Military Exports:

Offset Demands Continue to Grow

NSIAD-96-65: Published: Apr 12, 1996. Publicly Released: Apr 12, 1996.

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Pursuant to a congressional request, GAO reviewed offset requirements associated with military exports, focusing on: (1) how the offset goals and strategies of major buying countries have changed; (2) the offset requirements of these countries and how they are being satisfied; and (3) the impact of offsets and any action taken by the U.S. government.

GAO found that: (1) demands for offsets in foreign military procurement have increased in selected countries; (2) countries that previously pursued offsets are now demanding more; (3) countries are requiring more technology transfer, higher offset percentages, and higher local content requirements to offset their foreign military purchases; (4) further, countries that previously did not require offsets now require them as a matter of policy; (5) the offset strategies of many countries in GAO's study now focus on longer term offset deals and commitments; (6) this shift highlights these countries' use of offsets as a tool in pursuing their industrial policy goals; (7) the types of offset projects sought or required by buyer countries in GAO's review depend on their offset program goals, which in turn are driven by their industrial and economic development needs; (8) companies are undertaking a broad array of activities to satisfy offset requirements; (9) countries with established defense industries are using offsets to help channel work to their defense companies; (10) countries with developing defense and commercial industries pursue both defense- and nondefense-related offsets that emphasize the transfer of high technology; (11) countries with less industrialized economies often pursue indirect offsets as a way to encourage investment and create viable commercial businesses; (12) views on the impact of offsets on the U.S. economy and specific industries are divided; (13) measuring the impact of offsets on the economy as well as specific defense industries is difficult without reliable data; (14) the Department of Commerce is currently gathering additional information on the impact of offsets and is expected to issue a report in 1996; (15) to date, the executive branch agencies have consulted with other countries about certain offsets associated with individual defense procurements, but have not had an interagency team hold the broad-ranging discussions on the ways to limit the adverse impacts of offsets as called for in a 1990 presidential policy statement; (16) according to the Commerce Department, industry is not opposed to the initiation of consultations, but is concerned about unilateral U.S. government actions to limit the use of offsets; and (17) moreover, representatives from several defense companies expressed doubt about the government being able to enforce restrictions on offsets.

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