EU Governments Agree Voluntary Code of Conduct on Offsets

 (Source: European Defense Agency; issued October 24, 2008)

The Steering Board of the European Defence Agency agreed a voluntary Code of Conduct on Offsets in order to evolve towards more transparent use of offsets that can also help shape the European Defence Technological and Industrial Base, whilst reducing reliance on them.The Code applies to all compensation practices required as a condition of purchase or resulting from a purchase of defence goods or defence services and will take effect from 1 July 2009.

The key principles underlying the Code acknowledge that in a perfectly functioning market offset would not exist. Nevertheless, today’s defence market is not perfect and strongly influenced by political considerations. Moreover, offsets are a global phenomenon that is unlikely to abate in the foreseeable future. Hence, while addressing offset on the EU level, cognisance will need to be taken of global practices and effects on European industry’s global competitiveness.

“This a breakthrough decision and a first step in dealing with a very complex issue, knowing that offset is not the only market distortion. We are therefore in parallel working towards the creation of market conditions and a European industry in which offsets may no longer be needed. But, considering the present structure of the European industry and that our market opening efforts are still in their beginning, we need for the short term to focus, on evolving offsets, whilst starting to mitigate the adverse impact they have on cross-border competition.” said Alexander Weis, the EDA Chief Executive.

Member States subscribing to the Code will neither require nor accept offsets exceeding the value of the procurement contract. Recognising also the need to adjust national policies to this provision, National Armament Directors agreed to defer the application of the 100% ceiling until 15 October 2010. “Offset often represents significant additional cost to the customer, which constrains already heavily-committed defence budgets. We simply cannot afford it. By limiting offset to 100% we want to see defence acquisition budgets focused on what they should be focused on, that is equipping our Armed Forces with the military capabilities they need and not the ones with the highest offset offer.” added Alexander Weis.

The Code of Conduct on Offsets also sets out a framework for increased transparency on national offset practices and underpinning policies and for using offset to help develop industrial capabilities that are capability driven, world class competent and globally competitive. As a result, offsets will help shape the aspired EDTIB, notably by facilitating the development of globally competitive Centres of Excellence, developing depth and diversity including Small- and Medium-sized companies and avoiding unnecessary duplication.