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Offset: the Client‘s Perspective Federal Ministry of Defence

Offset: the Client‘s Perspective Federal Ministry of Defence 3 rd International Seminar on Offsets and Industrial Cooperation Jerusalem, 7th to 9th May 2007 Dagmar Metzger Deputy Head of Division Armament Economics and Industrial Affairs Point of Contact for Offset. Definition

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Offset: the Client‘s Perspective Federal Ministry of Defence

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  1. Offset: the Client‘s Perspective Federal Ministry of Defence 3rd International Seminar on Offsets and Industrial Cooperation Jerusalem, 7th to 9th May 2007 Dagmar Metzger Deputy Head of Division Armament Economics and Industrial Affairs Point of Contact for Offset

  2. Definition Direct OffsetParticipation of the purchaser country‘s industry in the production of the commodities or defence equipment being procured. Shipment and counter-shipment are technically interdependent. Indirect OffsetParticipation of the purchaser country‘s industry involves the acquisition of goods and services that are not connected with the actual commodities or defence equipment.

  3. Reality • Trade-offs or offset agreements remain an integral part of the international trade in defence equipment • This applies to government transactions just as much as to contracts between companies • Offset arrangements are required not only by developing and threshold countries but also by the industrial nations

  4. Views of the FMoD (1) • Offset agreements create problems from a regulatory and economic point of view because they • - restrict competition • - increase procurement costs • - lead to dirigism and protectionism and consequently • are an obstacle to the principles of the market • economy.

  5. Views of the FMoD(2) Moreover - the integration of not fully competitive company services and/or the selling that may otherwise be necessary of non-company trade-off services tend to result in additional costs. - small and medium-sized companies are prevented from participating in the development and procurement of military technology, as they are shut out of the market by products supplied form the purchaser country.

  6. Views of the FMoD (3) Finally - Offset arrangements restrict international cooperation in defence technology. Decisions by governments to opt for a certain type of military hardware tend to be dictated by various structural, industrial-political, technical and/or operational considerations. The resulting solution is often "second best“.

  7. Views of the FMoD(4) Therefore - the FMoD doesn´t support trade-off demands from other countries as part of government agreements - the FMoD will work through its involvement in international committees on defence cooperation to ensure that offset agreements are no longer part of any future bilateral or multinational cooperation on military defence - the FMoD will, in principle, refrain from making trade-off demands on purchases from sources outside of Germany.

  8. Offset in International Fora Western European Armaments Group OCCAR Letter of Intent/Framework Agreement European Defence Agency

  9. Offset in International Fora Western European Armaments Group (WEAG) - Because of national egoism no tangible results regarding the abolition of governments‘ offset policies - Termination of the WEAG in mid-2005.

  10. Offset in International Fora OCCAR - instead of Juste Retour and Cost Share/Work Share: the principle of Global Balance to be applied over a longer period of time and for several programmes

  11. Offset in International Fora Letter of Intent/Framework Agreement - discussion by the WG "Reciprocal Offset Waivers" - aim: assess the impact of offset on the European armaments market and examine the advantages and disadvantages of abandoning offset - drafted a set of guidelines

  12. Draft for Guidelines for LoI/FA - limit compensation to 100% of contract value - standardised application of multipliers - standard time allowance for fulfilment of offset commitments - mutual exchange of information on offset commitments - stipulation of a contractual cut-off. Germany´s position: The guidelines can only be the first step towards the complete abolition of offset.

  13. Offset in International Fora European Defence Agency (EDA) - Part of the work programme of the Industry & Market directorate - aim: to create a level playing field for everyone involved in the European defence equipment market - offset as an obstacle to the development of an efficient European Defence Equipment Market (EDEM); - assessing the results of the LoI process.

  14. Offset in International Fora • European Defence Agency (EDA) • Based on the LoI proposal for offset guidelines • EDA drafted harmonised offset regulations • In parallel EDA awarded a study on the effects of offsets • in December 06 • Results of the study are expected in June 07 • pMS did not agree to the a.m. proposals • In 07 EDA will provide pMS with new proposals

  15. Offset on the National Basis • At the German Ministry of Defence • In September 06 establishment of PoC for offset • Aim: Support German industry in offset matters • such as • possible „swapping“ mutual offset requirements • offset credits/debits • German industry regulary asks for support

  16. Thank you for your attention. Dagmar Metzger Federal Ministry of Defence – Division Rü II 1Postfach 13 2853003 BonnTel +49-228-12-5851Fax +49-228-12-5214dagmarmetzger@bmvg.bund.de

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