Non-Subscriber Extract
Offsets in Europe: A matter for debate
By Keri Smith
29 November 2007
While the European Defence Agency (EDA) has recognised the benefits of some offset agreements, it has also said that "offset should ideally be phased out eventually and that it is "generally difficult to justify any type of offset on the basis of Article 296 [of the Treaty on European Union]".
Offsets - the compulsory inward investments imposed on foreign defence suppliers by a purchasing government - were the subject of an EDA report entitled 'EDA Study on the Effects of Offsets on the Development of a European Defence Industry Market', released on 12 July 2007. In the report, the EDA added that "offset - or at least much of offset - is not consistent with Article 296 and hence, illegal, although pending case law to this effect".
The agency went on to say that "not only do member states have to prove that the offset would promote their essential national security interests, not their economic interests", but they "also have to prove that the offset is necessary to address these essential security interests" and that the "specific rules of the EC Public Sector Procurement Directive - in particular those on the selection of suppliers and service providers and the evaluation of tenders - do not allow taking offsets into account".
However, Roger Bulgin, managing director of UK company Offsets 2000 - which provides support and runs workshops for companies involved with defence-related offset - said: "If we couldn't engage in offset, Europe would be badly disadvantaged. It's about the opening up of foreign markets. If we abolished offsets, we'd lose that. The EDA should look very carefully at that point."
Regarding the notion of offsets being anti-competitive, Bulgin - who is also the offset consultant for the UK Defence Manufacturers Association - added: "I see it [offset] as completely the other way. It was part of an ancient barter trade, years before the governments wrote it into law."
He also cited offset as "a positive development tool" and a way to engage "local entrepreneurs as part of a strategic marketing plan", adding: "Companies that plan for this are successful and able to investigate the potential for strategic partnerships."
Bulgin explained that each country has different priorities when it comes to offset trends, with some using offset to bolster their defence industries, while others seek technology transfer. "There is no 'one size fits all'. That would be missing the point. The UAE [United Arab Emirates] is interested in joint ventures, while Romania, for example, wants to see a transfer of skills and work," he stated.