Defense Trade: Observations on Issues Concerning Offsets

Defense offsets are the full range of industrial and commercial benefits that firms provide to foreign governments as inducements or conditions for the purchase of military goods and services. The U.S. government has maintained a "hands off" policy toward defense offsets, viewing them as part of the transaction between the contracting parties. However, offsets are one of the many factors contributing to the globalization of the U.S. industrial base. This testimony presents GAO's observations on (1) the impact of offsets, (2) trends in defense offsets, and (3) the quality and extent of information currently available concerning offsets. Views on the effects of offsets are divided between those who believe that they are both positive and an unavoidable part of doing business overseas and those who believe that they harm the U.S. industrial base. Recently, countries buying U.S. defense items have become increasingly sophisticated in their offset demands. Finally, identifying the effect of offsets on industrial sectors or the U.S. economy as a whole is difficult.