Defense Trade:

U.S. Contractors Employ Diverse Activities To Meet Offset Obligations

NSIAD-99-35: Published: Dec 18, 1998. Publicly Released: Jan 20, 1999.

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Pursuant to a congressional request, GAO reviewed the types of activities undertaken by U.S. contractors to meet offset obligations associated with the sale of defense equipment to various foreign governments.

GAO noted that: (1) companies undertake a broad array of activities to satisfy offset requirements; (2) under offset programs, U.S. contractors commonly award subcontracts for components and subsystems to firms in purchasing countries, and in a few cases, have made longer-term commitments covering foreign firm participation in the event of future sales of weapon systems; (3) this activity has been accompanied by technology transfers, for example, providing manufacturing technology needed to produce a component; (4) placing contracts overseas has resulted in the emergence of additional contractors that are qualified to participate in weapon system development and production; (5) the long-term supplier relationships that develop may result in reduced business opportunities for some U.S. firms; (6) nonetheless, the value of the export sale, in the transactions examined, greatly exceeded the amount of work placed overseas; (7) for procurements not directly related to weapon systems, U.S. prime contractors enlisted their major subcontractors, their suppliers, and other foreign entities to help meet offset obligations; (8) U.S. contractors also undertook a wide variety of activities that could be labelled business development; (9) contractors provided technical assistance to foreign firms across a wide range of technologies and industries and assisted foreign firms in marketing their products in export markets using the expertise of the contractors' own organizations or consultants; (10) in a few cases, U.S. contractors advocated a foreign firm's product to the Department of Defense or suppliers; (11) in isolated cases, offset transactions involved financial assistance to subsidize particular export sales; (12) these transactions were limited to foreign markets and therefore did not involve improper incentive payments under U.S. law; (13) U.S. contractors also facilitated or established joint ventures with firms in the offset country; and (14) while a country's economic development ministry might perform similar activities, the offset program allowed the country, or firms in the country, to leverage the expertise and know-how of major U.S. multinational firms.

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