner in South Asia after India.

Ukraine and Venezuela look at barter options

Ukraine and Venezuela are said to be examining a barter exchange of oil-for-production assistance.

Belarus and Venezuela agree counterpurchase deals

Belarus, seeking alternative sources of oil to replace Russian imports, will supply Venezuela with milk powder and agricultural machinery in return for crude.

Main headlines from this issue

EC attacks Greece for breach of procurement rules over 35 percent offset

The European Commission has determined that Greece is in breach of EU public procurement rules and says it must shelve a 35 percent direct offset requirement. The demand relates to the award of a €22m contract for submarine battery kits.

U.S.- China Commission calls for Congress to investigate China’s aviation offsets

The U.S.-China Economic and Security Review Commission recommends that Congress urge the administration to investigate whether Beijing’s policies for developing its aviation industry conflict with China’s WTO commitments.....

Bulgaria collaborating with Blenheim on an offset fund

Blenheim Capital Partners is in discussions with Bulgaria’s Ministry of Economy and Energy over the possibility of a €50m SME offset fund.

Two institutions call for India to get a grip on its offset policy

Ernst & Young, in a November Indian defence newsletter, sees the limited duration for banked offset credits as a possible deterrence to banking, and backs calls for a longer qualification period. Banked credits currently expire after 30 months.

Poland tells fighter contenders to invest in struggling companies

Dariusz Bogdan, Poland’s Deputy Minister of Economy, has declared that offsets arising from the upcoming tender for sixteen new fighter trainer aircraft will have to target both struggling companies and thriving military aviation firms.

Main headlines from this issue

SPECIAL REPORT – Rigorous Interpretation of EC Directive Leads to Vigorous Protests…

Rigorous Interpretation of EC Directive Leads to Vigorous Protests

Trade Associations Despatch Missive to EC

EDA Sidelined



Member States (MS) of the European Community are in a sulphurous mood following the publication of a European Commission guidance note on offsets. The note warns that offsets whether direct indirect defence-related or civil will in the EC’s viewbecome illegal when the Community’s defence and security procurement directive comes into force in August 2011. Sinning countries could be brought before the EU Court of Justice.

Eight page report in this issue with analysis and comment. Read the European Commission’s response; the trade associations’ letter and why some trade associations declined to sign.