B-238959, May 2, 1990

B-238959, May 2, 1990

MISCELLANEOUS TOPICS - National Security/International Affairs - National defense interests - Set-off - Reports DIGEST: In order to prepare the annual offset report in compliance with section 309 of the Defense Production Act of 1950, the Office of Management and Budget (OMB) must use interagency studies covering the information identified in Section 309(b)(1)(A) and (B) of the Act. 50 U.S.C. App. Sec. 2099(b) (Supp. V 1987). Because the Act does not specify the method by which such studies are to be conducted, a survey of subcontractors and nondefense industry sectors is not required, so long as the studies otherwise satisfy the requirements of the Act. Director, NSIAD/Security and International Relations Issues - Joseph E. Kelley

Offset Report Requirement of the Defense Production Act of 1950 (Code 463789) (B-238959):

This is in response to an inquiry by your staff concerning the offset reporting requirements of section 309 of the Defense Production Act of 1950 (DPA). 50 U.S.C. App. Sec. 2099 (Supp. V 1987). We have been asked whether the Office of Management and Budget (OMB), in its coordination of the annual offset report, is required to use interagency studies on the subjects listed in section 309(b) of the DPA and whether OMB must survey subcontractors and nondefense industry sectors as part of its offset reporting functions.

We conclude that section 309(b) requires the annual report to be based on interagency studies relating to the information specified in section 309(b)(1) and (2). To the extent that such studies may not exist, it appears that OMB is obligated to ensure that such studies are conducted. Because section 309(b) does not specify the methodology of these studies, a survey of subcontractors and nondefense industry sectors may not be necessary so long as the interagency studies otherwise satisfy the requirements of the statute.

Background

In 1984, an amendment to the DPA of 1950 added section 309 to require the President to report annually on, among other things, the impact of offsets on the defense preparedness, industrial competitiveness, employment and trade of the United States. Pub.L. 98 265, Sec. 6, 98 Stat. 149, 152 (1984). The conference report on the 1984 amendments defined offsets as "an entire range of industrial and commercial compensation practices ranging from barter, countercontracts, coproduction, mandatory subcontracting, direct investment, licensing, or other techniques for transfer of advanced production processes. H.R. Rep. No. 651, 98th Cong., 2nd Sess. 9 (1984). Executive Order 10480 delegated the responsibilities under this section to the OMB. E.O. 10480, 18 Fed.Reg. 4939 (1953) (reprinted as amended in 50 U.S.C. App. Sec. 2153 (Supp. V 1937)). Besides authorizing OMB to delegate to the heads of executive agencies responsibility for preparing particular sections of the report, the Executive Order mandated that agency heads provide OMB with whatever information it may need. Id.

In 1986, Section 309 was amended by adding subsection (b). Pub.L. No. 99 -441, Sec. 4, 100 Stat. 1117, 1118 (1986). The section now reads as follows:

" 309. Annual Report on impact of offsets

"(a) Report required. Not later 18 months after the date of the enactment of the Defense Production Act Amendments of 1984 April 17, 1984, and annually thereafter, the President shall submit to the Committee on Banking, Finance and Urban Affairs of the House of Representatives and the Committee on Banking, Housing, and Urban Affairs of the Senate, a detailed report on the impact of offsets on the defense preparedness, industrial competitiveness, employment, and trade of the United States. Each such report also shall include a discussion in international procurement and provide information on the types, terms, and magnitude of the offsets.

"(b) Interagency studies

"(1) In general. Each report under subsection (a) of this section shall be based on requisite interagency studies designed to progressively capture--

"(A) the long-term as well as the short-term effects of offsets (with particular attention to the effects resulting from technology transfer associated with offset agreements); and

"(B) the direct and indirect effects of offsets on lower tier defense subcontractors and on nondefense industry sectors which may be adversely affected by offsets.

"(2) Contents of reports. Each report under subsection (a) of this section shall contain an appropriate summary of--

"(A) the scope of the interagency studies conducted under paragraph (1), and

"(B) the findings and conclusions of the agencies involved in the interagency studies (including any differences in the conclusions drawn by such agencies)."

50 U.S.C. App. Sec. 2099 (Supp. V 1987).

The legislative history of the 1986 amendment contains the following explanation by the chairman of the Subcommittee on Economic Stabilization:

"The administration's first offset report was issued by OMB earlier this year. While the report was an important first step toward developing an information base on this issue, it was deficient in some aspects. subsequent audit performed by GAO indicated that the report did not adequately explore the impact of offset agreements on defense industry subcontractors and on nondefense industry sectors. .... Nor did the report focus sufficiently on the potential long-term effects of offsets, particularly as a result of technology transfer. These deficiencies limited the usefulness of the report for policy analysis.

"The clarifying language in the bill will help to ensure that these issues are given greater attention in future reports."

131 Cong. Rec. 25,411 (1986).

Subsequently, OMB issued the offset report for 1988, which stated that no interagency studies containing the information listed in subsection (b) had been published. Offsets in Military Exports, Dec. 1988, p.107. OMB official explained that:

"Section 309(b)(1) gives guidance as to the need for interagency studies on these subjects, but, none have been conducted as of this date. Section 309(b)(2) only requires that the President report the findings contained in those other studies."

Memorandum from John H. Eisenhower, Chairman of the Coordinating Committee on Offset Reports, to Joseph Moreland, Federal Emergency Management Agency, May 1, 1989.

OMB further stated that the topics listed in section 309(b)(1)(A) and (B) "have eluded serious analysis owing to the difficulty of developing a valid research design for measuring both technology transfer and lower tier impacts and the probable large cost of such studies." Id.

Analysis

We conclude that section 309 requires OMB to base the offset report on the interagency studies referred to in section 309(b). To the extent that such studies do not exist, it appears that OMB has a duty to ensure that such studies are conducted.

Section 309 sets forth the statutory requirements relating to the offset report. Subsection (a) requires the report to, among other things, cover the impacts of offset agreements on national defense, industry, trade and employment of the United States. Subsection (b) provides that the report of subsection (a) shall be based on interagency studies concerning particular effects of offsets, including those on lower-tier defense subcontractors and on nondefense industry sectors.

The plain meaning of the statutory language as well as the legislative history of section 309 indicate that the interagency studies referred to in subsection (b) were intended to provide a basis for the offset report. Section 309(b) requires the report to be based on "requisite to the subjects listed in section 309(a). Therefore, these studies are not, in our view, an optional step in the reporting process.

The legislative history further indicates that OMB is required to use the interagency studies described in section 309(b) in its preparation of the offset report. The 1986 amendments to section 309 were intended to ensure that the issues in subsection (b) would be given greater attention in future reports, according to the Chairman of the Subcommittee on Economic Stabilization. 131 Cong. Rec. 25,411 (1986). During House consideration and passage of the bill introducing the amendments, the chairman stated:

"the committee would expect the administration to attempt to obtain information useful in identifying and assessing specific impacts on subcontractors and nondefense industries, and longer term impacts resulting from technology transfer. Selected case studies might prove a useful approach." Id.

The drafters of section 309(b) apparently intended that the administration consider the issues listed in section 309(b) so that the results of such studies could be incorporated into the offset report.

Although section 309(b) requires that the offset report be based on interagency studies dealing with particular areas, the statute does not specify how these studies should be conducted. Section 309(b) does not specifically mandate that subcontractors be surveyed or that data be collected from industry. It only requires that the administration use studies that are designed to identify and assess specific impacts of offsets. So long as OMB bases the offset report on studies that address the statutorily required information, it is complying with section 309(b).