CTO Newsletter

Main headlines from this issue

India: Offset agency quarrels and policy rumours create usual confusion

Internal disagreements are delaying the Indian MoD’s revisions to the country’s offset policy. The Acquisition Wing and the Department of Defence Production (DDP) are arguing over which agency should hold exclusive responsibility for the offsets.

Korea revisits its offset regulations

DAPA has updated the country’s offset regulations. The new policy reflects a more discretionary approach to the offset quota for government-to-government (G2G) defence contracts, adjusts the rules on credit banking, and introduces swaps as an acceptable practice.

Study of Egypt’s military programme exposes an underrated industrial participation policy

Despite their increased costs Egypt’s co-production agreements and technology transfers may be intensifying under the leadership of an interim military government, says an academic study of the Egyptian military.

Sinking feeling as Daewoo’s British shipbuilding contract makes waves

Britain’s Royal Navy is to award a £452m contract to South Korea’s Daewoo Shipbuilding and Marine Engineering to build four tankers. UK companies will benefit from £150m of associated contracts, equivalent to 33 percent of purchase contract value.

Swiss prepare to negotiate 100 percent offset benefits for Gripen procurement

With the selection of Saab settled as the preferred bidder for the Swiss multirole fighter, attention is now focused on two principle issues: how to finance the Sfr3.1bn ($3.4bn) Gripen E/F procurement; and determining the reciprocal benefits.

Main headlines from this issue

Biggest collapse in offset values since 2005

The 16th Annual Report to Congress on the Impact of Offsets in Defence Trade reveals a titanic decline in both the number and value of offset contracts with U.S. contractors during 2010. The fall in direct offset transactions has continued but the number of indirect transactions is......

As the EU hates offsets, the U.S. no longer cares

The most notable aspect of the 16th Annual Report to Congress, says Joel Johnson, the Teal Group’s Executive Director International, is what’s missing: an American politician out to attack the practice……As for the EU: “There is no such thing as an independent defence industrial base.”

South Africa to launch new NIPP programme

South Africa’s Department of Trade and Industry is undertaking a major review of its National Industrial Participation Programme (NIPP). The government wants to amend the scheme to ensure obligations are discharged in the same sector as the contract.

European Court of Justice rules out dual use under Article 346

The Advocate General at the European Union Court of Justice has found that derogation from the public procurement rules based on national defence cannot apply to items which, although they are to be used for a specific military purpose, are no different from similar items used in the civilian sector.

Transparency International finds the industry less than willing to talk

Transparency International (UK) has produced a report reviewing the corruption risk associated with defence offset programmes…. TI calls on industry associations to be more proactive.

Main headlines from this issue

Britain’s new industrial participation policy protects SMEs and sets $1.6m threshold

The UK will invite bidders for prime contracts over £1m ($1.6m) in value, where it is reasonable to do so, to identify the volume of work they intend to sub-contract to SMEs. The MoD will ask primes to advise on the steps they will take to increase SME participation in the supply chain for government contracts.

Norway carries on implementing its offset regulations – and the EC can do nothing

Norway will transpose Directive 2009/81/EC into national law, but in its own good time and not at the behest of the European Commission. Offsets are continuing to be demanded under the prevailing regulations and the EC is powerless to intervene.

EC threatens Netherlands and Germany

The EC has written to the German and Dutch governments warning them that if they fail to comply with Directive 2009/81/EC within two months they may face fines. An EC spokesperson told CTO that neither country had shown any initiative so far, whereas the other non-compliant member states have at least shown a willingness to transpose the directive.

South Africa: “Cancel the contracts, return the warships and warplanes”

The activist whose crusade against corruption in South Africa’s arms procurement program in the 1990s has brought about the Commission of Inquiry, may move to have the entire arms deal repudiated and declared \unfixable.\"

India: MoD scuppers CII/ADS Defexpo offset conference

A dithering MoD finally roused itself sufficiently in late January to pull a surprise out of the hat. It appointed the Federation of Indian Chambers of Commerce and Industry (FIICI) instead of the Confederation of Indian Industry (CII) as the Defexpo organiser.

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Hungary responds to the Directive with a ‘Specific Unique Procedure’

Hungary is hoping that it has found a way around the problem of Directive 2009/81/EC. The government has changed its procurement decree by abolishing the clause about offsets and establishing a ‘Specific Unique Procedure'.....

Bulgaria’s new offset rules takes shape – pre-offsets remain welcome!

While Hungary tries to skip around the EU Directive, Bulgaria’s parliament is introducing changes to the Public Procurement Law to transpose its requirements into the law.

Malaysia: ‘MIGHT’ awarded ISO certification for services to offset and countertrade

The Malaysian Industry Government Group for High Technology (MIGHT) has been awarded SIRIM’s stamp of approval for its countertrade and offset program. SIRIM oversees International Standardisation Organisation certification for Malaysia.

South Africa: “Bogus multiplier” drags Agusta Westland into new offset scandal

South Africa’s Priority Crime Investigation unit (the Hawks) has opened an investigation into a new $74m arms deal scandal in which an \extraordinarily high multiplier\" was allegedly used by the DTI to credit Agusta Westland Helicopters.

Czech Republic surrenders to EC diktat – case closed

The European Commission has closed the case against the Czech Republic for breaching EU public procurement rules. The Czech Republic has confirmed that contracting authorities will in future limit the use of the derogation from public procurement procedures for military purchases (Article 346 TFEU) to.....

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Portugal: “General Dynamics / Steyr in blatant breach of offset obligation — our MOD doesn’t care”

A Portuguese producer of armoured vehicles, Fabrequipa, has written to Defence Minister Jose Pedro Aguiar-Branco alleging that General Dynamics’ Austrian subsidiary, Steyr, is in \clear and blatant breach\" of its offset agreement.

Malaysia picks up offset, battles to work it

As Europe distances itself from civil offsets, Malaysia is moving steadily in the other direction. The country’s national offsets policy is focused on defence and on civil offsets, with all ministries asked to engage in the process. But delivering real benefits has not been straightforward....

Poland declares its hand – EC declares its indignation

Poland, which has been leading a delicate rearguard action against the demands of Directive 2009/81/EC, continues to tease out legislative proposals that the EC are likely to find objectionable.

Finland is revising legislation, but offsets will continue

Henrik Raiha, Director, Ministry of Employment and the Economy and Secretary of the Finnish Committee on Industrial Participation, said that Finland has not been asking for offsets since August 21, 2011, when Directive 2009/81/EC came into force. “But we certainly will be.”

Japan’s F-35 procurement and relaxation of the export ban signals new chapter in industrial participation

Japan’s selection of Lockheed Martin F-35s will begin a new chapter in Lockheed’s long-standing partnership with Japanese industry.

Main headlines from this issue

Seventeen EU member states to receive final warning in January to transpose Directive; court beckons.

Only one third of EU Member States have so far transposed Directive 2009/81/EC into their legislation, more than four months after the August 21st deadline has passed.....

EDA’s advice on Article 346 is conspicuously unreciprocated by EC – rift opens

The EC has, in effect, rebuffed the advice given by the EDA’s Senior Officer for Industry and Market to Member States searching for a way to continue to ask for offsets.

“Greece was blackmailed into transposing the Directive”

Dr. Athanasios Potsis, Epicos’s Senior Manager for Industrial Cooperation, questioned the EC’s right to oblige his country to bring in the directive as part of the financial support package given to Greece.

GPA gives Israel given 16 years to phase out civil offsets

New terms agreed under the WTO’s Agreement on Government Procurement (GPA) have given Israel more than sixteen years to phase out its civil offset program and domestic content requirements.

Burkard Schmitt: “EDA Code of Conduct on Offsets is Irrelevant”

There is only one “at least theoretical possibility” to justify offsets, and that is under Article 346....

Main headlines from this issue

Azerbaijan goes global in search for industrial participation partners

Azerbaijan has announced the establishment of a military industrial complex to reduce dependence upon foreign military procurement. The country, whose defence industry was founded only in 2005, has also produced an informal policy that requires many basic defence procurements to demand domestic industrial participation.

India amends DPP 2011 – permits tier-1 discharge of offsets

.....The revision does not address the position with regard to earlier procurements or clarify whether the MMRCA program will qualify.

British MP rages at BAE’s decision to transfer Hawk production to India

A government MP has heavily criticised BAE Systems in the House of Commons. The company had announced that 3,000 jobs would be lost and a historic Hawk jet manufacturing plant would be closed because production in Britain was moving to India.

Algeria’s experiment with reciprocal investment may be short-lived

Tender documents issued by Algeria’s Ministry of Energy make some big demands but offer little in the way of detail. The tender obliges contractors to invest in Algeria by up to 20 percent of the value of the purchase contract…

Court backs Philippines government in Manila airport terminal BOT dispute

The losing party in a legal dispute to operate Terminal 3 at Manila’s airport is looking into other options after experiencing a setback, an official said.

Main headlines from this issue

Australia’s AICP goes into showbusiness

Brazil evaluates changes to its guidelines

Brazil’s local commercial content requirements are progressively more demanding

Italian / Korean competition for Israeli order turns nasty

South Africa: German law firm exposes Ferrostaal’s roll-call of dubious offset credits

Main headlines from this issue

Mexico committed to introducing formal offset guidelines – aspects revealed

Mexico is well on the way towards developing formal offset guidelines. Congressional approval is expected by April 2012. The policy aims to bring technology transfers and employment mostly for Mexico’s aerospace sector, with the slack taken up by commercial projects.

South Africa: “DTI granted Ferrostaal multiplier of 100”

South Africa’s Sunday Independent has ignited a new firestorm over the German Submarine Consortium’s offset program……

Leading personalities call for Australia to replace Industry Capability Program with an offset policy

Two leading Australian academics and the head of a defence trade association have called for the government to consider re-introducing an offset policy to encourage the development of SMEs and the capture of manufacturing skills.

Wikipedia gets offset all wrong —“if you’re not writing it, who is?”

Much of the fourteen pages of explanation on the site is old, inaccurate and over-stated…… Boles and Hyman took the middle road, a stab at humour followed by an attempt to bring the explanations back into focus.

Risk assessment worries Russia as it extends Venezuela $4bn credit line

Russia has agreed to extend a $4bn credit line to Venezuela through 2013 for defence spending in return for gaining access to heavy crude oil and offshore gas fields, according to President Hugo Chavez.

Main headlines from this issue

Indonesia earnestly negotiates technology transfer programs with wider range of countries

In a further illustration of the direction of Indonesia’s emerging industrial participation policy, the Indonesian Navy has declared that it will install C-705 missiles to be jointly produced by Indonesia and China.  Indonesia and Russia have begun exploring the possibility of joint production.....

Finland: thresholds die, some SMEs may follow

Finland has removed its offset threshold. Tuija Karanko, Secretary General of the Association of Finnish Defence and Aerospace Industries, told conference delegates that the offset trigger is gone. “We had a threshold for €10m.  We don’t have that anymore,” she said.

The EC regards Norway’s traditional offset approach as unacceptable

Knuth Herrefoss, Senior Adviser to the Norwegian Defence Logistics Organisation (NDLO), told the conference that the Norwegian authorities do not practice traditional offset. “We prefer indirect industrial cooperation – and the directive regards that as one of the worst things that you can do.”

Suddenly “a kinder, gentler, Ministry of Defence” rises in Greece

A Parliamentary Committee must now review and approve all Greek defence procurements, and a Court of Audit will monitor all phases of the procurement, not just the contract award.....

Thailand: Thaksin urges Yingluck to use barters to pay for water management system

Thailand’s former Prime Minister, Thaksin Shinawatra, has called for the government, led by his younger sister, Prime Minister Yingluck Shinawatra, to......

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Poland’s response to the EC directive: “The new regulations will be even more demanding than before”

Poland’s discomfort with the implementation of Directive 2009/81/EC has given rise to significant distress for its government and for its industries. What is clear is that sellers pitching to Poland will have to ‘Polonise,’ and without a promise to build in-country the probability of selling is low.

Saudi Arabia introduces banking and ponders penalties

A liberal credit banking facility has been introduced as one of many significant changes to the Saudi Arabian offset regulations. The changes came into play in September. The volumes to be executed are increased, multipliers are more specific, and .......

Canada: primes to fulfil five percent of IRB obligation with investments derived from priority technology list

Canada’s offset business is booming. The country currently has more than 60 defence and security procurements subject to IRB — the Industrial and Regional Benefits policy that manages offset.  The IRB is now “one meeting away” from being able to release the sixth change.

EDA on Article 346: “It is enough just to show that there is a link”

“[Member states] do not have to explain their national security interest, and they do not have to provide any further information to say why there was this link,” the envoy said. “It’s enough just to show that there is this link.”

Pakistan raises currency swaps and trading accounts with South Korea

President Asif Ali Zardari of Pakistan told the Korean Ambassador the two countries should seriously consider starting barter trade and a currency swap agreement to facilitate trading in local currency.

Main headlines from this issue

Taiwan: offset credit banking faces closure

Taiwan is planning to revoke its offset credit banking facility with effect from January 1, 2012. The decision, which has yet to be formally approved would apply to....

South Korea’s new ‘Defence Industry Development Council’ to focus on offsets

The Korean government has launched a new planning body, the Defence Industry Development Council, tasked with orchestrating offset projects, boosting exports of military equipment, and .......

India announces return of the rupee trading account

India is to set up a rupee trading account to make payment to exporters for goods sold to Iran. Companies importing goods from Iran will pay into this account, creating a mechanism where only the net amount will need to be paid over.

China pressures GM to transfer engineering secrets

The Chinese government is refusing to let General Motors’ new car, the Chevrolet Volt, qualify for subsidies unless the company agrees to transfer the engineering secrets for one of the Volt’s three main technologies.

Spain strikes out at EC directive – “Code of Conduct is enough”

Manuel García Ruiz, Director of Spain’s Industrial Cooperation Directorate, has launched a strong attack on Directive 2009/81/EC. Speaking in a personal capacity he argued that a number of issues remain unresolved .......