The U.S. Government's policy, as stated in Federal Acquisition Regulation (FAR) 225.7303, is that the Department of Defense does not get involved with a defense firm's offset commitments. The decision to engage in offsets, and the responsibility for fulfilling offset commitments, is purely the firm's.
It is known that transactions involving large defense purchases from U.S. firms by foreign governments most often involve Offset Agreements between the Selling Firms and the Buying Governments. Policymakers in the Buying Nations can use the Offset Agreements to address a variety of economic and political issues within the Buying Countries. The desired Motivation & Effects in Buying Countries, identified in various studies on seeking Offsets, are:
1. Labor Market Corrections.
2. Promotion of Capital Investment.
3. Support for Strategic Industries.
4. Adjustments for Asymmetric Information.
5. Reduction of Risk and Uncertainty.
6. Alternative Sources of Financing.
7. Political Support for Defence Purchases.
3. Support for Strategic Industries.
4. Adjustments for Asymmetric Information.
5. Reduction of Risk and Uncertainty.
6. Alternative Sources of Financing.
7. Political Support for Defence Purchases.
In some of these situations, the use of offsets appears to be an alternative form of commercial policy, replacing a more direct form of intervention.
Recently provided information from industry appears to validate the work done in the 1980s. The changes in the defence environment over the past two decades do not seem to have changed the motives behind the use of Offsets. Offsets are a reality of the existing competitive nature of the marketplace.
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Brigadier (Retired) Sukhwindar Singh
http://www.svipja.com/ / http://www.defenceoffsetsindia.com/
http://www.indiandefenceindustry.com/
Credit: Defense Acquisition University Press, USA.
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