CTO Newsletter

Main headlines from this issue

Air2030 fighter jet procurement: offset quota on a Swiss roll

Switzerland’s National Council has lowered the offset quota for its Air2030 fighter jet procurement from 100 percent to 60 percent. The final quota may be somewhere in between. The National Council rejected minority proposals for quotas of 20 percent, 50 percent, or no offsets at all. The latest decision also contests the former allocation for 40 percent of offsets in commercial projects which would have satisfied the regional requirements.

Korea: “Bring the lawyers”

South Korea’s approach to its offset policy changes frequently, remains in flux, and tends to confuse. The country’s Defence Acquisition Program Administration (DAPA) now focuses on job creation and defence industry growth—industrial cooperation, not offsets...

Malaysia: “Palm oil barters are not a pr problem for defence companies”

Malaysia’s Technology Depository Agency, the management authority for Industrial Collaboration Programs, is moving away from asking for conventional offsets towards an industrial cooperation policy demanding sustainable business. Also: “Countertrade is more or less like a safety net for us, so we use it when required”...

Australian industry association calls for penalties

The Australian Industry & Defence Network, a defence industry trade association, has called for an urgent review of the Australian Industry Capability (AIC) program. The association is concerned about a lack of local workshare. The AIDN also called for the introduction of enforceable commitments with penalties.

PwC presents India’s forthcoming policy changes

Captain Vishal Kanwar, Director Aerospace and Defence at PwC India, predicted that the new Defence Production Policy (DPP) due to be published in 2020 will permit contractors to discharge offsets through investment in specified projects. The projects will be divided into A, B, and C categories. Each category will qualify for different multipliers.

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Canada’s VP approach has no cap – ITB commitments may exceed 100 percent

Commander Walt Nolan (retd), a Lockheed Martin Canada executive responsible for delivering Value Proposition commitments for the Canadian Surface Combatant and several other major programs, led conference delegates on a charge through Canada’s tortuous VP process. He warned contractors about “the monster” that is Canada’s VP approach...

Poland: “The offset law is not as inflexible as you think”

Defence contractors engaging in offsets in Poland should not take the country’s law literally, GOCA conference attendees were told. Government expectations of offset differ from the law. The divergence is causing confusion. “What you read [in the law] actually is fairly significantly removed from the reality of how offset functions in Poland,” explained...

Turkey: Defence contractors with obligations face double trouble

A number of Turkey’s NATO allies and other European countries have suspended arms sales to Turkey. Contractors are now left with the vexing question of how to respond to their country’s arms embargo. The restrictions may frustrate their contracts to export military equipment for offset obligations. Turkey has threatened to sue for breach of contract. Contractors might be able to declare force majeure...

Czech Republic calls for offsets – minimum quota 30 percent

Czech president Miloš Zeman has called for his country to use offsets on future defence procurements as the country lays out a new acquisition strategy.

“Israel pays 3 percent for defence offsets and nothing for indirects”

Israel’s defence offsets add only 3 percent to the procurement cost, and indirect commercial offsets have no additional cost at all, declared Ziva Egar, the CEO of Israel’s Industrial Cooperation Authority. Offset costs are linked to the ease with which contractors can fulfil obligations within the country, she explained.

Main headlines from this issue

Korea: DAPA’S offset banking credit policy explained

Korea’s Defence Acquisition Program Administration (DAPA) has started signing new offset banking agreements. DAPA will not require contractors using banked credits to make a performance bond or pay penalties for non-performance. The organisation will also favour contractors with banked credits in the bidding process...

Trade Association: “When a customer country demands offset, Germany should do the same”

The German government is firmly opposed to offset, but how does the country’s security and defence industry feel? Dr Hans Christoph Atzpodien, the Federation of German Security and Defence Industries’ CEO, is more positive. He has called for the German government to consider reciprocity for defence procurement. He wants the government to stop regarding offsets as a private industry matter.

Britain to remain captive to the Defence Directive

When, or if, the UK leaves the European Union, the country will remain bound by the EU’s defence directive. The 540-page agreement makes clear that the UK will remain subject to the directive at least during the transition period that will follow withdrawal. When this becomes more widely known, some people will have a full-blown anxiety attack.

BAE accused of evading IP commitment in Latvia

Latvia has accused BAE Systems of failing to fulfil a commitment to carry out repair services locally following Latvia’s acquisition of 123 used armoured vehicles. The allegation was made on the country’s public broadcasting service, LSM. A BAE spokeswoman informed CTO...

Mixed reactions as World Bank launches final draft “offset law”

The World Bank’s website was due to publish the final draft of a model law to ensure fairness, transparency, and accountability in offset deals as we went to press. Chantal Dagnaud, the European Club for Countertrade and Offset president, said: “It’s not a law as such. It’s a name.”

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Airbus suspends helicopter production project in Romania – writes off €10m

Airbus Helicopters has suspended a production project in Romania after the country failed to move ahead with a planned procurement. The company has invested €10m in the project. It had allocated €15m. Airbus would have transferred technology to the state-owned aerospace producer IAR Brasov, including the ability to conduct assembly and completion activities.

Official: Brazilian Air Force already implementing revised but incomplete guidelines

Brazil’s Coordinating Committee of the Combat Aircraft Program (COPAC) has begun implementing Decree N° 061, a new policy intended to improve the country’s industrial base. The Brazilian Air Force is still finalising the decree’s offset guidelines to conform to last year’s policy reset.

Korea: DAPA produces list of future offset projects

Korea’s Defence Acquisition Program Administration (DAPA) has produced a table outlining offset projects for 2020-21. The release is intended to help contractors develop a “pre-engagement strategy” for the projects.

Taiwan: Minister threatens to blow away foreign wind companies

Taiwan’s minister of Economic Affairs, Shen Jong-Chin, has threatened to get rid of foreign wind energy companies if they do not comply with the country’s local content requirements. The minister told a legislative consultation session that they would be “replaced by second-tier candidates” if they fail to fulfil the localisation targets set by the ministry.

Malaysia seeks foreign partners for UAV production, embraces Turkey

Malaysia’s defence minister, Mohamad Sabu, announced during a parliamentary session that Malaysia will work with Turkey on the production of eight-wheel drive armoured combat vehicles. He also said Malaysia is considering ways to develop its own combat weapons, including unmanned aerial vehicles (UAVs).

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Austria’s coalition leader favours re-applying offsets

Austria’s newly-elected centre-right People’s Party (ÖVP) is calling for the return of offsets. The party’s decision follows the release of the third and final parliamentary report into Austria’s 2003 acquisition of Eurofighter jets. The party recommended that Austria move towards an offset policy similar to that of Switzerland.

EC infringement ruling set to favour Netherlands and Denmark

The European Commission seems ready to yield to the Netherlands and Denmark over allegations of unjustified offset requirements under Directive 2009/81/EC. The EC’s legalistic approach is wavering as it faces the ramifications of a potentially adverse European Court of Justice ruling in a case involving the interpretation of the use of Article 346 TFEU.

Taiwanese officials face contractors at U.S. conference - Ministry of Economic Affairs stays away

Taiwan’s Ministry of National Defence has described changes to the country’s Industrial Cooperation Program (ICP). The announcement came at the 2019 US-Taiwan Defence Industry Conference in Ellicott City, Maryland. Speakers included General Chang Guan-Chung from the MoND, and politicians from major Taiwanese political parties.

Greece fines two contractors

Greece is winding up outstanding historic obligations from defence contractors and is not planning any future use of offsets for military procurements. Two contractors have been served penalty notices.

Thai Air Force to introduce “purchase and develop” policy

The Royal Thai Air Force will implement a “purchase-and-develop” policy in its future procurement plans. Under the policy, the RTAF will only purchase defence and strategic hardware if it is allowed to take part in the development of the software used to operate the products.

Main headlines from this issue

UAE: Tawazun touts “seeds” and “project bank” schemes, skimps on the details

Tawazun has executed seven projects since the launch of the new Tawazun Economic Program framework. Ten other project concepts are currently underway. More than 40 representatives from defence OEMs have expressed interest in joining the Sustain and Enhance Emiratisation in Defence and Security (SEEDS) program. The Project Bank initiative is “a forward-looking feature, poised to add tremendous value...”

The UK’S DSIEP policy rises from the dead

The UK’s Ministry of Defence is planning to resurrect its “Defence and Security Industrial Engagement Policy” (DSIEP). “It wasn’t exactly robust beforehand,” an executive said. None of the data needed to implement the policy has been collected or monitored properly since 2016.

Swiss Federal Council votes in favour of 100 percent fighter offsets

The Swiss Federal Council has voted in favour of applying a 100 percent offset quota to the country’s forthcoming procurement of fighter jets. The Security Policy Committee in the Council of States, parliament’s upper house, had asked parliament to oppose a planned reduction of the offset quota to 60 percent and disqualify commercial offsets.

Czech Republic to re-introduce industrial participation

The Czech MoD is working on a new approach to industrial participation. The country intends to amend legislation to make state-owned companies in the defence sector more eligible to receive projects.

Former Taiwan defence minister calls for offset “headaches” for OEMS, “like Singapore”

A former Taiwanese minister for national defence has called for offsets and technology transfer to be part of a recently agreed deal to procure fighter jets from the U.S. He was referring to the $8bn order for 66 Lockheed F-16 aircraft and 75 F110 General Electric engines and other systems.

Thai Air Force to introduce “purchase and develop” policy

The Royal Thai Air Force will implement a “purchase-and-develop” policy in its future procurement plans. Under the policy, the RTAF will only purchase defence and strategic hardware if it is allowed to take part in the development of the software used to operate the products.

Main headlines from this issue

Saudi Arabia prepares demanding guidelines

Saudi Arabia’s General Authority for Military Industries (GAMI) is adding new requirements to its guidelines that obligors will find particularly demanding. Preliminary indications suggest that GAMI wants OEMs to negotiate offset projects before signing the offset MoA. Current quotas will rise and the threshold will fall...

Swiss policy committee calls for higher offset quota with commercial benefits

Switzerland’s Security Policy Committee in the Council of States, parliament’s upper house, is recommending that the Swiss parliament oppose a planned reduction of the offset quota. The decision lays the groundwork for a debate in parliament which could see the return of a 100 percent offset quota for “Air 2030,” the country’s forthcoming fighter procurement.

Korea: DAPA holds a “non-event” to satisfy OEMs

South Korea’s Defence Acquisition Program Administration (DAPA) has met OEMs to help solve “difficulties” with the country’s offset program. Delegates who attended described the meeting as a non-event.

Russia: Regional governments call for lower threshold for inter-state offsets

The state government of the Russian region of Udmurtia has complained that the current offset threshold of RUB1bn ($15.3m) is too high for regional investors and does not allow local areas to benefit from offset transactions. The local government plans to petition the State Duma of the Russian Federation for a change to federal legislation that would waive the threshold.

Israel: Transport ministry and ICA argue about industrial cooperation

Factional fighting between Israel’s Industrial Cooperation Authority (ICA) and the Ministry of Transport over the application of industrial cooperation quotas could thwart two tenders for the construction of new railway lines.

Main headlines from this issue

Ziva Eger defends Israel’s IC policy – debunks think tank’s “conspiracy theories”

An Israeli think-tank has attacked the policies of Israel’s Industrial Cooperation Authority. Dr. Asher Meir, head of the economics department at the Kohelet Policy Forum, described the industrial cooperation policies as complicated, expensive, tending to disqualify many suppliers, and increasing contract costs. Ziva Eger, who heads the ICA, hit back. Israel’s policy is one of the most effective tools available to the government to leverage public spending, she said.

“Australian local content ambitions are unrealistic!”

The Australian Strategic Policy Institute has raised questions about the effectiveness of industrial participation and local content in the country’s current and future defence procurements. A report published by the institute has found that the average additional cost premium for local industrial participation in specific sectors was around 30 percent. Official government figures for the future submarine procurement put the cost premium at...

Poland: Former PGZ chief: “Current chief has no vision”

A former president of Poland’s state-owned Polska Grupa Zbrojeniowa (PGZ) has questioned whether the country’s defence industry would see benefits from offsets associated with the “Wisla” program. Wojciech Dabrowski said the country’s defence industry is regressing.

South Africa: Seriti Commission of inquiry ruling set aside but might restart

South Africa’s High Court has set aside the December 2016 ruling of the Seriti Commission of Inquiry into defence corruption. The commission had rated as “fair” a conclusion that the offsets meant to flow from the arms procurement had substantially materialised. The outcome generated disbelief but not surprise at the time.

Is the cost premium worth it? India reassesses Su-30MKI value

Main headlines from this issue

Tech transfers help China penetrate Saudi defence market

Saudi Arabia's Technology Development and Investment Company (TAQNIA) and the King Abdulaziz City for Science and Technology are leading efforts to transfer technology from China Aerospace Science and Technology Corp and its subsidiary Aerospace Long-March International Trade Co. CATIC has made significant progress since opening an office in Riyadh in March 2017.

Saudi Arabia: Conflict of interest raised as Navantia’s former president joins SAMI

Esteban García Vilasánchez, 52, a former president of the Spanish shipbuilding company Navantia, has joined Saudi Arabian Military Industries. The appointment of Mr Vilasánchez, who was Navantia’s vice president between 2014 and 2018, follows lengthy negotiations between Saudi Arabia and Navantia for the construction of five corvettes for €1.8bn. Mr Vilasánchez played a significant role in the management of the deal...

Czech IFV tender must include 40 percent offsets

The Czech MoD has released a request for proposals (RfP) for 210 Tracked Infantry Fighting Vehicles for about 53 billion crowns ($2.3bn). The RfP asks for industrial participation worth at least 40 percent of purchase contract value.

India to publish DPP 2020 by March

India’s MoD has said that a new defence procurement policy is in preparation and is likely to be issued by March 2020. Defence minister Rajnath Singh chaired a meeting of the Defence Acquisition Committee, which approved a number of amendments to the new offsets policy.

Thailand considers 90 percent local content “for megaprojects”

Two Thai ministries are in talks to elevate the local content requirement for state megaprojects from 40 percent to 90 percent. The Finance Ministry and the Industry Ministry were approached by the Federation of Thai Industries which is lobbying for the change to support domestic supply chains.

Main headlines from this issue

UK’S industrial engagement policy fades away: New government invites submissions on a formal offset policy

The UK’s “Defence and Security Industrial Engagement Policy” (DSIEP) has evaporated. Data has not been collected or monitored properly since 2016. Parliament’s defence committee has launched a new inquiry into defence industrial policy, suggesting that the government may re-introduce a formal offset approach after Brexit when the EC defence directive will no longer apply.

New Kiwi procurement rules demand “broader outcomes” but not offsets

New Zealand has revised its government procurement rules ahead of major modernisation plans. The new rules govern the procurement activities of government agencies, including defence, and will become effective October 1st, 2019. Every government procuring agency must now consider and incorporate a new “Broader Outcomes” concept when assessing public value in relation to their procurement activities.

Oman’s offset authority absorbed into “PAPP”, turns partnership for development program into “Tawzun”

The Omani Authority for Partnership for Development (OAPFD) has been subsumed into a larger authority, the Public Authority for Privatization and Partnership (PAPP), and changed its name. The Partnership for Development program will be renamed “Tawzun”

Indonesia realises 75 percent fulfilment, emphasizes domestic defence production

A plenary meeting of Indonesia’s Defence Industry Policy Committee (KKIP) has called for further development of the local defence industry. The KKIP is the management authority for industrial participation in the defence and security sector. Between 2014 and 2018, the implementation of IDKLO (countertrade, local content, and offset) has reached 74.8 percent of commitment value, “equivalent to $2.46bn.”

Industrial cooperation/technology transfer critical as Romania signs naval group for corvettes and Raytheon for missiles

Romania has awarded Naval Group a tender for the supply of four Gowind multi-mission corvettes. The ships will be built locally in partnership with the Romanian shipyard Santierul Naval Constanta (SNC) and may include radar from Thales and missiles from MBDA...

Main headlines from this issue

Israel cuts the number of agencies asking for commercial offsets

Israel’s Industrial Cooperation Authority is changing how it implements offsets. The changes are being made to comply with the World Trade Organisation’s Government Procurement Agreement (GPA). Some government agencies have started the process early. Commercial purchases from non-GPA countries will continue to attract an industrial cooperation requirement.

Austria’s offset policy is “redundant”

The Austrian government is cocked and loaded to officially declare its offset policy redundant. The guidelines, never officially distributed, will remain in place but in practice Austria will no longer require domestic benefits for defence procurements. Scandals, a dissenting MoD, and concerns about displeasing the EC, have tipped the balance.

South Africa adds another convoluted layer to the B-BBEE Codes

South Africa's Department of Trade and Industry has gazetted amendments to the Broad-Based Black Economic Empowerment (\B-BBEE\") Codes of Good Practice. The amendments will become effective on November 31st2019. Currentlythe target for procurement of goods and services from 51 percent Black-owned suppliers is 40 percent. The amended codes have increased this target to 50 percent of the total measured procurement spendwith a commensurate increase in points awarded from 9 to 11..."

India wins local content WTO case against U.S.

The WTO has ruled in favour of India in a dispute with the U.S. concerning mandatory local content requirements for renewable energy projects. India claimed that the domestic content requirements and subsidies instituted by the state governments of Washington, California, Montana, Massachusetts, Connecticut, Michigan, Delaware and Minnesota violated several provisions of...

EU-Iran barter instrument becomes operational

The European Union has announced the launch of an alternative financial mechanism to facilitate international commerce with Tehran. The mechanism will circumvent U.S. sanctions. The EU has established a complex barter instrument known as the Instrument in Support of Trade Exchanges (INSTEX), and it is now “operational.”

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French agencies circulate a call to arms for SMEs

Groupement des Industries Françaises Aéronautiques et Spatiales (GIFAS), the French aerospace industry association, has alerted French SMEs to the opportunities available in offsets. Together with the government-backed trade body Comité National des Conseillers du Commerce Extérieur de la France (CNCCEF), the 220-page blockbuster profiles—and criticises—seven countries.....

‘Offset India Solutions’ – charges preferred in Pilatus deal

India’s Central Bureau of Investigation has registered a case against arms dealer Sanjay Bhandari. The charges concern irregularities and corruption in the procurement of 75 Pilatus PC-7 basic trainer aircraft in 2009. Mr Bhandari’s company, the offset service provider Offset India Solutions, has been indefinitely barred from business dealings in India with the MoD. The company was originally barred for six months in 2018.

Kazakhstan to locally produce Airbus H145M helicopters

The Kazakhstan government has announced that the country will soon produce locally Airbus H145M helicopters. Construction will take place at Eurocopter Kazakhstan Engineering LLP, a joint venture between Airbus and Kazakhstan Engineering. The agreement marks the first time that military helicopters would be produced locally in Kazakhstan.

Morocco targets domestic defence production – Brazil seizes the moment

Brazil and Morocco have signed a framework agreement to share military technology. The agreement was initiated by Morocco which wants to develop its own defence industry to reduce the country’s dependence on foreign arms. The country has signed similar deals with Spain and the UK.

Norway to finalise German submarine industrial cooperation project this year

The Norwegian MoD says that it is close to finalising a submarine cooperation project with Germany, and expects contracts to be ready by the end of this year. Norway’s acquisition authority cannot sign a contract with a supplier until an industrial co-operation agreement between the MoD and the supplier has been negotiated.