Offsets / compensation benefits

Offsets are understood to be some form of industrial compensation when buying defence technology products and/or relevant services, both in transactions between national governments and between the industry and a national government. Compensation benefits may involve sub-contracting, licensing, technology transfer, investment and joint ventures between the seller and the purchasing country. Offsetting consists of a defined obligation on the part of the supplier that is laid down as fringe benefits in an offset agreement which is associated with the supply contract, but is an independent agreement. A distinction is made between direct and indirect forms of offsetting. So “offset” can be used as a synonym for any kind of compensation claimed.

The BDSV works in close co-operation with the Deutschen Kompensationsforum (DKF) in the area of offsets / compensation benefits.

Defining the problem

The German security and defence industry is a technological leader and is successfully involved in international co-operation projects. Its export share is almost 70%. Therefore, the industry sees itself faced with expansive (up to 300%) offset claims from European and non-European countries. Suppliers and SMEs are sometimes unable to fulfil the required offset obligations.

  • Offset agreements are unacceptable from a regulatory and economic perspective. They distort competition and make it more difficult, increase the price of procurement and have a regulatory and protectionist effect. They also violate the fundamental principles of the market economy and the EU Treaty establishing a single, common and free market.
  • The German government is committed to abolishing offset deals. As a consequence, Germany, like only a few other states, does not generally claim offset benefits.
  • In many countries, procurement decisions are made on the basis of not only the price and the technology but also the offset benefits offered. Offset benefits play an important role and may under certain circumstances be key to the awarding of a contract. Purchasing countries acquire their know-how and high technology through offsetting, use their own industry sectors to capacity and build new capacities. High technology is then transferred abroad, value is created elsewhere and jobs are moved out of the country. At the same time the forced transfer of technology results in new, redundant industrial capacities being developed and above all in the German supplies industry being weakened.

Need for action

  • Our ultimate objective must be the complete global elimination of all offset obligations in defence deals. What is needed here is a harmonised approach amongst all countries.
  • Competition distortions that work to the detriment of the German security and defence industry at a European level must become a thing of the past.
  • Until offsetting and compensation rules are completely abolished, offset benefits must only be granted in accordance with the applicable EU laws.
  • Offsetting must remain on the agenda. This is also the case for the further development of the Code of Conduct on Offsets and the coherent implementation of the Defence Package.