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Volume 2018
Main headlines from this issue
Transparency International urges defence contractors to respond to intrusive offset questionnaire
Transparency International UK has released a draft version of a questionnaire for its Defence Companies Anti-Corruption Index 2019. The questionnaire focuses on a number of issues related to defence corruption, and includes four questions on offsets. The questions differ significantly from those asked for the Defence Companies Anti-Corruption Index 2015, the last edition of the publication.
The next issue of CTO will be published on January 7th
As the year draws to a close, all of us at CTO and QB would like to thank you for subscribing to our publications. We wish you a Merry Xmas and well in the New Year. The next issue of CTO will be published on January 7th, closely followed by the January issue of QB. Please check that your renewals are up to date.
Quebec premier criticises lack of local content in train deal
The premier of Quebec, François Legault, has attacked the Canadian federal government’s award of a train tender to Siemens. Mr Legault’s criticism focuses on the lack of local content. “[We] have a federal government which is not going to require Canadian or Quebec content? That’s not right,” he insisted.
China to transfer satellite tech to Ethiopia
Ethiopia is to launch its first satellite, with China providing technology transfer and training. Design, development, and manufacturing will be shared between Ethiopian experts and their Chinese partners, the Ethiopian government declared.
Wanted man extradited for role in India’s helicopter scandal
Dubai has extradited Christian Michel, a UK national at the centre of the Indian AgustaWestland helicopter scandal, to India. Michel was taken from Dubai, where he was held last year, to Delhi where he was remanded in custody. The CBI claimed that one of Mr Michel’s companies was in charge of providing assistance with the offset agreement. He denies any wrongdoing.
Main headlines from this issue
“Australia’s IP programme is not just a compliance exercise”
Australia wants its industrial cooperation programme to make contractors compete rather than just comply, says an Australian official. “We want companies to use their creativity, not just take it as a legalistic compliance. In fact that’s exactly the wrong mindset,” we were told.
South Africa torments OEMs with new BEE sector code for the defence sector
South Africa’s Department of Trade and Industry has revised the country’s broad-based BEE code for the defence sector. The code requires companies to procure at least 60 percent of their defence materials and technologies from local producers. The black ownership sub-contract target is now 30 percent instead of 25 percent. The code also requires foreign contractors to place 75 percent of their contractual obligations under the defence industrial participation (DIP) programme with BBBEE-compliant suppliers.
Dutch government characterises opportunities for IP
The Dutch Ministry of Defence and the Ministry of Economic Affairs have published a Defence Industrial Strategy document. The ministries justify the use of industrial participation in defence procurement and identify key areas where national industrial capacities should be developed and maintained. The 55-page document cites “essential security interests” as a justification for derogating from the injunction on offsets in Directive 2009/81 by applying Article 346 TFEU.
DAPA briefs companies on new offset policy
South Korea’s Defence Acquisition Programme Administration (DAPA) held a seminar last month at the National Defence Convention Centre on “innovative trade” for domestic and foreign defence companies. Officials discussed plans to implement offset credit banking and boost SME export levels. DAPA has launched the Defence Export Promotion Centre (DExPro) to support local defence firms seeking to export their products to foreign markets.
Cuba hopes to benefit from EC sanctions busting
Cuba hopes that a special payment system the EU is creating to avoid U.S. sanctions on Iran will help it to sidestep its own Washington-imposed trade embargo. The EU is building a special purpose vehicle to allow member states to continue to trade with Iran through a counterpurchase arrangement.
Main headlines from this issue
Universal offset law presented to World Bank, Saab asks for something simpler
Chantal Dagnaud, chairwoman of the European Club for Countertrade and Offset (ECCO), has presented a draft law governing compensatory measures in international government procurements. The draft, offered to the World Bank’s legal forum in Washington DC, is intended to add fairness, transparency, and accountability to the process of executing offset deals. “The proposed text is an opportunity to start a process with UNCITRAL and to update its 2004 International Public Procurement model law,” Ms Dagnaud told us.
Netherlands and EC nearing closure over infringement charge - policy to continue
The Netherlands and the EC have been holding discussions to resolve a dispute over infringement proceedings. The EC launched procedures against the Netherlands last year for imposing what it sees as unjustified offset requirements in breach of Directive 2009/81/EC. The exchange of views was described as positive, with a conclusion to the dispute quite near.
“Directive 2009/81 has given us the worst situation that we could imagine”
Dr Enrique Navarro dismissed the notion that offsets had fallen out of favour in Europe following the implementation of Directive 2009/81/EC. Member states are towing the EU line on offsets in public while continuing to approve rules allowing their countries to use them, he told GOCA delegates.
TAIWAN WANTS PRE-MOA OFFSETS
Taiwan’s Ministry of National Defence confirmed that deputy minister Chang Guan-chung is negotiating to establish an early evaluation process for offsets before issuing Letters of Acceptance. Taiwanese officials were speaking at and on the sidelines of a U.S.-Taiwan Defence Industry Conference in Annapolis, Maryland.
Brazil’s unified offset policy sees further delays
Representatives of the Brazilian Air Force have confirmed that a new unified offset policy under development in the country could still be a year or more away from approval. The new policy, known as the National Compensation Policy, or PNAC, aims to create a single set of offset guidelines for all branches of the military as well as civil agencies.
Main headlines from this issue
Canada says Value Propositions “have been a real game changer”, but the “harms test” comes under attack
Addressing the GOCA Fall Conference in Vancouver, a spokesman from Canada’s Innovation, Science and Economic Development (ISED) talked up the success of his country’s Industrial and Technological Benefits (ITB) policy. Businesses on the receiving end talked it down.
Contractors warned: Not even God can overrule India’s auditors
“Clean up your act,” Dhiraj Mathur, partner (Aerospace and Defence) at PWC’s Delhi branch, told contractors attending the GOCA conference. He issued a stark warning to anyone with obligations in India that the government is cracking down on compliance and documentation in response to a number of dodgy offset claims.
UAE: Tawazun’s fresh, happy approach
The Tawazun Economic Council’s “Contractors Council Workshop” adopted a fresh approach at its October meeting. It invited contractors to be frank and honest when raising their concerns. Astonished delegates accepted the challenge. A feedback session was done in very good humour. There was no update on the new offset policy, however.
Report analyses importance of offsets to Poland
A report by the Polish Institute of International Affairs explains that the country is an outlier among European countries with a defence industrial base that consists largely of a single state-run company. The value of exports produced by the Polish Armaments Group is relatively low and the group is dependent on domestic sales.
Anxiety over offset costs grips Switzerland
The Swiss government has organised a series of meetings between foreign contractors and local companies to explore industrial participation opportunities associated with its forthcoming fighter jet procurement. Oskar Schwenk, boss of the Swiss aircraft manufacturer Pilatus, has criticized the initiative which he says would increase the price by 15-20 percent.
Main headlines from this issue
Taiwan delays changes to offset guidelines
The US-Taiwan Business Council has convinced the Taiwanese authorities to delay the release of its new industrial cooperation policy. Prime contractors had raised concerns about the forthcoming changes. A Taiwanese MoD official is scheduled to speak about the industrial cooperation policy at a symposium in...
Ukraine revises offset policy, expands variable quotas
Ukraine’s cabinet of ministers has adjusted the country’s offset quotas and separated them into three categories instead of two. The quotas vary with the purchasing sector and are set as a percentage of the acquisition costs in the main contract.
Oman rolls out global veterans to inspire a prominent domestic audience
The Omani Authority for Partnership for Development (OAPFD) has held a three-day offset symposium in the country. The programme included two days of customised offset training for officers from local ministries and agencies, as well as presentations from a number of notable international figures in the industry. Oman currently has seven development projects under way, and eleven projects in the pre-operation phase.
World Bank to receive legal framework document for offsets next month
The European Club for Countertrade and Offset’s chair, Chantal Dagnaud, will present the final version of the proposed model law on offsets at the Law, Justice and Development symposium. The model is meant to establish a globally acceptable legal framework for offsets. Interested parties are still invited to submit proposals for changes to the draft text.
Dassault: “Reliance will only receive around 10 percent of the total offset value”
Éric Trappier, Dassault Aviation’s CEO, has sought to clear the air regarding controversial offsets for the 36 Rafale jets sold to India. In a translated interview published on Dassault’s website, Mr Trappier claimed that Reliance Aerospace will only receive around 10 percent of the total offset value.
Main headlines from this issue
SPECIAL REPORT ON KOREA - Korea: Incoming Policy Details
South Korea is changing the basis on which its Defence Acquisition Programme Administration (DAPA) accepts offsets. The move follows last month’s appointment of a new controller for DAPA. “It won’t favour offsets.”
Korea: F-35 Contract: “Senior DAPA Offset Negotiators are Facing Jail”
DAPA is now wondering whether the whole F-35 programme was a conspiracy. Senior people who negotiated the offset contracts with Blenheim and with the FMS are being investigated and are facing jail. Also: “A U.S. government official who negotiated a deal with us now works for a company who provides funding - It would have been all over the news.”
Korea: DAPA Blames Obligors for Hiding Costs: “They Made Us Look Like Idiots”
Neither the government nor the contractors were willing to discuss offset costs, so DAPA wrote to some of the largest companies with which it does business... “No-one was helpful in sharing the numbers.” Then they discovered the cost was...
Germany and Norway pursue broader “indirect” industrial cooperation
Germany and Norway are continuing with a bilateral government-to-government industrial cooperation agreement. Norwegian MoD says that the agreement differs from the traditional direct offset approach and is now viewed as an indirect (defence) offset opportunity.
Australia: Naval Group snubbed - fail to agree strategic partnership agreement
Australian government officials are growing frustrated with Naval Group following delays in the signing of a Strategic Partnership Agreement linked to the Future Submarine procurement. Defence minister Christopher Pyne snubbed meetings with high level French officials.
Main headlines from this issue
New Argentinean local content regulations permit credit banking, introduce stiff penalties
New public procurement regulations have come into force in Argentina for both commercial and defence procurement. The regulations establish a preference for bids that include locally made goods and allow credit banking for over-performance. Pre-existing defence procurement regulations, however, have not been explicitly overruled...
South African anti-corruption campaigner reignites the SDP offset scandal
Terry Crawford-Browne, a South African anti-corruption crusader, has called on the country’s new “Commission of Inquiry into State Capture” to release documents related to alleged offset corruption under the 1999 “Strategic Defence Package.”
Israel and the Philippines sign multiple IP agreements
Israeli and Filipino business groups and companies have signed multiple industrial participation and technology transfer agreements following a visit to Jerusalem by president Rodrigo Duterte. Mr Duterte threatened to personally intervene if Israeli businesses experienced corruption while operating in his country.
IAI moves Arrow production to the U.S.
Israel Aerospace Industries has announced that it has relocated the production of Arrow Weapon System (AWS) anti-ballistic missile canisters to the U.S.. The missile canisters are now being produced by Mississippi-based subsidiary Stark Aerospace, with IAI confirming that it has received its first deliveries.
India rejects Russia partnering with Adani group – new rifle RFI announced
The Indian MoD has rejected a request by the Russian government to partner with the Adani Group in the manufacture of AK-103 rifles. India is currently negotiating a Rs 3,000 crore ($551m) procurement of 600,000 AK-103 rifles from Kalashnikov Concern.
Main headlines from this issue
Stricter enforcement lifts Israel’s offset benefits to record highs—50 contractors overdue
Counterpurchase obligations levied by Israel on foreign contractors totalled $2.45bn in 2017, $350m more than in 2016. Purchases from SMEs and from companies in Israel’s outlying areas rose by about 50 percent, the ICA’s annual report reveals. The report indicates that the ICA sees the enforcement proceedings against three companies as “success stories.”
Poland: PGZ chief says 1bn zloty in Wisła offsets is enough
Jakub Skiba, president of Polish Armaments Group (PGZ), has said that Poland is currently unable to absorb larger quantities of offsets under the first phase of the Wisła project. One billion zloty ($272m) is sufficient for raising Poland’s technological level, he said.
BAE Systems discloses internal guidelines on offset demands
BAE Systems has published a description of how the company responds to demands by its customers for offsets. All offset arrangements, it says, are governed by an Operational Framework and Code of Conduct which sets out the principles the company applies to all offset activities…
Chicken barter continues to boil in Thailand
Former Bangkok governor Apirak Kosayodhin will face the Thai Supreme Administrative Court as the fallout continues from an allegedly corrupt barter deal dating back to 2004. The deal was made between…
India: Reliance files defamation suits over Rafale accusations
Anil Ambani’s Reliance Group of companies have filed a defamation suit against the leaders of India’s Congress Party after the party failed to respond to a “cease and desist” notice served for their criticism of the Rafale deal. Reliance also filed a 5,000-crore ($715m) defamation suit against the Congress-owned National Herald.
Main headlines from this issue
India’s new offset guidelines at “final stage”
India’s Ministry of Defence has reached the final stage in its deliberations of the country’s draft defence offset guidelines. The guidelines were published in May. An officer at the Defence Offsets Management Wing (DOMW) told CTO there will be “many implications” in the final document concerning both financial and legal areas.
India: penalties thump Lockheed and Textron but Boeing wriggles free
India’s Ministry of Defence has penalised two firms for failing to fulfil offset obligations. A third narrowly escaped... The Comptroller and Auditor General alleged that Boeing had claimed offset credits on the “mere placement of purchase orders, defeating the very purpose of having obligations.”
Kuwait: KDIPA’s new project list is ready but offsets for F/A-18 jets in doubt
The Kuwait Direct Investment Promotion Authority has released a new list of projects that companies can use to discharge their offset obligations. “We have them from the government sector and from the private sector,” Manal Najem Abdullah Jaber, KDIPA’s offset director, told CTO.
U.S. government to work with partners on “burdensome offsets”
U.S. officials are consulting with foreign partners and local defence companies to address what they see as foreign countries’ “restrictive offset policies.” The moves form part of the recently updated Conventional Arms Transfer (CAT) policy which aims to increase U.S. arms sales to allied countries. The policy is undergoing a final implementation review.
Canada releases “Letter of Interest” to gauge fighter’s IP capabilities
Canada’s Department of National Defence has issued a “Letter of Interest” for the Future Fighter Capability Project (FFCP). The winning supplier will have to make investments in Canada equal to the value of the contract. The purpose of the LoI is to gain a better understanding of Canadian industrial capabilities related to the sustainment of fighter aircraft.
Main headlines from this issue
Saudi Arabia: SAMI buckles, counts localisation towards offset
A group of defence companies led by Lockheed Martin has been revolting against Andreas Schwer, chief executive of Saudi Arabian Military Industries, an intelligence report says. CTO’s inquiries indicate that Lockheed has achieved some success; SAMI has agreed to count localisation towards offset.
U.S. advances ‘Buy American’ agenda with conventional arms transfer policy
The U.S. State Department has approved the passage of an implementation plan for the country’s new Conventional Arms Transfer (CAT) policy. The policy functions as a kind of reverse offset: any defence sale must show that it can bring a tangible benefit to the American economy prior to approval.
Aero Vodochody and Paramount Group offer trainers “Built In The U.S.A.”
Czech aircraft manufacturer Aero Vodochody announced that it has teamed up with Israel Aerospace Industries (IAI) to build a new light attack aircraft, the ‘F/A-259 Striker.’ The two companies are offering to build the aircraft in the United States. South Africa’s Paramount Group is planning to make a similar proposal.
Netherlands signs IP agreement with general atomics for drone purchase
The Netherlands has ordered four MQ-9 Block 5 unmanned Predator B aerial vehicles from the U.S. as part of an FMS purchase. The procurement includes an industrial participation agreement. The Dutch Ministry of Economic Affairs declined to share information regarding the industrial participation agreement...
Sri Lanka offers tea to settle $250m Iranian oil debt
The Sri Lanka Tea Board has offered to ship tea to Iran to offset the Ceylon Petroleum Corporation’s (CPC) debts for oil imports. The debt is worth $250m. European banks are trying to find ways to continue tea exports to Iran in the face of renewed sanctions.
Main headlines from this issue
Blenheim “dissolution” mystery solved but Grant Rogan may face jail time in divorce dispute
Confusion over a Blenheim company registered in the UK with another company registered in Guernsey has led concerned parties to approach CTO. Their worry was that the offset service provider had been wound up...
Malaysia sets 60 percent localisation target for Thales’ in-flight entertainment displays
Thales has signed a “Pre-Industrial Collaboration Programme Agreement” with Malaysia’s Technology Depository Agency (TDA). The agreement provides for the localisation of In-Flight Entertainment screen manufacturing. The screens are for the Malaysia Airlines fleet as well as the global market... The TDA is using a base multiplier of...
Australian senate publishes scathing report on IP failings in naval programme
Australia’s Senate Economics References Committee has submitted a “final report” into the “Future of Australia's naval shipbuilding industry.” The report contains significant criticism of the handling of industrial participation and criticises vague definitions of Australian industry content.
U.S. DoD issues ruling on FMS indirects – redefines “offsets”
The U.S. Department of Defence has issued a final ruling on the permissibility of indirect offsets within FMS contracts. Costs associated with indirect offsets will not be deemed “unreasonable.” The first sentence of the direct offset definition has been revised to provide that a direct offset involves... and revised the definition of indirect offsets to state...
UK MoD on article 346: “There is no national security interest” – Labour opposition: “Yes, there is”
The British government’s procurement plans for up to three new support ships for the Royal Fleet Auxiliary are facing opposition from the Labour Party, the Scottish National Party (SNP), and trade unions. The opposition focuses on the application of Article 346 TFEU.
Main headlines from this issue
IT’S war – Taiwan ministries in battle for control of offsets
Taiwan’s National Chung-Shan Institute of Science and Technology (NSCIST) has hardened its approach to offsets and is continuing to draft new guidelines. The move heats up a long-simmering turf war between the Ministry of National Defence (MoND) and the Ministry of Economic Affairs (MOEA). The MoND and the MOEA have until now managed offsets together in a relationship that is rarely affable...
Conflicting signals as South Korea’s defence minister confirms rule change
South Korea's minister of national defence has announced that “a certain percentage” of the weapon system parts would have to use domestic products. The aim is to boost the level of SME participation in defence projects. A DAPA spokesman confirmed to us that “we do not expect significant changes.” The reply seems to rebuff the scope of policy changes we reported in CTO 10, which we obtained from a leaked official document.
South Korea gives China’s technology demands a frosty response
The ongoing dispute between the U.S. and China over forced technology transfer appears to be having little impact on China’s demands of other nation states. According to a South Korean business newspaper, Hankyung News, the Chinese government is asking LG Display to transfer technology to local manufacturers before granting the necessary permissions for a factory to open.
COLOMBIA: ‘ACTING OFFSET DIRECTOR’ AWAITS NEW GOVERNMENT’S SANCTION
Katerina Paton Colonia has replaced Catalina Puerta Hoyos to become acting director of science, technology and innovation at CODALTEC, Colombia’s military technology agency. Ms Paton was the deputy director and held the title of ‘offset coordinator.’
American purchase from Rafael and Leonardo sealed with offsets
Rafael and Leonardo DRS have joined forces to sell TROPHY Active Protection Systems to the U.S. Army. The deal is worth $193m in its initial stage. The manufacture of the systems will take place in Israel and the U.S., however Rafael stated that it expects U.S. manufacturing to comprise the bulk of the work.