Offset Agreement - U.S. Position On Defense Offsets

U.S. Position On Defense Offsets

U.S. is by far the largest exporter of weapons in the world, and the U.S. Government officially declares the use of offsets as unfair practices, imposed by buyers, and is also trying to shape a political coalition of other arms exporter countries to support the U.S.’s official anti-offset position.

The primary concern of the U.S. about direct offset is keeping a complete and self-sufficient industrial base for its military capabilities, since an erosion of such domestic industrial base is or may be taking place due to military (direct or indirect) offsets, such as co-production and technology transfers. The trans-nationalization of the U.S. defense industrial base is caused also by direct offsets, and this is considered a threat to national security. In U.S. there is also a more sophisticated and free market opinion on the issue of the dislocation of less advanced military components to allied countries, that is, a kind of re-visitation of the U.S. Defense Industry transformation due to the internationalization of the main U.S. Defense companies. This opinion opposes to the protectionist simplification that any dislocation of defense industrial manufacturing capabilities to other countries is a potential threat. A second connected concern is that direct offset, technology transfer, and high-tech indirect offset may help potential U.S. enemies to build a military capability to attack U.S. or U.S. interests around the world.

To be sure, both of the above concerns are real and justified, but not very realistic. The U.S. is so far advanced militarily when compared to the rest of the world that it is not reasonable thinking that direct offsets may create a threat against U.S. security, or at least, a threat that is more dangerous than the very American made exported weapons may pose to U.S. national security. Weapons export and connected military offsets are closely monitored by the Defense Department (on the military side) and by the State Department (on the political side) and by U.S. Congress. Methodologically speaking, it is an important point never to underestimate the enemy and relying on one's one superiority, but it is not realistic thinking that transferring 20 years old technologies to allied countries as offsets of a main U.S. defense sale is a threat to national security. As recent history teaches, most security threats come from domestic breaches, not from authorized tech-transfers abroad. In other words, if a defense technology transfer offset is a real defense security threats, it should not be authorized, if it is not, then using the “national security principle” in all arguments is an abuse that is detrimental to the very ground of the principle.

The most delicate and convincing issue is U.S. economic security. Economy (Competition) and War (Defense) do not follow the same principles and methods, in spite of many useful analogies and significant synergies, and this is especially true in U.S., the greatest Commercial Republic of all times. Commerce Department, through BIS, monitors U.S. offsets specifically from the point of view of the adverse effects on U.S. economy, and reporting yearly to U.S. Congress. President Bush I and Clinton nominated special Commissions to examine the issue of offsets on their unintended domestic adverse effects, focusing on their detrimental effects on U.S. and other weapons exporting nations.

To be sure, the most realistic concern is about the potential loss of jobs in U.S. The effects of almost all requested offsets by purchasing countries are the increase of turnover of the offset involved activities and the creation of more jobs. An exemplification: if the sales of Lockheed Martin planes requires the offset financing of defense components manufacturing companies in Romania, these Romanian companies would subtract a piece of the market from U.S. companies, and therefore indirectly would cause a loss of jobs in U.S. The argument follows the protectionist view that a factory in U.S. closes because another similar factory opened in Romania or Japan. From the buyer's point of view, offsets are supposed to be a form of economic policy and state intervention. However, from a strict free trade point of view the creation of wealth (production and turnovers as well jobs) in other countries is not detrimental to commercial Republics like U.S., on the contrary, it increases their purchasing power to buy U.S. defense products.

The matter of indirect offsets, and specifically civilian offset, poses other types of problems and serious economic concerns. Generally speaking indirect offsets do not affect U.S. national security. But if indirect offsets, such as marketing or financing of foreign competitors of U.S. companies, help competitors to grow internationally, or even in the U.S. domestic markets, the problem of the adverse effects of indirect offsets on U.S. economy becomes real. The interaction of defense indirect offsets with non-military U.S. business is substantial, given the amount of offset obligations of U.S. toward competing economies. BIS monitors these effects closely in all fields, but it is clear that if a U.S. marketing assistance indirect offset, for instance, helps a European company to sell its products and services in a third importing country, where a U.S. companies may sell their own equivalent products, this may constitute a relevant adverse effects of U.S. defense industry offset practices.

The most uncontrollable effects, however, is when indirect offsets strike U.S. small and medium domestic companies with no information about it, and with a protection of secrecy. This point is also present in the internal/domestic European Union market, that expresses a similar concern for the unfair distortion of normal competitive market caused by indirect non-military offsets, protected by unjustified secrecy