CTO Newsletter

Main headlines from this issue

India calls in the penalties

India’s Department of Defence Production has issued default warnings concerning two offset contracts. The MoD is claiming penalties of $2.5m for shortfalls in meeting the obligations. The department has initiated action concerning a further eight contracts where interim shortfalls of $23m have been reported by contractors..….A “high level collegiate committee” will report to the Offset Directorate.....

Norway cleared for revised offset regulations

Norway, together with Iceland, will transpose defence directive 2009/81 EC into national legislation by December 14, 2013. They will be the last European countries to comply. Norway’s tiff with Liechtenstein is over.

Japan to manufacture components worth ten percent of F-35A’s value

The Japanese companies Mitsubishi Electric and IHI will manufacture 24 components of the F-35A. The agreement will enable the companies to acquire technologies necessary for an indigenous Japanese fighter to be assembled in the future.

Scotland would lose out on UK defence contracts awarded under Article 346

The minutes of oral evidence taken at a recent House of Commons Defence Committee hearing on the defence implications of possible Scottish independence raised surprising issues concerning the application of Article 346 of the defence directive.

Unusual Zimbabwe barter deal paves way for infrastructure development

A major South African construction company has been given 134 hectares of land as part-payment under a barter deal involving the construction of a direct link between Zimbabwe’s city centre and Harare International Airport. The land will be used for a mall.

Main headlines from this issue

South Africa’s Arms Procurement Commission migrates from farce to shambles

South Africa’s Arms Procurement Commission has begun its public hearings in Pretoria into the Strategic Defence Procurement Package but already there is concern that the commission’s credibility is seriously wrecked…. The SDPP belongs to the nineteen nineties, when the weapons would cost R30bn and the public were told they would generate more than R100bn in offset obligations.

Macedonia legislates for offsets

The former Yugoslav Republic of Macedonia is to require offset programmes for purchases of military equipment as part of a larger reform to regulate weapons procurement.

Peru announces a new focus on co-production

Peru has turned up the volume on its industrial participation policy. Defence vice minister Valakivi Jakke said Peru will co-produce because it is time to “change the mode of acquisition”. The focus now is on co-production, and self-sufficiency, he said.

Colombia’s new offset initiative

Colombia’s defence industry will be transformed as the government of president Juan Manuel Santos considers new strategies for foreign direct investment and offset programmes. Colombia's new focus is on becoming a manufacturer and exporter of military equipment.

India: CAG finds “ambiguities and irregularities” in VVIP offsets

India’s Comptroller and Auditor General found several instances where the acquisition rules were ignored in the VVIP helicopter deal. Their report found ambiguities and irregularities in the offset obligations AgustaWestland had promised.

Main headlines from this issue

EC threatens action plan to end all offsets

The European Commission has issued a communication that will bring further consternation to member states who wish to challenge the restriction on offsets under the defence directive. In an unambiguous statement of intent the Commission says that it will ensure the rapid phasing out of offsets.....

South Africa’s Seriti Commission produces witness list

The Seriti Commission has decided to call former president Thabo Mbeki and members of his cabinet to testify in the country’s arms deal inquiry. A list has been released with only the names of those to be called in the first phase of the inquiry, which began on August 5th. … President Zuma has accepted the resignation of judge Francis Legodi.

Indian IT firms face $10bn in lost business from MOD’S ‘service’ ban

A memorandum published by India’s MoD in June warning that services such as software development would no longer qualify for offset credits was confirmed last month. The ban is now in force. Only ‘products’ may be offered under the offset clause.

Italy downplays F-35 spat – assembly has begun

Italian firms have won about $1bn of orders under the F-35 programme, equivalent to about 76 percent of Italy’s estimated investment in the programme. Fuselage components and wing parts have already been loaded and prepared for alignment.

Patria grants Poland ten year export license

Poland has agreed terms with Patria that will permit the WZM Military Mechanical Plant in Siemianowice licensed production of Rosomak AMV armoured vehicles and to promote their sale to global export markets.

Main headlines from this issue

Finland lets genie out of the bottle – new IP rules retain multipliers but lose penalties

Finland has published new rules - not guidelines - on industrial participation. The rules promise multipliers for indirect (defence) projects and make no mention of penalties. The most significant differences.....

Brazil’s Health Ministry to become pill producer with Israeli technology

Israeli biopharmaceutical company Protalix Biotherapeutics has secured a supply contract with the Brazilian Health Ministry, promising technology transfer for….. The contract is further evidence of Brazil’s drift into a civil offset policy.

Australia passes legislation for civil offsets

The Australian Senate passed the Australian Jobs Act the day before prime minister Julia Gillard was replaced by her party. The Australian Jobs Act will ensure that all projects worth A$500m ($455m) or more will complete Australian Industry Participation (AIP) plans, regardless of their location and regardless of their industry sector.

A.K. Antony vs. Anand Sharma in the battle for FDI

India’s Defence Minister, A.K. Antony, has opposed moves to raise the Foreign Direct Investment (FDI) cap in defence manufacturing from 26 percent to 49 percent. But Commerce and Industry minister Anand Sharma declared that Mr Antony's reservations are part of the wider discussion process in government and that India will raise the limit.

Sandeep Verma investigates the culture of corruption in offset transactions

Designing offset rules and regulations without compromising integrity and transparency in the procurement process may be challenging but it’s a challenge with which Sandeep Verma, is familiar.....

Main headlines from this issue

South Africa: Armscor’s secret policy changes revealed

Armscor has put new offset rules into operation. Details of the new policy remain unpublished but the South African corporation is already applying them to bids. Foreign defence contractors are facing stricter requirements and a penalty of “at least” 100 percent.....

“EC’s bid to ban offsets is failing”

The European Commission is worried that its efforts to eliminate offsets in all of its forms are failing. “They are not going down if you look at the picture overall.”

EC to pursue a policy of ‘Positive Reciprocity’

Rupert Schlegelmilch, European Commission director for Services, Investment, Intellectual Property, and Public Procurement, told the ECCO conference that a new proposal would see the EC close access to other countries in European markets if EC member states are not given substantial market access to their markets.

China to adopt a formal approach to defence offsets

China intends to develop a detailed offset policy and to gradually impose offset requirements for its weapon procurements. Training will be given to personnel to make them aware of the importance of offsets and the various practices that are available.

France: “Other countries adopt a different view”

The French government’s official position on offsets was made clear by Claire Waysand, deputy director general and chief economist in the Directorate-General of the Treasury at the French Ministry of Economy and Finance. \We do not request offset in France. We support the efforts of the EC to restrict offsets and of the entry into force of the 2009 defence directive.\"

Main headlines from this issue

Saudi Arabia’s new guidelines recalled – expect changes

Saudi Arabia’s Economic Offset Committee has recalled the country’s newly approved offset guidelines. The committee is planning to make changes, but officials decline to reveal what they might be.

Chief judge on national security exception for offsets: “No-one knows what it means, and no-one wants to know what it means.”

Judge James Bacchus, chairman of Greenberg Traurig’s global practice group, a former U.S. Congressman and a one-time chief judge at the WTO, said that offset and countertrade may cease to exist within ten years. The world is turning toward rules that will discipline these kinds of performance requirements, he predicted.

Speakers consider growth of civil offsets in emerging markets

Mike Fisher, GE Aviation’s regional manager for industrial cooperation and offset, said that of about 80 countries that practice some type of formal offset, about eighteen require civil offsets.  Requests for civil offset programmes are clearly growing.

South Korea: DAPA revises offset guidelines

South Korea’s Defence Acquisition Programme Administration (DAPA) has reviewed offset guidelines and introduced a number of changes.

Australia’s AIC “flat earth” policy

Australia’s government doesn’t like offsets and doesn’t practice them, Malcolm Taylor, CEO of the C&I Projects Group, told a conference. Or at least that’s what they like to say.

Main headlines from this issue

“Courageous Denmark” – leads the initiative as Nordic countries take issue with the directive

The Nordic countries, under pressure to comply with Directive 2009/81/EC, are making a determined effort to preserve their industrial participation policies. Negotiations have been conducted with EC officials largely behind closed doors …. How far they are prepared to test EC tolerance?

Offsets are not permitted in New Zealand – unless you offer them

New Zealand’s Economic Development Minister, Steven Joyce, has announced new rules on government procurement. The rules comprise 94 pages, replacing 44 different pieces of legislation, cabinet directives, and miscellaneous guidance released by a multitude of government agencies over many years. They come into force on October 1st, 2013.

Kuwait’s NOC produces data to head off criticism

A river of statistical data from Kuwait’s National Offset Company has diluted the effect of a study by the Kuwait Economic Society. The study looked at the performance of the NOC. ..... The release of so much raw data may well change the perception of the NOC’s achievements.

Israel’s ICA chief steps down

Industrial Cooperation Authority director-general Bina Bar-On is stepping down after nine years as head of Israel’s ICA. Government policy is to restrict the term of office of senior government officials.

Russia says all defence import transactions will be concluded with offset programmes

The deputy premier and chairman of Russia’s Military-Industrial Commission, Dmitriy Rogozin, called for Russia “to switch to the offset operating arrangement.”

Main headlines from this issue

Italy completes new offset guidelines

The Italian government has concluded informal discussions on new draft offset guidelines submitted to the EC in Brussels. The guidelines are currently awaiting the approval of the defence minister and the Secretariat General. Credit banking will no longer apply.....

Estonia revises offset guidelines – policy to continue

Estonia has decided that its offset policy will have an open threshold. In practice, few procurements under 150m Kroons (about €10m) will attract an offset obligation despite new guidelines that predict a lower threshold in due course.....

Japan pledges to transfer nuclear technology to UAE, gains energy concession

To renew its role in an oil and gas concession in the UAE, set to expire in 2018, Japan has had to agree to deliver to the UAE technology related to a nuclear cooperation deal.

Cuban airports will be upgraded – Brazil will receive “irresponsible” Cuban doctors

Brazil has begun negotiations to hire at least 6,000 Cuban doctors to work in rural areas. Brazil will finance the modernization of five airports in Cuba.

Bulgarian president challenged over transparency of offset benefits

The Bulgarian Industry Association has called on President Rosen Plevneliev to guarantee the openness and transparency of public procurement and related offset agreements, their implementation and their impact on the economy.

Main headlines from this issue

Australia legislates for civil offsets “Plan is a return to Soviet Russia with the commissars”

A bill to be introduced shortly to Australia’s parliament calls for civil projects with a capital expenditure of A$500m ($514m) or more to submit an Australian Industry Participation Plan. A new body, the AIP Authority, will oversee the regulation.

Kuwait: NOC challenges study that finds negligible offset fulfilment – “The limits of governance should be made clear”

The total value of Kuwait’s offset obligations fulfilled since 2008 amounted to only $3.5m spread over 126 contracts, the Kuwait Economic Society says. The NOC has challenged the accuracy and validity of the data used.

India: DPP 2013 relegates “Buy (Global)” to the dumpster – receives mixed reaction

India’s DPP 2013 will chiefly concern revised procurement procedures rather than changes to the offset regulations. The amendments to DPP 2011 in the current review have received mixed reviews.

Frost & Sullivan forecasts significant growth for offsets – seven EC member states in top 20

Military offset obligations in the top twenty markets are expected to increase from $36.3bn in 2012 to $49.6bn in 2021. The report predicts that seven of the top twenty countries to engage in offset practices over the next ten years will be from Europe.

Why Vietnam’s technology transfer rules are failing

Foreign companies undergoing civil sector contracts in Vietnam have to explain to the state management agencies the technologies they employ. They must also prove that the technologies are fit for purpose.

Main headlines from this issue

Norway says Lichtenstein vetoed decision to transpose defence directive; Lichtenstein denies accusation

Norway believes that Liechtenstein blocked its implementation of the defence directive at a recent meeting of members of the European Economic Area. The corollary is that Norway’s offset policy remains in play.

South Africa: localisation programmes and ‘BEE’ essential for new nuclear power plants

Nuclear companies seeking to sell their reactor designs to South Africa should ensure that they offer localisation programmes incorporating black economic empowerment (BEE).

Indonesia’s Law On The Defence Industry places obstacles in industrial participation

The new law obliges the government to prioritize the domestic industry in arms procurement. For foreign contractors, partnership with industry will be imperative but a lack of policy guidelines makes a cautious approach crucial.

Portugal’s transposition of the directive was incomplete – receives warning

Portugal has only put part of the required provisions in place. The EC has given Portugal two months to put an end to the violation.

New Brazilian law regulates partnerships and technology transfers

The new regulations are meant to oblige foreign companies interested in bidding to build plants in Brazil or commit to the transfer of technology to Brazilian counterparts.

Main headlines from this issue

Annual Report to Congress on the Impact of Offsets in Defence Trade shows more offset agreements with more countries than ever

The 17th Annual Report to Congress on the Impact of Offsets in Defence Trade shows an astonishing rebound in the number of offset agreements signed with U.S. defence contractors in 2011. In spite of the restrictions in place with the European Community, the report also records the highest number of countries involved in offsets.

“Algeria is forming a defence offset policy”

Unconfirmed reports suggest that Algeria is in the process of forming a defence offset policy. The objective is to increase the country’s indigenous manufacturing capability.

Canada’s military spending must create economic opportunities

The Canadian government in its federal budget plans endorses a report that urged the government to use the hundreds of billions of dollars of projected military spending for a job-creation strategy for the Canadian defence industry.

Have China’s technology transfer demands scared off Russia from deal of the decade?

China's new leadership has agreed to buy 24 Su-35 fighter jets and four submarines from Moscow, China’s state media said. But the Russian media has denied the purchase, saying no agreement had been reached.....

GOCA conference may have to have breakout sessions

GOCA’s ‘Spring Industrial Partnership Conference’ at Boca Raton, Florida, looks set to break new ground with presentations on at least seventeen countries. So great is the number of presentations that breakout sessions will be used to accommodate them all within the time available.

Main headlines from this issue

India’s offset policy at a crossroads?

Under a proposed “Buy and Make (Indian)” plan, Indian companies, including those in the private sector, will receive preference in all purchase contracts; procurement from foreign suppliers will be the last option. Indian companies are likely to seek foreign joint venture partners.l..... The government is also likely to disqualify software and consultancy services from offset credits.

CADSI supports Canada’s national shipbuilding procurement strategy; others less sure

Canada’s C$35bn national shipbuilding programme has ignited a debate about the effectiveness of its provisions. CADSI rejected the notion that Canada was likely to only accomplish assembly, with no additional benefits for the industry. Tim Page told CTO that that was not the intention of the federal government and that Canada’s marine industrial sector is “ready to go” to support the government’s initiatives.

More smears mire South Africa’s Commission of Inquiry

The Seriti commission probing allegations of corruption in the South African government's R70bn arms deal and the fraudulent offset contracts has suffered a further blow to its credibility…. Judge Seriti has indicated that the commission had received no evidence implicating the ANC in the matter, which observers find incredible.

Chávez death could rock barter deals across the Caribbean and Cuba

The demise of Venezuela's president, Hugo Chávez, raises questions over the future of generous subsidies that Venezuela provides Cuba under a countertrade programme. Venezuela provides oil to Cuba on subsidised terms in exchange for Cuban professional services, mainly doctors, teachers, and healthcare workers.