CTO Newsletter

Main headlines from this issue

The ‘Make in India’ makeover takes shape – new ‘IDDM’ policy announced

India’s Defence Acquisition Council is set to raise the country’s offset threshold from Rs 300 crore ($45m) to Rs 2,000 crore ($300m). The mandatory requirement for indigenous content will remain at a minimum of 30 percent. Defence minister Manohar Parrikar said that the threshold is changing because offsets increase the cost of the product by 14-18 percent.

India: A pivotal moment still in the balance

Offset practitioners have largely welcomed the reported changes to India’s offset policy but any champagne corks remain stoppered at least until the formal publication of DPP 2016. Whether the revisions mark a new day and better opportunities for India, its local industry and foreign suppliers will depend largely on the language of the final draft.....

High quota and tough performance penalties characterise Turkish Health Ministry’s new offset policy

Turkey’s Ministry of Health has published regulations concerning its Health Industry Partnership Programme. The regulations remain faithful to traditional offset principles, laying down the threshold, quota, penalties, and multipliers. They are as lengthy, specific, and unyielding as the opus published by India.

U.S. government calls for report into impact of technology transfer to China

The U.S. government has called for a report on “The qualitative and quantitative nature of the transfer of United States production activities to the People's Republic of China.”

Russia sees Indonesia as alternative to Western component suppliers

Russia continues to deliberate over the extent of technology transfers and component production in Indonesia concerning the sale of MS-21 aircraft.

Main headlines from this issue

India changes offset rules: restores services and predicts defined projects

In response to frequent amendment requests from vendors, India is releasing a series of important policy revisions. The changes come as the MoD prepares to publish a new Defence Procurement Procedure (DPP)…. Quality assurance services and training remain suspended and do not yet qualify for credits.

Russia marches into India

President Vladimir Putin signed sixteen deals with Prime Minister Narendra Modi during a meeting at the Kremlin. The deals include an agreement for the joint manufacture of 226 military helicopters and the construction of twelve atomic energy plants with involvement of local companies in India.

Influential Egyptian agency “well placed to become the offset authority”

The Arab Organization for Industrialization, a key agency linked to the Egyptian defence ministry, has signed an array of partnership agreements with Western defence companies over the past few weeks and reportedly seems well placed to become the Egyptian offset authority.

Mixed blessing for the Philippines’ countertrade policy as volumes reach new highs

The Philippines International Trading Corp (PITC) has responded to a significant increase in government procurement by recording countertrade contracts worth at least 1.5 billion pesos ($33m) in 2015, about four times the level of previous volumes.

Political imperatives tempt Japanese into maritime ventures with Indonesia

Japan and Indonesia will begin talks on the transfer of defence technology to Jakarta. Agreement was reached during discussions between the respective defence and foreign ministers. “Future military deals will only be with partners who embrace this approach”.

Main headlines from this issue

India has nearly $5bn of offset obligations under contract

India now has 25 defence offset contracts under implementation. Obligations total approximately Rs 29,274 Crore ($4.87bn). Contractors have up to 2022 to fully discharge their commitments. Another 45 contracts worth about $8bn-$10bn are in different stages of progress.

Rubber countertrade deal bounces between Thailand and China

The signing of a Memorandum of Cooperation between Thailand and China on a new 900km (559 mile)  railway development project under a countertrade payment structure was confirmed, denied, confirmed, then maybe’d in the space of a few days. The project is estimated to be worth almost $10bn.

Washington relents, Korean government can smile at last

Washington has finally approved the transfer by Lockheed Martin of 21 jet fighter technologies needed for Korea’s KF-X project. Four key technologies remain blocked. The 21 technologies comprise hundreds of separate technical items.

Poland looks East in development deal with Chinese bank

Poland has signed an MoA with China for strategic partnerships covering, among other things, agreement between Poland's Bank Gospodarstwa Krajowego (BGK), The State Development Bank of Poland, and the Industrial and Commercial Bank of China. Poland wants to ensure access to the infrastructure projects market in Asia for Polish businesses.

Main headlines from this issue

UAE: Further explanation of revised guidelines

In September, Tawazun, the organization responsible for managing offsets in the United Arab Emirates, introduced contractors to significant changes to the Emirates’ guidelines. Those changes included modification of the compliance provisions and multipliers.

South Africa: DTI justifies credits for cost of transferring technology, but not for the technology

The director of South Africa’s Department of Trade and Industry (DTI), William Ramutla, told delegates to the ECCO conference that technology transfer is one of the main National Industrial Participation (NIP) policy objectives. The department is often challenged on its decision to award NIP credits only for the costs incurred in transferring the technology; the value of the technology does not qualify.

UK: “Offset is no longer a cult”

Lord Howe, who deals with all defence issues in the House of Lords, said “We’re not against defence directive EC 2009/81 [but] our interests rest in a more open and competitive defence market that respects our legitimate national security and interests. We have an open mind about whether the directive needs to be radically altered…. because we actually don't have the evidence about its effectiveness yet.”

DAPA summarises new multipliers and makes credit banking easier

Two senior executives from DAPA told ECCO conference delegates that South Korea has adjusted some multipliers and amended its offset credit banking rules to promote the development of SMEs and improve the prospect for defence exports. They were, however, largely clarifying changes revealed before.

Japan to ask Northrop Grumman for offsets

Japan has requested offsets under an FMS application for the supply of three Global Hawk remotely piloted aircraft and associated equipment costing up to $1.2bn. The principal contractor would be Northrop Grumman.

Main headlines from this issue

Twelve nations agree Trans-Pacific Partnership Free Trade Pact – Malaysia wins 12-year delay on ending offsets; Vietnam gets 25 years

Malaysia has come out a clear victor in negotiations over the Trans-Pacific Partnership free trade pact.  Malaysia can delay the closure of its offset policy for more than 12 years; both its defence and civil offset programs will meanwhile remain in force. Vietnam, which has no documented offset policy, has won an exemption for 25 years. It has time to invent one.

FMS Whodunit: Has Kuwait really dumped its offset program?

The U.S. DoD’s Defence Security Cooperation Agency has approved a possible FMS to Kuwait for Sniper Advanced Targeting Pods and associated equipment valued at $115m. Surprisingly, given the Kuwaiti government’s affirmation that it will no longer ask for offsets, the DoD asserts that offset agreements associated with the proposed sale are expected.....

Poland’s new government spells trouble for unsigned deals

The victory of the opposition Law and Justice (PiS) party in Poland’s parliamentary election will bring changes to the country's military procurement plans. The PiS said before the election that it would review military tenders as part of efforts to boost the share of Poland's defence budget spent domestically if it were to win. Polonisation is set to get tougher.

Denmark to manufacture for Pratt & Whitney and Lockheed Martin

Danish defence firm Multicut has won two significant orders. Pratt & Whitney has awarded the firm a contract to manufacture F135 engine components under a ten-year procurement agreement. Lockheed Martin has notified Multicut of a pending contract award……

India eases FDI regulations again

The Indian government has announced FDI reforms in fifteen major sectors of the economy. For defence, India will now permit up to 49 per cent FDI automatically. Levels above 49 percent can be sanctioned by the FIPB.

Main headlines from this issue

ITC report raises local content concerns as India drifts towards national offset policy

The U.S. International Trade Commission has welcomed India’s recent draft for offset procedures. The commission says the draft will increase transparency and accessibility for foreign partners. However, the report criticised a new requirement expanding local content and localisation. The rules require foreign firms to buy Indian inputs and produce a part of the product within the country in sectors including ICT, electronics, defence, and aerospace.

Czech defence minister calls for industrial participation to support domestic industry

The Czech Republic’s Defence Minister, Martin Stropnický, told representatives of domestic arms companies at a national armament conference that the participation of Czech manufacturers in contracts would be considered at each defence procurement.

Armscor stuck over MBDA’S obligation – just one new ‘DIP’ last year

Armscor’s annual report for 2014/15 reveals that after yet another year, MBDA’s Defence Industrial Participation (DIP) obligation remains delinquent. Fulfilment seems unlikely, the report says. No reference is made to the penalty provisions or any intention to apply them….. Armscor is currently managing seventeen DIP agreements.....

South Africa’s boat building policy proves its worth

South Africa’s Trade and Industry Minister, Rob Davies, has declared the country’s boat building policy a success. The policy compels foreign boat builders to partner with domestic companies as part of their obligations under the National Industrial Participation Program.

Snowden revelations provides China and other countries with pretext to demand technology access

Foreign technology companies seeking access to the market in China are facing increased pressure from Beijing to open their proprietary source codes for review.

Main headlines from this issue

India’s Aviation Ministry demands gulf airlines give offsets for passengers

India may ask Gulf airlines for a share in the offset benefits the airlines receive when buying civil aircraft, the country’s Aviation Ministry has said.  “The plan is to get manufacturing offsets in return for the huge traffic that we provide to some foreign airlines.\" 20151026"2The Netherlands presents its case for industrial participationPieter Taal, Commissioner for Military Production at Holland’s Ministry of Economic Affairs, rejected his country’s reputation for using doubtful justification to bypass the EU defence directive. He conceded that the absence of an EU definition of national security interests makes the strategy risky.

GOCA’s legal committee begins confidential fact-finding mission

GOCA has formed a legal committee comprising seven members. The committee will identify recurring issues that complicate the offset process, publicise “best practices,” seek to reduce contention, manage risk, and improve outcomes.

Australia: Japan pledges 100 percent technology transfer and a domestic submarine build

Tokyo has improved its offer to Australia by revealing additional details of a proposal to design and build submarines. The head of a high-powered Japanese delegation, Masaki Ishikawa, said Japan would transfer 100 percent of the technology involved in building a larger version of Japan’s state-of-the-art 4,000-ton diesel-electric Soryu-class submarine.

Russia and North Korea reach agreement on rouble settlement as barters gather pace

Russia's Sever Group and the Kim Chaek metallurgical plant in Chongjin, North Korea, have reached a monthly trade turnover of $2m by use of barter and monetary settlements. Now Russia and North Korea have agreed on the need to optimize foreign trade operations and are already able to make settlements in roubles.

Main headlines from this issue

Indonesia: Powerful forces criticise KKIP’S drift towards integrity

Indonesia’s Defence Industry Policy Committee, known as KKIP, is facing hostility from government ministers who want to shut it down. The ministers, we were told, view the KKIP’s enforcement of the offset regulations as an obstacle to securing backhanders.....

Taiwan: Defence ministry extends influence over industrial cooperation, demands directs

As the government of Taiwan reorganises and downsizes its Industrial Cooperation Program Office (ICPO), the influence of Taiwan’s Ministry of National Defence is growing. The result is greater demand for direct projects.....

DAPA “lied and exaggerated” about F-35 technology transfer

Korean MPs have accused DAPA, the country’s offset agency, of misleading the public and exaggerating the terms of a contract for the transfer of technology. The U.S. rejected the export of four of 25 technologies relating to the F-35 fighter jet, citing security reasons. The refused technologies include the Active Electronically Scanned Array (AESA) radar system.

“Offsets are everywhere in the European Union” – The defence directive is a fiasco

“Offsets are still here, everyone is still compliant,” Guy Anderson, Senior Principal Analyst for IHS Aerospace, Defence and Security, told the GOCA conference during a talk assessing “Offsets in the European Union Post 2011.” The big issue when evaluating the impact of Directive 2009/81/EC is how countries apply Article 346…..

Russia looks to Southeast Asia for military joint ventures

A Russian minister has declared that Russia’s defence industry is focused on finding reliable partners, particularly in Asia. The country does not intend to lag behind in scientific and technological cooperation in the global arms market, he added.

Main headlines from this issue

Directive 2009/81/EC - EC pressures member states to respect directive as governments skirt offset restriction

The EC has issued notices to member states asking them to respect the intent of directive 2009/81/EC. The directive prohibits offsets in most cases. Member states remain engaged in a discussion on acceptable conditions to include government-to-government contracts and on possible exemptions from the directive. The same talks affect FMS-type procurement. The UK has taken particular exception to the tone of the discussion…..

UAE changes tack – announces policy revisions

Tawazun has introduced significant changes to the UAE’s offset guidelines. The penalty provisions and multipliers have been modified and non-defence projects are back in favour. Credits for input and output activities have also been reviewed.

UK’S defence industry powers ahead with help of DSIEP policy

This year’s annual report on the UK MoD’s Defence and Security Industrial Engagement Policy (DSIEP) shows that signatories to the policy increased investments in the UK’s defence sector by 240 percent over the last twelve months. The reported total is £1.17bn ($1.8bn). Nine foreign prime contractors signed up and detailed their investments.

Russia introducing localisation measures on foreign contractors

The Russian authorities are further developing the country’s regulatory framework to adopt import substitution measures and stimulate localisation. Law firm CMS Russia recommends that foreign suppliers exercise caution when implementing a production localisation project in Russia. The country currently has no practice or precedent in the application of the new provisions.

Indian Israeli collaboration weighed down by ‘Alice in DPP land’

Tarun Vijay MP, a member of India’s Parliamentary Standing Committee on Defence, told an international seminar on 'Strategic Defence Cooperation between India and Israel' that discharging offset obligations used to be a challenge for Israeli companies. That changed in August…..

Main headlines from this issue

Czech Republic prepared to defy EC and re-engage with offsets

The Czech Republic is considering re-engaging with offset. The country plans to embark on a major defence equipment acquisition program and will demand offsets on a case-by-case basis, starting with the requirement for 3D radar. The government will not publish rules or guidelines.

Saudi Arabia approves easier credit award process

Saudi Arabia has made no formal changes to its offset guidelines since 2007 or to how the authority is implementing their programs, but has made helpful adjustments to the way the guidelines are put into practice. The Economic Offset Committee declared in June 2013 that it intended to make significant changes to the guidelines, but appears to be in a state of stasis.....

Doubts remain as Kuwait “permanently” ends the offset policy

The Kuwaiti government has announced that the Cabinet has endorsed a proposal to liquidate the National Offset Company. A terse statement said: “The Council decided to permanently stop the offset program.”

Qatar to amend law – Qatari partnership to be mandatory

Qatar’s Shura Council has voted to revoke the law governing public procurement and to introduce changes to streamline and standardise the public procurement process. The proposed amendments will permit tenders valued at $250m or higher to be awarded to foreign entities provided they have a Qatari partner.

Australia: GPA negotiations stall over preferential treatment of SMEs

The Australian government’s negotiations for accession to the WTO Agreement on Government Procurement (GPA) appears to be faltering. Australia’s preferential treatment for SMEs would be prohibited on the basis that it indirectly discriminates against foreign entities.

Japanese delegation refuses to speak about submarine parts for Australian industry

A Japanese consortium competing for the $35.68bn contract to build submarines for Australia has irritated local suppliers by failing to share key information about its proposal or discuss specific collaboration possibilities during their visit. Australian defence contractors said they were rebuffed when they sought one-on-one meetings.

Main headlines from this issue

Elbit overcomes Swiss political battle, lands UAV contract with commitments to civil projects

Swiss offset volumes will receive a boost after a flat couple of years as a result of an unreported offset commitment. The Elbit program in 2015 will be one of the first to re-engage with Switzerland’s offset / industrial participation program.

India: DPP 2013 amended – partnership selection eased

India has amended Defence Procurement Procedure 2013 (DPP 2013) to allow foreign contractors to select partners at the execution phase of the contract instead of the evaluation phase. The change, which is retrospective and takes immediate effect, will make changing partners easier over the intervening period.....

South Africa: German shipbuilder joins competition for patrol vessels

German shipbuilder Abeking & Rasmussen has partnered with Rheinmetall Denel to bid for the supply of vessels to the South African Navy’s Project Biro. One of the challenges reported to be facing contenders will be complying with the varied and sometimes conflicting local content thresholds and industrial participation quotas.

U.S. companies engage with Danish contractors and provide access to U.S. market

Lockheed Martin and the Danish firm Systematic will co-operate on a project to establish an electronic warfare support system in Denmark. In return, SSBV-Rovsing will receive marketing assistance for its solar array simulator in the U.S. market.

Poland: MOD furious at allegations concerning selection of Airbus helicopters

Poland’s MoD has angrily rejected allegations in Wprost, a Polish weekly, that it broke procurement rules when it selected Airbus Helicopters. PZL-Świdnik has issued a lawsuit against the MoD alleging errors in the tender process. Now the MoD is threatening legal action against the weekly. The contract is no closer to being finalised, particularly the offset requirements.

Main headlines from this issue

Political stalemate leaves Belgium in a bind on IP policy, changes grind to a halt

Belgium’s coalition government remains deadlocked over its approach to defence industrial participation and has failed to approve or reject a pending IP proposal. The proposal was put forward last year for the forthcoming F-16 replacement program.

Australia: Submarine competition catches fire - Japan gets serious

A former commander of the Japanese navy, Admiral Takashi Saito, will head a 40-strong delegation to Australia this month to negotiate roles for local industry should Japan be successful in its bid for a submarine contract. The delegation will include government officials and specialists from Kawasaki and Mitsubishi.

“Blame Spain” for EU’S rampant embargo on defence offsets

Another manuscript has been published seeking to explain how the European Union, by challenging national defence offsets, brought discord to a formerly exclusive member state competence. The authors say, with indubitable understatement: “Our process-tracing analysis shows that the EU’s recent challenge of defence offsets was a case of supranational self-empowerment.”

Canada awards radar contract based on ‘value proposition’ policy

The Canadian Department of National Defence has awarded Rheinmetall-Canada and ELTA Systems, an IAI subsidiary, the Medium Range Radar (MRR) program. The deal used the Industrial and Technological Benefits Policy’s Value Proposition to rate and weight bid proposals.

BAE Systems overhauls Saudi industrial participation portfolio

BAE Systems is advancing its re-organisation of the group's portfolio of interests in a number of industrial companies in Saudi Arabia to comply with commitments under the Kingdom’s industrial participation program….. An expansion of the Omani program has also been agreed.