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Volume 2018
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.
Main headlines from this issue
The great American depression: Offsets and technology transfers at historic lows
The 22nd annual report to Congress on the impact of offsets in defence trade shows that industrial participation involving U.S. defence exporters is now at a historic low. Compiled by the Bureau of Industry and Security, the belated report collects data from U.S. exporters that have associated offset arrangements. The major take-away from the report is that in 2016 offsets involving these exporters declined significantly across a number of metrics, including...
GAMI releases new Saudi localisation guidelines
Saudi Arabia’s General Authority of Military Industry (GAMI) has revised the guidelines for localisation proposals for MoD acquisitions. GAMI now divides localisation into direct and indirect projects. Contractors must commit to a localisation agreement for at least 50 percent of the value of the supply contract.
Korea: DAPA announces new localisation regulations
South Korea’s Defence Acquisition Program Administration (DAPA) has introduced new regulations concerning the localisation of weapons systems. The scope of the parts subject to localisation has expanded from import substitution to a broad range necessary for domestic production and performance upgrades.
Updated South African DIP guidelines focus on small and black-owned enterprises
Armscor has amended its Defence Industrial Participation (DIP) guidelines to boost the prominence of SMEs and black-owned enterprises. Defence contractors must put all of their offset obligations into Black Economic Empowerment (BEE)-compliant, Black-Owned, or Enterprise and Supplier Development (ESD) businesses.
India to allow migration from old DPPs
R.R. Thakur, the Officer on Special Duty at India’s Defence offsets Management Wing (DOMW), said that vendors will be allowed to migrate from older Defence Procurement Procedures (DPPs) to the latest version. He said new offset rules will be published within one to two months.
Main headlines from this issue
Universal offset law prepared for World Bank and Unicitral
The World Bank is considering a draft law governing compensatory measures in international government procurements. The law is intended to add fairness, transparency, and accountability to the process of executing offset deals. The law, prepared for the ‘Global Forum on Law, Justice and Development,’ will apply to all offset contracts, direct, indirect, and semi-direct, added to international public procurements for commercial and defence products. The 46-page draft...
Pakistan: “Offsets needed to achieve army’s objectives”
A report from a Pakistani defence analysis group says that offsets would have to generate economic benefits to fulfil the Armed Forces of Pakistan’s own strategic objectives. Those objectives are to secure long-term funding mechanisms to support current and future big-ticket procurements. Pakistan’s defence and security establishment seldom requires public approval for defence purchases but is constrained by financial resources.
Belgian fighter replacement programme becomes a mess
Belgian defence minister Steven Vandeput has denied receiving additional details regarding a bid by Dassault Aviation to sell the country Rafale jets. The French government claims that the company has provided new offers of collaboration. Belgian opposition parties are calling for the government to pause the competition to replace its F-16 fighters and launch a parliamentary inquiry into the proceedings.
Australian audit: “Lürssen’s partner has never built a whole naval ship
Australia’s National Audit Office has declared that the Naval Shipbuilding Plan carries a “high to extreme level of risk” of cost overruns and production delays. It also found that Australian industry is taking an early role in the development of capabilities, and enjoys greater support to maximise participation in major capital equipment projects such as shipbuilding.
Study prefers Fincantieri’s industrial proposal for Australian future frigates
A study by the Australian Strategic Policy Institute has found that Italy’s bid for the Future Frigate tender (SEA 5000) has the best industrial cooperation outcomes.
Main headlines from this issue
DAPA seeks ‘offset reset,’ approves pre-offset credits and abandons “offsets for free”
South Korea’s Defence Acquisition Programme Administration is “resetting” its offset policy. A plan circulated to obligors explains that the country will now recognise that offsets have a cost. In response to the negative image associated locally with offset price increases DAPA will instead refer to “defence industrial cooperation.” The document described...
India: MoD offers investment options for discharging obligations
India’s MoD has proposed significant amendments to the defence offset guidelines. Contractors will be eligible for different multipliers through investments in specific projects. The multipliers will depend on which of three “lists” the project falls into. Opportunities for discharge will be retrospective.
GOCA knowledge sharing session “is not about marginalising OEMS”
Separate intergovernmental “knowledge sharing sessions” have become a fixture at GOCA conferences. Representatives of the offset authorities of sixteen countries discussed their policies at the Paris conference. Thirty-one delegates took part. The KSS is a platform established to enable offset authorities from many countries to share experiences and challenges, and explore improvements.
Japan offers facial recognition tech to Malaysia and Singapore alongside HSR bid
Japan has offered to share advanced facial recognition technology with Malaysia and Singapore should it win its bid for a high-speed rail project. Both countries are planning the construction of the Kuala Lumpur-Singapore high speed rail (HSR), a project estimated to be worth $12.5bn-$15bn.
Bulgaria calls for domestic production for military vehicles and aircraft
The Bulgarian government is planning to modernise vehicles and equipment for its armed forces, and is stipulating that the machines be manufactured locally. “Our aim is to [have equipment] produced in our country,” announced prime minister Boiko Borisov.
Main headlines from this issue
‘Defence Industrial Capability Plan’ re-defines Australian defence industry
The Australian MoD has released its Defence Industrial Capability Plan. The plan reveals the ‘Sovereign Industrial Capability Priorities’ (SICPs) that the country hopes will build its local defence industrial base—and adds a complex layer to an already complex policy. Australia’s current local industrial cooperation policy, known as Australian Industrial Capability (AIC), will acquire the SICPs with the help of various other projects and grants.
Infringement cases: legal expert predicts EC will back off
Dr. Aris Georgopoulos, a law professor and expert on European Law from the University of Nottingham, believes the EC will take a cautious approach to infringement cases given the risk of creating a legal precedent. He said the EC’s investigation into the possible misuse of offsets under the defence directive is unlikely to progress significantly.
India’s “chilling effect”
“We are appreciative of offset banking, but what we would really require as [anyone] doing business in India, is clarification that the offset has been realised. Because unfortunately I submit to you today that companies have been given penalty letters, payments are being withheld, and this creates a chilling effect,” said AECOM’s Rahul Madhavan.
Industrial participation from a Nordic perspective – and Denmark’s reply to the EC
Finland, Sweden, and Denmark sit together on many issues but differ in their views of defence solutions. A panel comprising representatives of the countries’ defence industry associations insisted that Article 346 TFEU was used only when essential national security interests were at stake. Norway was not represented... The Danish government has replied to the EC, saying...
Swiss offset policy revised—banking terms clarified
Switzerland has modified its offset policy by streamlining the language and introducing the terms and conditions of the offset agreement and the banking agreement into the guidelines. The armaments policy is also in revision but will not be ready for another year.
Main headlines from this issue
Trump administration baffled by Annual Report to Congress on Offsets
The twenty-second annual report to Congress on the impact of offsets in defence trade is long overdue. The report is usually published each January. We are told that the reason for the delay is to do with the new administration... said it is reasonable to speculate that president Trump and his administration haven’t a clue what the report is about.
Major changes to India’s offset approach
Dr. Ajay Kumar, secretary (defence production), acknowledged that OEMs and the government are both dissatisfied with the current policy, and indicated that the MoD wishes to engage in a further dialogue with all stakeholders. Defence minister Nirmala Sitharaman said the armed forces have been given a free hand to procure their choice of equipment from Indian or foreign manufacturers instead of having to procure locally.
India: new jet fighter RfI demands much and promises little
A newly released Request for Information (RfI) for the procurement of fighter jets asks contractors to provide significantly more detail regarding the technology transfer and IP proposals than is customary. OEMs will be put to significant cost and trouble to comply, especially as the MoD indicated it is only a fact-finding exercise and there is no commitment from the government to the programme.
Ukraine to pursue import substitution agenda for defence equipment
The Ukrainian Cabinet of Ministers has adopted a resolution calling for a study of import substitution measures for military-industrial areas. The cabinet will create an interdepartmental commission to implement the initiative.
Australia faces patrol boat IP problems
Australia is struggling to add a third local manufacturer to the production of Offshore Patrol Vessels (OPVs).
Main headlines from this issue
Korea’s DAPA — delay to policy shift hurts contractors
A spokesperson for South Korea’s Defence Acquisition and Procurement Agency (DAPA) has admitted that the delayed release of an updated offsets policy is causing difficulties for contractors. The January 2017 version of the regulations remains in effect, we were told. The degree of change is expected to be considerable, fundamentally shifting the way DAPA offsets work.
Raytheon and Lockheed accept 100 percent liquidated damages for Poland’s ‘Patriot’ contract
Poland’s Ministry of National Defence has signed offset agreements with both Raytheon and Lockheed Martin for the first stage of the WISŁA air defence system. Both contractors surrendered to the 100 percent penalty provisions, though with qualifications.
Beware: India’s DPP 2018 is under way
India’s Department of Defence Production has highlighted proposed changes to its procurement policy. The proposals come in a newly released draft of a forthcoming Defence Production Policy 2018 (DPP 2018). The changes include streamlining the offset process. The DDP is conducting a survey and considering comments from stakeholders.
China promises to stop demanding tech transfer
The Chinese government has announced new commitments to end forced technology transfer amidst growing international criticism of the practice. Speaking to journalists Chinese Premier Li Keqiang said that the country would end the practice as part of its commitment to reform."
Tawazun winds up its offset fund
Tawazun Economic Council has announced the closure of its defence investment fund ‘Alfia.’ Formerly known as the ‘Chescor Capital Offset Fund,’ it was said to have fulfilled its purpose, serving as a vehicle through which defence contractors could discharge their offset obligations.
Main headlines from this issue
UAE: EDIC takes control, finds new focus
When the Emirates Defence Industries Company (EDIC) announced plans in 2015 to take control of joint ventures and transferred technologies defence contractors scoffed. Three years later it appears EDIC has got away with it. “Everybody now understands how we work and nobody seems to have a problem with it” Fahad Al Mheiri EDIC’s director of business development informed CTO."
Germany risks conflict with the EC over offsets
Germany has adopted a procurement approach that distinguishes between offsets and industrial participation, without defining either. In practice defence contractors maintain that it is impossible to win a major programme in Germany without local production. The Bundeswehr told CTO that while Germany considers offset agreements between governments and contractors unlawful, requests for industrial participation are legal.
European Parliament legislator on PESCO: “We can’t allow offsets, they are very murky”
A feisty Portuguese MEP with a hard dislike of offsets will campaign for their exclusion from the Permanent Structured Cooperation (PESCO) defence integration project. Left-winger Ana Gomes said she is hopeful that the newly-formed PESCO will enable the EU to move away from offset contracts because they tend to be corrupt."
Nigeria commands all ministries to demand local content
The Nigerian government has issued an executive order increasing the level of local content in large public procurement deals by any of its ministries. The order awards preference in contracts for goods and services to domestic bidders, or to foreign companies that can demonstrate a “verifiable plan for indigenous capacity development.”
Sikorsky makes pre-emptive strike as Romania encourages offsets
State-owned Romaero has signed an MoU with Sikorsky for the local production and maintenance of Black Hawk helicopters. The MoU calls for the establishment of an equipment and maintenance centre focussed on the Sikorsky UH-60. The centre will also complete Black Hawk airframes built in Poland by PZL Mielec.
Main headlines from this issue
Grant Rogan emerges in the Congo
Grant Rogan, chairman of the offset service provider Blenheim Capital, and one of the offset community’s most controversial characters, has emerged in the Republic of the Congo. According to Mr Rogan, the prime minister and the president of the central African country have approved Blenheim’s proposals for establishing formal commercial offset guidelines. The guidelines will be modelled on the Omani policy...
Turkey revises commercial offset policy, increases penalties
Turkey’s Ministry of Science, Industry and Technology has amended the guidelines for implementing industrial cooperation partnerships through commercial procurement agencies. The ministry has raised non-performance penalties, and reconstructed the categories for discharging offsets, reducing them from four to three.
Minister: “‘Make in India’ policy is a failure”
India’s minister of state for defence, Subhash Bhamre, has called the country’s ‘Make in India’ policy a failure. In a recently leaked presentation made to the Prime Minister’s Office in November last year, Mr Bhamre outlined a number of major areas in which the policy has failed to live up to expectations.
Gang of Three prepare ‘forced technology’ case against China
The U.S., EU, and Japan are jointly working to file a case against China through the World Trade Organisation. The case concerns forced technology transfers. The parties allege that China forces companies that want to enter the Chinese market to transfer key technologies as part of a wider strategy to acquire foreign expertise.
Dassault AND Eurofighter Consortium furious over EU ban on Malaysian palm oil
A European Union ban on importing palm oil into Europe threatens to block Malaysia’s purchase of defence equipment from France, the UK, Sweden, and Italy. France is opposing the ban, which could hinder both the Dassault and Eurofighter consortium’s offers of fighter jets. The UK is instead offering Malaysia export credit and industrial participation.
Main headlines from this issue
Netherlands snubs European Commission with new IP tender
The Netherlands has issued a new military tender that is likely to attraction the attention of the European Commission. The tender calls for the building of 1,434 mobile offices and workplaces for the Ministry of Defence. It includes an industrial participation requirement... “Of course it is legal because it is based on Article 346,” said...
Freedom of Information’ request reveals lower IP Target for Australia’s Future Frigate Programme
The Australian government has hit back at critics within the Senate who have accused it of lowering the minimum percentage of local participation on the Future Frigate Programme.
Germany shoves policy aside, demands IP for helicopters
Rheinmetall and Sikorsky will together lead a team of German industrial providers to offer helicopters for the German Air Force’s “Schwerer Transporthubschrauber” (STH) programme. The formation of the joint venture was a demand of the German government. “Essentially it is an offset, but in practice they will just give it another name, like ‘teaming agreement,’” a well-placed source told CTO.
Trump’s offset policy takes root
The U.S. State Department has told America’s allies and partners that when they buy American arms, they also receive training, support, and stronger security relations in addition to equipment – America’s equivalent to an offset programme. “You are getting a package that nobody else offers.”
“Dassault has not yet selected an Indian offset partner”
India’s government is undergoing another pant-wetting session. The inexperience of recently appointed defence minister Nirmala Sitharaman forced the government to clarify the deal for the acquisition of Rafale jets from Dassault Aviation.
Main headlines from this issue
European Commission bares its teeth, bites Denmark and The Netherlands
The European Commission has launched infringement procedures against Denmark and the Netherlands. The two countries are accused of imposing unjustified offset requirements by demanding compensation from non-national suppliers when purchasing defence equipment. The member states have two months to respond. Asked if he believes there was any wrongdoing by Denmark...
Defence Acquisition Council simplifies ‘Make II’ procedure
India’s Defence Acquisition Council has announced significant changes to the country’s Make-II policy. Only Indian vendors are eligible for participation under this acquisition category. Suppliers may now use the ‘Make’ procurement category either in isolation or with any of the five other bands. Offsets apply to the ‘Buy (Global)’ or ‘Buy and Make’ categories...
Malaysia-Singapore HIGH-speed rail project brings rich benefits for Malaysia, shrugs for Singapore
The governments of Malaysia and Singapore have agreed to collaborate on a multi-billion dollar high-speed rail project connecting the two nations' capital cities. Malaysia will call for local industry participation and technology transfer as a mandatory part of any bid under the country’s Economic Enhancement Programme. Singapore has no such policy.
Us-India Business Council enters ‘productive dialogue’
The US-India Business Council is now upbeat on the potential for U.S. companies to work with India’s defence sector, despite earlier unease. A productive dialogue with the Indian government is now addressing the concerns raised in a USIBC letter sent last August.
President Trump’s Davos speech echoes EU on offsets
President Donald Trump told global finance leaders at Davos he will always put the U.S. first when it comes to trade, but his comments regarding reforms to the international trading system may foreshadow policies that will influence how American prime contractors will react to demands for offsets.